As filed with the Securities and Exchange Commission on December 1, 1997
Securities Act File No. 33-20827
Investment Company Act File No. 811-5518
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Pre-Effective Amendment No. __
Post-Effective Amendment No. 49 x
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 51 x
---------------------
THE RBB FUND, INC.
(Government Securities Portfolio: RBB 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 Advisor 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; NI Larger Cap Value Fund: NI
Class; Boston Partners Large Cap Value Fund: Boston Partners Advisor Class,
Boston Partners Institutional Class and Boston Partners Investor Class; Boston
Partners Mid Cap Value Fund: Boston Partners Institutional Class and Boston
Partners Investor Class; Boston Partners Bond Fund: Boston Partners
Institutional Class and Boston Partners Investor Class; Money Market Portfolio:
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: 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; Government Obligations
Money Market Portfolio: Sansom Street Class, Bedford 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 MICHAEL P. MALLOY, ESQUIRE
PNC Bank, National Association Drinker Biddle & Reath LLP
1600 Market Street, 28th Floor 1100 PNB Building
Philadelphia, PA 19103 1345 Chestnut Street
(Name and Address of Agent for Service) Philadelphia, PA 19107-3496
It is proposed that this filing will become effective (check appropriate box)
x immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
13. Investment Objectives and Policies....................... Investment Objective 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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
<S> <C>
PART C OTHER INFORMATION
</TABLE>
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.
(RBB Shares of the Government Securities Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
Part A PROSPECTUS
<S> <C> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; 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; and Net
Asset Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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 Fund Shares"
20. Tax Status............................................... Taxes; See Prospectus - "Taxes"
21. Underwriters............................................. Portfolio Transactions
22. Calculation of Performance Data ......................... Performance Information
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.
(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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value; Shareholder Servicing
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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;
Shareholder Servicing
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Cover Page
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C. OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
13. Investment Objectives and Policies....................... Investment Objective 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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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
Municipal Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
Part A PROSPECTUS
<S> <C> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights .................................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<C> <S> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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.
(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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Cover Page
3. Financial Highlights Information......................... Financial Highlights
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights Information......................... Inapplicable
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights Information......................... Inapplicable
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C . OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights Information......................... Inapplicable
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights Information......................... Inapplicable
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights Information......................... Inapplicable
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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
<C> <S> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights Information......................... Inapplicable
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performance Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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> <C>
1. Cover Page............................................... Cover Page
2. Synopsis................................................. Introduction
3. Financial Highlights Information......................... Inapplicable
4. General Description of Registrant........................ Cover Page; Investment
Objectives 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; Net Asset
Value
8. Redemption or Repurchase................................. Purchase and Redemption of Shares
- Redemption of Shares; Net Asset
Value
9. Legal Proceedings........................................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
10. Cover Page............................................... Cover Page
11. Table of Contents........................................ Contents
12. General Information and History.......................... General; See Prospectus -
"Introduction"
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............................................. Portfolio Transactions
22. Calculation of Yield Quotations.......................... Performace Information
23. Financial Statements..................................... Financial Statements
PART C OTHER INFORMATION
</TABLE>
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
(BOSTON PARTNERS INSTITUTIONAL CLASS OF
THE BOSTON PARTNERS LARGE CAP VALUE FUND)
CROSS REFERENCE SHEET
---------------------
FORM N-1A ITEM LOCATION
- -------------- --------
Part A Prospectus
1. Cover Page........................... Cover Page
2. Synopsis............................. Introduction
3. Condensed Financial Information...... Not Applicable
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; Multi Class
Structure; Description of Shares
7. Purchase of Securities Being Offered. How to Purchase Shares; Net Asset
Value
8. Redemption or Repurchase............. How to Redeem and Exchange Shares;
Net Asset Value
9. Legal Proceedings.................... Inapplicable
<PAGE>
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
18. Capital Stock and Other Securities... Additional Information Concerning
Fund Shares; See Prospectus -
"Dividends and Distributions"
"Multi Class Structure" 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 and
Exchange Shares" and "Distribution
of Fund Shares"
20. Tax Status........................... Taxes; See Prospectus - "Taxes"
21. Underwriters......................... Portfolio Transactions
22. Calculation of Performance Data...... Performance Information
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.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS ADVISOR CLASS OF
THE BOSTON PARTNERS LARGE CAP VALUE FUND)
CROSS REFERENCE SHEET
---------------------
FORM N-1A ITEM LOCATION
- -------------- --------
Part A Prospectus
1. Cover Page.......................... Cover Page
2. Synopsis............................ Introduction
3. Condensed Financial Information..... Not Applicable
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; Multi Class
Structure; Description of Shares
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
<PAGE>
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
18. Capital Stock and Other Securities... Additional Information Concerning
Fund Shares; See Prospectus -
"Dividends and Distributions"
"Multi Class Structure" 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......................... Portfolio Transactions
22. Calculation of Performance Data...... Performance Information
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.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INVESTOR CLASS OF
THE BOSTON PARTNERS LARGE CAP VALUE FUND)
CROSS REFERENCE SHEET
---------------------
FORM N-1A ITEM LOCATION
- -------------- --------
Part A Prospectus
1. Cover Page.......................... Cover Page
2. Synopsis............................ Introduction
3. Condensed Financial Information..... Not Applicable
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; Multi Class
Structure; Description of Shares
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
<PAGE>
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
18. Capital Stock and Other Securities... Additional Information Concerning
Fund Shares; See Prospectus -
"Dividends and Distributions"
"Multi Class Structure" 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......................... Portfolio Transactions
22. Calculation of Performance Data...... Performance Information
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.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INSTITUTIONAL CLASS OF
THE BOSTON PARTNERS MID CAP VALUE FUND)
CROSS REFERENCE SHEET
---------------------
FORM N-1A ITEM LOCATION
- -------------- --------
Part A Prospectus
1. Cover Page.......................... Cover Page
2. Synopsis............................ Introduction
3. Condensed Financial Information..... Not Applicable
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; Multi Class
Structure; Description of Shares
7. Purchase of Securities Being Offered How to Purchase Shares; Net Asset
Value
8. Redemption or Repurchase............ How to Redeem and Exchange Shares;
Net Asset Value
9. Legal Proceedings................... Inapplicable
<PAGE>
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
18. Capital Stock and Other Securities... Additional Information Concerning
Fund Shares; See Prospectus -
"Dividends and Distributions"
"Multi Class Structure" 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 and
Exchange Shares" and "Distribution
of Fund Shares"
20. Tax Status........................... Taxes; See Prospectus - "Taxes"
21. Underwriters......................... Portfolio Transactions
22. Calculation of Performance Data...... Performance Information
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.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INVESTOR CLASS OF
THE BOSTON PARTNERS MID CAP VALUE FUND)
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
- -------------- --------
Part A Prospectus
1. Cover Page.......................... Cover Page
2. Synopsis............................ Introduction
3. Condensed Financial Information..... Not Applicable
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; Multi Class
Structure; Description of Shares
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
<PAGE>
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
18. Capital Stock and Other Securities... Additional Information Concerning
Fund Shares; See Prospectus -
"Dividends and Distributions"
"Multi Class Structure" 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......................... Portfolio Transactions
22. Calculation of Performance Data...... Performance Information
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
<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........................................................... 7
INVESTMENT LIMITATIONS............................................. 12
MANAGEMENT......................................................... 13
DISTRIBUTION OF SHARES............................................. 17
HOW TO PURCHASE SHARES............................................. 17
HOW TO REDEEM SHARES............................................... 21
NET ASSET VALUE.................................................... 23
DIVIDENDS AND DISTRIBUTIONS........................................ 24
TAXES.............................................................. 24
DESCRIPTION OF SHARES.............................................. 25
OTHER INFORMATION.................................................. 27
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
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
Philadelphia, Pennsylvania
GOVERNMENT SECURITIES
PORTFOLIO
(RBB CLASS)
PROSPECTUS
DECEMBER 1, 1997
<PAGE>
THE RBB CLASS
OF THE RBB FUND, INC.
This Prospectus offers one class of shares in the Government Securities
Portfolio of The RBB Fund, Inc. (the "Fund"). The investment objective of this
portfolio is 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.
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 1,
1997, 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. The
Prospectus and Statement of Additional Information are also available
for reference, along with other related materials, on the SEC Internet
Web Site (http://www.sec.gov).
- --------------------------------------------------------------------------------
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 1, 1997
<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 twenty-two separate investment
portfolios. The class (the "RBB Class" or the "Class") of shares (the "RBB
Shares" or "Shares") offered by this Prospectus represents interests in the
Government Securities Portfolio (the "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 Portfolio. PNC Bank serves as the custodian to the
Fund. 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 $38.7 billion of assets, of which approximately $35.2
billion are mutual funds.
PFPC Inc. ("PFPC") serves as the administrator to the 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 Asset Management, Inc. ("Warburg"), serves as the
Fund's distributor.
INVESTMENT PORTFOLIO
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. It 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.
-2-
<PAGE>
EXPENSE TABLE
The Fee Table below contains a summary of annual operating expenses
incurred by the RBB Shares of the Portfolio (after fee waivers and expense
reimbursements) for the fiscal year ended August 31, 1997, as a percentage of
average daily net assets. An example based on the summary is also shown.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as percentage of offering price)...................................... 4.75%
ANNUAL FUND OPERATING EXPENSES (RBB CLASS)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after
waivers)(1)........................................................... 0%
12b-1 Fees(1).......................................................... .40%
Other Expenses (after
waivers)(1)........................................................... .30%
Total Fund Operating Expenses (after
waivers)(1)........................................................... .70%
===
(1) Management Fees and 12b-1 Fees are each based on average daily net assets
and are calculated daily and paid monthly. Before expense reimbursements
and waivers for the Portfolio, Management Fees would be .40%, Other
Expenses would be 1.35%, and Total Fund Operating Expenses would be 2.15%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in
the Portfolio, assuming (1) a 5% annual return, and (2) redemption at the end of
each time period:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
Government Securities $54* $69* $85* $130*
* Reflects the imposition of the maximum sales charge at the beginning of
the period.
-3-
<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" 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. Long-term shareholders of this
Portfolio may pay more than the economic equivalent of the maximum front end
sales charge permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that a holder of RBB Shares in the Portfolio 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 the Portfolio.
However, there can be no assurance that any future waivers of Management Fees
(if any) 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. The expense figures are based on actual costs and fees
charged to the Portfolio.
OFFERING PRICE
RBB Shares 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.
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS
The minimum initial investment for RBB Shares is $1,000. Subsequent
investments must be $100 or more. See "How to Purchase Shares."
REDEMPTION
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 consisting of RBB
Shares 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."
-4-
<PAGE>
CERTAIN FACTORS TO CONSIDER
An investment in the Portfolio 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 the Portfolio will achieve its objective.
The Portfolio, to the extent set forth under "Investment Objectives and
Policies," engages 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 involving certain special risks, as set forth under
"Investment Objectives and Policies." Investment methods described in this
Prospectus are among those which the Portfolio has the power to utilize. Some
may be employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular method or technique carries no implication that it
will be utilized or, if it is, that it will be successful.
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 Class of the Government Securities Portfolio for
the periods indicated. The financial data included in this table for each of the
periods ended August 31, 1993 through August 31, 1997 are part of the Fund's
financial statements for the Portfolio, which are incorporated by reference into
the Statement of Additional Information and have been audited by Coopers &
Lybrand L.L.P. ("Coopers"), the Fund's independent accountants. The financial
data for the Portfolio for the periods ending August 31, 1989, 1990, 1991 and
1992 are a part of previous financial statements audited by Coopers. Further
information about the performance of the Portfolio is available in the Annual
Report to Shareholders. The financial data should be read in conjunction with
the financial statements and notes thereto. Both the Statement of Additional
Information and the Annual Report to Shareholders may be obtained free of charge
by calling the telephone number on Page 1 of this Prospectus.
-5-
<PAGE>
THE RBB CLASS
GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS(e)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 1, 1991
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 OF OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period....................... $ 9.04 $ 9.54 $ 9.69 $ 10.73 $ 10.46 $ 10.12 $ 10.00
-------- -------- -------- --------- --------- ---------- ---------
Income from investment operations:
Net investment income....... 0.8744 0.5220 0.5819 0.5931 0.7080 0.8002 0.0737
Net gains (losses) on
securities (both
realized and unrealized).. 0.1346 (0.2540) 0.0361 (0.8651) 0.3300 0.3408 0.1213
-------- -------- -------- --------- --------- ---------- ---------
Total from investment
operations 1.0090 0.2680 0.6180 (0.2720) 1.0380 1.1410 0.1950
-------- -------- -------- --------- --------- ---------- ---------
Less distributions
Dividends (from net
investment income)......... (0.8744) (0.5220) (0.5819) (0.5901) (0.7080) (0.8010) (0.0750)
Distributions (from excess
of net investment income).. -- -- -- (0.0235) -- -- --
Return of capital .......... (0.3046) (0.2460) (0.1861) (0.1544) (0.0600) -- --
-------- -------- -------- --------- --------- ---------- ---------
Total distributions........ (1.1790) (0.7680) (0.7680) (0.7680) (0.7680) (0.8010) (0.0750)
-------- -------- -------- --------- --------- ---------- ---------
Net asset value,
end of period ............... $ 8.87 $ 9.04 $ 9.54 $ 9.69 $ 10.73 $ 10.46 $ 10.12
======== ======== ======== ========= ========= ========== =========
Total return ................... 9.39%(d) 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) $6,737 $ 8,785 $ 10,514 $54,938 $ 36,296 $25,604 $ 28,225
Ratios of expenses to average
net assets.................. 0.70%(a) .70%(a) .72%(a) .64%(a) .66%(a) .83%(a) 1.10%(a)(b)
Ratios of net investment income
to average net assets ...... 6.18% 6.05% 6.59% 5.86% 6.70% 7.81% 8.50%(b)
Portfolio turnover rate....... 26% 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
2.15%, 2.05%, 1.22%, 1.10%. 1.22% and 1.22% for the years ended August 31,
1997, 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>
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. There is no assurance that the investment objective of the Portfolio
will be achieved.
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. Government 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. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
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) in 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.
-7-
<PAGE>
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 and futures contracts are discussed below.
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 or 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.
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
liquid assets 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.
-8-
<PAGE>
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
-9-
<PAGE>
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.
The Portfolio intends to comply with the regulations of the Commodity
Futures Trading Commission exempting the Portfolio from registration as a
"commodity pool operator."
SHORT SALES. The Portfolio may only make short sales of securities
"against-the-box." A short sale is a transaction in which a Portfolio sells a
security it does not own in anticipation that the market price of that security
will decline. The Portfolio may make short sales as a form of hedging to offset
potential declines in long positions in similar securities. In a short sale
"against-the-box," at the time of sale, the Portfolio owns or has the immediate
and unconditional right to acquire the identical security at no additional cost.
When selling short "against-the-box," a portfolio forgoes an opportunity for
capital appreciation in the security.
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 13
-10-
<PAGE>
months, provided the repurchase agreement itself matures in less than 13 months.
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.
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. 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 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 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.
-11-
<PAGE>
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Portfolio may not change the following investment limitations (with
certain exceptions, as noted below) without shareholder approval. (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.")
The 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 total assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (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
-12-
<PAGE>
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 Portfolio has complied with limitation 3 above,
the value of options and futures will not be taken into account.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Directors. The Fund currently operates or
proposes to operate twenty-two separate investment portfolios. The RBB Family
Class represents interests in the Government Securities 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 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 $38.7 billion of assets, of
which approximately $35.2 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 Portfolio, PIMC is responsible for overall management of
the Portfolio, and is responsible for all purchases and sales of portfolio
securities for the Portfolio. PIMC also assists generally in supervising the
operations of the Portfolio,
-13-
<PAGE>
maintains the Portfolio's financial accounts and records, and computes the
Portfolio's net asset value and net income.
Robert J. Morgan is responsible for the day-to-day portfolio management of
the Portfolio. Mr. Morgan is Assistant Vice President with PIMC, where he has
been employed since 1988. Previously, he was a Portfolio Manager with CoreStates
Financial Corp.
For the services provided and expenses assumed by it, PIMC is entitled to
receive the following fees, computed daily and payable monthly based on the
Portfolio's average daily net assets: .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 the Portfolio. 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 fiscal year ended August 31, 1997, PIMC waived all investment
advisory fees payable to it with respect to the Portfolio.
ADMINISTRATOR
PFPC serves as administrator to the Portfolio. PFPC is an indirect,
wholly-owned subsidiary of PNC Bank Corp. PFPC generally assists the 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 and payable monthly at an annual rate of .10%
of the Portfolio's average daily net assets. For the fiscal year ended August
31, 1997, PFPC waived all administration fees payable to it with respect to the
portfolio. PFPC's principal business address is 400 Bellevue Parkway,
Wilmington, Delaware 19809.
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 Portfolio. The services provided and the fees payable by
the Fund for these services are
-14-
<PAGE>
described in the Statement of Additional Information under "Investment Advisory,
Distribution and Servicing Arrangements."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned subsidiary
of Warburg Pincus Asset Management, Inc. ("Warburg"), with a principal business
address at 466 Lexington Avenue, New York, New York, acts as Distributor for the
Portfolio pursuant to a distribution agreement and various supplements thereto
(collectively, the "Distribution Agreement").
EXPENSES
The expenses of the Portfolio are deducted from its total income before
dividends are paid. 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. The RBB Class of the Fund pays its own
distribution fees, and may pay a different share than other classes of the Fund
of other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the RBB Class or if it receives
different services.
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, 1997, the Fund's total expenses
were 2.15% of the average daily net assets of the RBB Class of the Portfolio
(not taking into account waivers and reimbursements of 1.45%).
PORTFOLIO TRANSACTIONS
The Portfolio's adviser may consider a number of factors in determining
which brokers to use in purchasing or selling the 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 Portfolio may be effected through Authorized Dealers,
subject to the requirements of best execution. The Portfolio may enter into
brokerage transactions with and pay brokerage commissions to brokers that are
affiliated persons (as such term
-15-
<PAGE>
is defined in the 1940 Act) provided that the terms of the brokerage
transactions comply with the provisions of the 1940 Act.
-16-
<PAGE>
THE RBB CLASS NEW ACCOUNT APPLICATION
Mail completed application to:
PFPC - Attention: The RBB Class, P.O. Box 8950,
Wilmington, DE 19899
<TABLE>
<CAPTION>
========================================================================================================================
<S> <C> <C> <C>
1 --------------------------------------------------- [ ] Individual
REGISTRATION PLEASE PRINT
[ ] Joint Tenant
---------------------------------------------------
Owner [ ] Custodian
--------------------------------------------------- [ ] UGMA___(state)
Co-owner*, minor, trust
[ ] Trust
---------------------------------------------------
Street Address [ ] Corporation
--------------------------------------------------- [ ] Other___________
City State Zip Code
---------------------------------------------------
*For joint registration, both must sign. The
registration will be as joint tenants with the
right of survivorship and not as tenants in common,
unless otherwise stated.
- ------------------------------------------------------------------------------------------------------------------------
2 Enclosed is my check for $_________ (minimum of $1,000 per portfolio)
INVESTMENTS made payable to "The RBB Class"
GOVERNMENT SECURITIES PORTFOLIO $ . My account
being established with this application qualifies
for a reduced sales charge with one of the
following privileges:
[ ] RIGHT OF ACCUMULATION - I agree for Right
of Accumulation reduced sales charge based
on the following accounts in the RBB Class
--------------------------------- ----------------------------------
Portfolio Account No.
[ ] LETTER OF INTENT - I agree to the Letter of Intent provisions in
the prospectus. I plan to invest during a 13-month period a
dollar amount of at least $___________. ($100,000 minimum)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
3 Under penalties of perjury, I certify with
TAXPAYER my signature below that the number shown in this
IDENTIFICATION section of the application is my correct
taxpayer identification number and that I am not
subject to backup withholdings as a result of a
failure to report all interest or dividends, or
the Internal Revenue Service has notified me
that I am no longer subject to backup
withholding.
If you are subject to backup withholding, check
the box in front of the following statement.
[ ] The Internal Revenue Service has notified
me that I am subject to backup
withholding.
--------------------------- or ---------------------- or
(Owner's Social Security #) (Tax Identification #)
---------------------------
(Minor's Social Security #)
- ------------------------------------------------------------------------------------------------------------------------
4 A. DIVIDEND ELECTION
OPTIONS Unless you elect otherwise, all dividends and
capital gains distributions will be automatically
reinvested in additional shares. If you prefer to
be paid in cash each month check the appropriate
box below. Pay all:
[ ] dividends and capital gains in cash.
[ ] dividends in cash and reinvest capital gains.
[ ] capital gains in cash and reinvest dividends.
[ ] I request the above distributions be sent to the special payee
whose address is specified in Section B below.
- ------------------------------------------------------------------------------------------------------------------------
B. SYSTEMATIC WITHDRAWAL
Systematic withdrawal plan minimum account of $10,000 in shares at the current
offering price. Minimum withdrawal $100. Each withdrawal redemption will be
processed about the 25th of the month and mailed as soon as possible thereafter.
SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THE SYSTEMATIC
WITHDRAWAL PLAN BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL WITHDRAWAL
REQUESTS.
Start (month)___________________ $(amount)_______________
[ ] Monthly [ ] Quarterly [ ] Semi-annually [ ] Annually
- ------------------------------------------------------------------------------------------------------------------------
Provide the following information only if distribution or withdrawal checks are
to be payable to a person or organization different than as registered.
Name of Bank or Individual:____________________________________________________
Bank Account # (if applicable)_________________________________________________
Street________________________ City___________________ State_______ Zip________
- ------------------------------------------------------------------------------------------------------------------------
C. AUTOMATIC INVESTING
This program provides for investments to be made automatically, by authorizing
PFPC to withdraw funds from your bank account. An initial minimum investment of
$1,000, and subsequent investment of at least $100 are required. The program
requires additional information so that PFPC may contact your bank to make sure
the arrangement is properly established. This may not be used with a Systematic
Withdrawal Program.
[ ] Check here and the proper form will be sent to you.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
5 Citizenship: [ ] U.S. [ ] Other__________________
SIGNATURES Please provide Phone Number (___)__________________
Sign below exactly as printed in Registration. I
(we) am (are) of legal age and have read the
prospectus. I (we) hereby certify that each of the
persons listed below has been duly elected, and is
now legally holding the office set below his name
and has the authority to make this authorization.
Please print titles below if signing on behalf of a
business or trust.
NOTE: YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE
BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY
SUBJECT TO BACKUP WITHHOLDING BECAUSE YOU HAVE
FAILED TO REPORT ALL INTEREST AND DIVIDENDS ON YOUR
TAX RETURN. THE INTERNAL REVENUE SERVICE DOES NOT
REQUIRE YOUR CONSENT TO ANY PROVISIONS OF THIS
DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO
AUDIT BACKUP WITHHOLDING.
---------------------------------------------------
Signature
---------------------------------------------------
(President, Trustee, General Partner or Agent)
---------------------------------------------------
Signature
---------------------------------------------------
(Co-owner, Secretary of Corporation, Co-trustee,
etc.)
- --------------------------------------------------------------------------------
6 MUST BE COMPLETED BY DEALER
INVESTMENT
DEALER ---------------------------------------------------
Firm Name
---------------------------------------------------
Branch Street Address
---------------------------------------------------
Representative's Signature
---------------------------------------------------
Representative's name (print)
---------------------------------------------------
Representative Number
---------------------------------------------------
Date
================================================================================
<PAGE>
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and a Plan of Distribution for the Portfolio (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 under the Plan is agreed upon
by the Fund's Board of Directors and by the Distributor. Under the Distribution
Agreement, the Distributor has agreed to accept compensation for its services
thereunder and under the Plan in the amount of .40% 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 "SEC"), the Distributor
has agreed to waive its fee with respect to the Class on any day to the extent
necessary to ensure that the fee required to be accrued by the Class does not
exceed the income of the 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 Class, the
Distributor may reallocate up to all of the compensation it receives for its
services under the Distribution Agreement and the Plan to Authorized Dealers,
based upon the aggregate investment amounts maintained by customers of such
Authorized Dealers in the Portfolio. 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 Portfolio 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 Fund the fee agreed to under the
Distribution Plan. Payments under the Plan are not tied exclusively to expenses
actually incurred by the Distributor, and the payments may exceed distribution
expenses actually incurred.
HOW TO PURCHASE SHARES
GENERAL
Shares representing interests in the Portfolio are offered continuously for
sale by the Distributor and may be purchased
17
<PAGE>
through Authorized Dealers. Shares representing interests in the Portfolio 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 Shares may be effected
through an Authorized Dealer or by mailing a check or Federal Reserve Draft,
payable to the order of "The RBB Class" to The RBB Class, c/o PFPC, P.O. Box
8916, Wilmington, Delaware 19899. The name of the Portfolio for which Shares are
being purchased must also appear on the check or 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 the 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.
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, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and the preceding Friday or subsequent Monday
when one of these holidays falls on Saturday or Sunday. Shares are offered at
the next determined net asset value per share, plus a sales load as described
below.
The price paid for Shares purchased 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 a purchase order is received in good order by
the Fund's transfer agent. 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. On any Business Day, 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
18
<PAGE>
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 Shares at various investment levels. Sales charges are reduced on
a graduated scale on single purchases of Shares of $100,000 or more. Sales
charges are imposed regardless of whether 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.
<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 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 and to purchases made
under a Letter of Intent or pursuant to the Right of Accumulation, both of which
are described below.
19
<PAGE>
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value
of an investor's existing Shares may be combined with the amount of the
investor's current purchase of Shares in determining the sales charge. IN ORDER
TO RECEIVE THE CUMULATIVE QUANTITY REDUCTION, PREVIOUS PURCHASES OF 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 Shares immediately by signing a nonbinding Letter of Intent stating
the investor's intention to invest in 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 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 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.
The following persons associated with the Fund, the Distributor, Warburg,
or PIMC, PNC Bank or PFPC may buy 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 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
20
<PAGE>
part of the purchase program). In addition, Warburg may purchase 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 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.
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 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
Portfolio at any time. To do so, a written request in proper form must be sent
directly to The RBB Class, 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 may be obtained from a domestic bank or
trust company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
21
<PAGE>
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 Shares 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.
SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan for the Portfolio 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 Portfolio 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 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 transaction showing the sources of the payment and the
share and cash balance remaining in your plan. The plan may be terminated
22
<PAGE>
on written notice by the shareholder or by the Fund with respect to the
Portfolio 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 the
Portfolio at any time the net asset value of the account in such Portfolio falls
below $500 as the result of a redemption request. Shareholders will be notified
in writing that the value of their account in a Portfolio 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 of each class of the Portfolio is calculated as of the
close of regular trading on the NYSE on each Business Day. The net asset value
for each class of a portfolio is calculated by adding the value of the
proportionate interest of the class in the portfolio's securities, cash and
other assets, deducting the actual and accrued liabilities of the class and
dividing the result by the total number of outstanding shares of the class. The
net asset value of each class is calculated separately from each other class.
Valuation of securities held by the 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-
23
<PAGE>
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.
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.
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 Portfolio unless a shareholder elects otherwise.
The Portfolio 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 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, it 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
24
<PAGE>
any, of the Portfolio, and out of the portion of such net capital gain that
constitutes mid-term capital gain, will be taxed to shareholders as long-term
capital gain or mid-term capital gain, as the case may be, 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
current nominal maximum marginal rate on ordinary income for individuals, trusts
and estates is generally 39% while the maximum rate imposed on mid-term and
other long-term capital gain of such taxpayers is 28% and 20%, respectively.
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.
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.
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. Under certain provisions
of the Code, some shareholders may be subject to a 31% "backup" withholding tax
on reportable dividends, capital gains distributions and redemption payments.
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.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 13.93 billion shares are currently
classified into 82 different classes of Common Stock (see "Description of
Shares" in the Statement of Additional Information).
25
<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 RBB Class. Otherwise, no exchanges between Families or classes are
permitted.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE GOVERNMENT SECURITIES PORTFOLIO OF THE RBB CLASS
AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THIS PORTFOLIO.
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.
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 15, 1997, 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.
26
<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) 430-9618.
PERFORMANCE INFORMATION
From time to time, the 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 the Portfolio's maximum sales charge, over one,
five and ten year periods or, if such periods have not yet elapsed, shorter
periods corresponding to the life of the 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 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 the Portfolio's performance with other measures of investment return.
For example, the 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
the 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.
27
<PAGE>
From time to time, the Portfolio may also advertise its "30- day yield."
The yield of the Portfolio refers to the income generated by an investment in
the Portfolio over the 30-day period identified in the advertisement, and is
computed by dividing the net investment income per share earned by the 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.
The yield on Shares of the Portfolio 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 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 shareholders on their
investments. The yield on Shares of the RBB 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."
28
<PAGE>
THE RBB FAMILY
GOVERNMENT SECURITIES 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 "RBB Shares" or
the "Shares") representing interests in one investment portfolio (the
"Portfolio") of The RBB Fund, Inc. (the "Fund"): the Government Securities
Portfolio. This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the RBB Prospectus of the Fund, dated
December 1, 1997 (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 1, 1997.
CONTENTS
Prospectus
Page Page
---- ----------
General............................................. 2 2
Investment Objectives and Policies.................. 2 7
Directors and Officers.............................. 13 N/A
Investment Advisory, Distribution
and Servicing Arrangements........................ 18 13,17
Portfolio Transactions.............................. 24 N/A
Purchase and Redemption Information................. 25 17,21
Valuation of Shares................................. 26 23
Performance and Yield Information................... 27 N/A
Taxes............................................... 30 24
Additional Information Concerning Fund
Shares............................................ 38 25
Miscellaneous....................................... 42 N/A
Financial Statements ............................... 53 N/A
Appendix A.......................................... A-1 34
Appendix B.......................................... B-1
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 twenty-two
separate investment portfolios. This Statement of Additional Information
pertains to one class of shares (the "RBB Class") representing interests in one
of the investment portfolios (the "Portfolios") of the Fund: the Government
Securities Portfolio. The RBB Class is offered by the Prospectus dated December
1, 1997. 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 certain instruments the Portfolio may purchase is set
forth in Appendix A to the Prospectus.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
WHEN-ISSUED SECURITIES. The Portfolio may purchase
"when-issued" and delayed delivery securities which are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. While
such commitments are outstanding, the Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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
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 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.
-2-
<PAGE>
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. The
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, the Maritime Administration,
International Bank for Reconstruction and Development (the "World Bank"), the
Asian- American Development Bank and the Inter-American Development Bank.
FUTURES CONTRACTS. The Portfolio may invest in futures
contracts and options thereon. These instruments are described in Appendix "B"
hereto.
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.
-3-
<PAGE>
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 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. A Portfolio may seek to terminate its position in
a put option it writes before exercise by closing out
-4-
<PAGE>
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
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
-5-
<PAGE>
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 certain
risks, 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. 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. See
Appendix "B" for a discussion of the risks of options on futures contracts.
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 liquid
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 liquid 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.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund on
behalf of the 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 Portfolio will use commodity futures contracts and
related commodity options solely for bona fide hedging
-6-
<PAGE>
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 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 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 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.
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. 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 a Portfolio engages in a
-7-
<PAGE>
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 possibly to defer recognition of gain or loss for federal income tax
purposes. (A short sale against the box will defer recognition of gain for
federal income tax purposes only if the Portfolio subsequently closes the short
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) 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.
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 the repurchase agreement). The financial institutions with which the
Portfolio may enter into repurchase agreements will be banks 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, if such banks and non-bank dealers
are deemed creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's
adviser or sub-adviser will continue to monitor creditworthiness of the seller
under a repurchase agreement, and will require the seller to maintain during the
term of the agreement the value of the securities subject to the agreement to
equal at least the repurchase price (including accrued interest). In addition,
the Portfolio's adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
(including accrued premium) provided in the repurchase agreement. The accrued
premium is the amount specified in the repurchase agreement or the daily
-8-
<PAGE>
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser will
mark-to-market daily the value of the securities. 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
Portfolio of its portfolio securities as described in the Prospectus, the
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.
ILLIQUID SECURITIES. The Portfolio may invest up to 15% 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. 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 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.
The Portfolio may purchase securities which are not registered
under the Securities Act but which may be sold to
-9-
<PAGE>
"qualified institutional buyers" in accordance with Rule 144A under the
Securities Act. These securities will not be considered illiquid so long as it
is determined by the Portfolio's adviser that an adequate trading market exists
for the securities. This investment practice could have the effect of increasing
the level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity
of restricted securities in the 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 at fair value as
determined in good faith by the Board of Directors of the Fund. In reaching
liquidity decisions, the investment adviser may consider, among others, 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 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 total assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is
-10-
<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);
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;
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, 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
-11-
<PAGE>
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
shareholder approval.
-12-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
PRINCIPAL
OCCUPATION
DURING PAST
NAME, ADDRESS AND AGE POSITION WITH FUND FIVE YEARS
- --------------------- ------------------ ----------
Arnold M. Reichman, 49* Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer
and Assistant
Secretary, Warburg
Pincus Asset
Management, Inc.;
Director and Executive
Officer, Counsellors
Securities, Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
Robert Sablowsky, 58** Director Senior Vice
110 Wall Street President,
New York, NY 10005 Fahnestock & Co.,
Inc. (a registered
broker-dealer);
1985 to 1996,
Director and
Executive Vice
President of
Gruntal & Co.,
Inc. (a registered
broker-dealer)
Francis J. McKay, 60 Director Since 1963,
7701 Burholme Avenue Executive Vice
Philadelphia, PA 19111 President, Fox
Chase Cancer Center
(biomedical research
and medical care.)
-13-
<PAGE>
PRINCIPAL
OCCUPATION
DURING PAST
NAME, ADDRESS AND AGE POSITION WITH FUND FIVE YEARS
- --------------------- ------------------ ----------
Marvin E. Sternberg, 62 Director Since 1974,
937 Mt. Pleasant Road Chairman, Director
Bryn Mawr, PA 19010 and 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,
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 since
16th Floor 1969, Comcast
Philadelphia, PA 19107- Corporation (cable
3723 television and
communications);
Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
-14-
<PAGE>
PRINCIPAL
OCCUPATION
DURING PAST
NAME, ADDRESS AND AGE POSITION WITH FUND FIVE YEARS
- --------------------- ------------------ ----------
Donald van Roden, 72 Director and Self-employed
1200 Old Mill Lane Chairman of the businessman. From
Wyomissing, PA 19610 Board February 1980 to
March 1987, Vice
Chairman, SmithKline
Beecham Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto
service); Director,
Keystone Insurance Co.
Edward J. Roach, 73 President and Certified Public
Suite 100 Treasurer Accountant; Vice
Bellevue Park Chairman of the
Corporate Center Board of Fox Chase
400 Bellevue Parkway Cancer Center;
Wilmington, DE 19808 Trustee Emeritus,
Pennsylvania School
for the Deaf; Trustee
Emeritus, Immaculata
College; President or
Vice President and
Treasurer of various
investment companies
advised by PNC
Institutional
Management
Corporation; Director,
The Bradford Funds,
Inc.
Morgan R. Jones, 58 Secretary Chairman, the law
Drinker Biddle & firm of Drinker
Reath LLP Biddle and Reath
1345 Chestnut Street LLP; Director,
Philadelphia, PA 19107- Rocking Horse
3496 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 positions 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 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 and Mr. Sablowsky who is
considered to be an affiliated person, $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. In addition, the Chairman of the Board receives an additional
$5,000 per year for his services in this capacity. Directors who are not
affiliated persons and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
-16-
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM REGISTRANT
AGGREGATE ACCRUED AS ESTIMATED ANNUAL AND FUND
NAME OF PERSON/ COMPENSATION PART OF FUND BENEFITS UPON COMPLEX1 PAID
POSITION FROM REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- -------- --------------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
- ----------------------
<FN>
1 A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any other investment companies.
</FN>
</TABLE>
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 and one other employee)
pursuant to which the Fund will contribute on a quarterly basis amounts equal to
10% of the quarterly compensation of each eligible employee. By virtue of the
services performed by PNC Institutional Management Corporation ("PIMC"), the
Portfolio's adviser, PNC Bank, National Association ("PNC Bank"), the Fund's
custodian, and Counsellors Securities Inc. (the "Distributor"), the Fund's
distributor, the Fund itself requires only two part-time employees. Drinker
Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees as
counsel to the Fund. No officer, director or employee of PIMC, PNC Bank or the
Distributor currently receives any compensation from the Fund.
-17-
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENT. The advisory services provided by PIMC and
the fees received by it for such services are described in the Prospectus. PIMC
renders advisory services to the Portfolio pursuant to an Investment Advisory
and Administration Agreement. The Advisory Agreement relating to the Portfolio
is dated June 25, 1990. Such advisory and administration agreement is
hereinafter referred to as the "Advisory Agreement."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
================================================================================
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Government $ 0 $30,188 $71,645
Securities Portfolio
================================================================================
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
================================================================================
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Government $ 0 $39,247 $82,957
Securities Portfolio
================================================================================
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
================================================================================
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Government $ 0 $178,872 $13,188
Securities Portfolio
================================================================================
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
-18-
<PAGE>
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; (1) 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. The RBB Class of the Fund pays its own distribution fees
and may pay a different share than the other classes of the Portfolio of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the RBB Class or if it receives different
services.
Under the Advisory Agreement, PIMC 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 Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of PIMC in the performance of its duties or from reckless disregard of its
duties and obligations thereunder.
The Advisory Agreement was most recently approved for
continuation with respect to the Portfolio on July 9, 1997 by
-19-
<PAGE>
vote of the Fund's Board of Directors, including a majority of those directors
who are not parties to the Advisory Agreement or interested persons (as defined
in the 1940 Act) of such parties. The Advisory Agreement was approved with
respect to the Portfolio by shareholders of the Portfolio at a special meeting
held July 26, 1991, as adjourned. The Advisory Agreement 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. The Advisory Agreement may also be terminated
by PIMC on 60 days' written notice to the Fund. The Advisory Agreement
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 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 Shares pursuant to a Transfer
Agency Agreement dated June 29, 1990 (the "Transfer Agency Agreement"), under
which PFPC (a) issues and redeems Shares of the Portfolio, (b) addresses and
mails all communications by the Portfolio to record owners of the 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 Portfolio. PFPC may, on 30
days' notice to the Fund, assign its duties as transfer and
-20-
<PAGE>
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 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, 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 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.
ADMINISTRATION AGREEMENTS. PFPC serves as administrator to the
Portfolio pursuant to an Administration Agreement effective April 10, 1991 (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 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 Agreement, PFPC receives a fee
of .10% of the average daily net assets of the Portfolio.
-21-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
================================================================================
FEES PAID
(AFTER
PORTFOLIO WAIVERS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Government Securities Portfolio $0 $7,547 $0
================================================================================
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
================================================================================
FEES PAID
(AFTER
PORTFOLIO WAIVERS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Government Securities Portfolio $0 $9,813 $0
================================================================================
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
================================================================================
FEES PAID
(AFTER
PORTFOLIO WAIVERS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Government Securities Portfolio $28,132 $16,586 $0
================================================================================
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution agreement, dated as of April 10, 1991, and supplements
(collectively, the "Distribution Agreements") entered into by the Distributor
and the Fund on behalf of the RBB Class, and a Plan of Distribution for the RBB
Class (as amended, the "Plan") was adopted by the Fund in the manner prescribed
by Rule 12b-1 under the 1940 Act, the Distributor will use appropriate efforts
to distribute shares of the RBB Class. As compensation for its distribution
services, the Distributor receives, pursuant to the terms of the Distribution
Agreements, 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
-22-
<PAGE>
Dealers for selling shares of the Portfolio based on a percentage of the amounts
invested by their customers.
The Plan was approved 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").
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 RBB Class shall not be materially increased without the
affirmative vote of the holders of a majority of the Fund's shares in the Class;
and (4) while the Plan remains in effect, the selection and nomination of the
12b-1 Directors shall be committed to the discretion of such directors who are
not "interested persons" of the Fund. 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 positions with the Distributor. Mr. Sablowsky, a Director of the Fund,
has an indirect interest in the operation of the Plans by virtue of his position
with a broker-dealer which sells the Fund's shares.
During the year ended August 31, 1997, the Fund paid
distribution fees to the Distributor under the Plan for the RBB Class in the
aggregate amount of $30,125. Of this amount, $18,773 was paid to dealers with
whom the Fund's Distributor had entered into dealer agreements and $11,352 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
the RBB Class of the Portfolio.
The Distribution Agreement also provides 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 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 Pincus Asset Management, Inc. are not charged
any sales commissions.
-23-
<PAGE>
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 Portfolio. In executing portfolio
transactions, PIMC seeks to obtain the best net results for the 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.
The Portfolio does not have 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 the 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
Portfolio 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
-24-
<PAGE>
action desirable. Any such repurchase prior to maturity reduces 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 the Portfolio and for other
investment accounts managed by PIMC are made independently of each other in
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 Pincus Asset
Management, Inc. 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.
During the years ended August 31, 1994 through August 31,
1997, the Portfolio did not pay any brokerage commissions.
The 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. For the year ended August 31, 1997, the
Portfolio had a turnover rate of 23%. The 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 the 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,
-25-
<PAGE>
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 recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
An illustration of the computation of the public offering
price per RBB Class Share of the Portfolio, based on the value of the
Portfolio's net assets as of August 31, 1997, is as follows:
Net Assets................................................ $ 6,737,366
Outstanding Shares........................................ $759,958
Net Asset Value
Per Share............................................... $8.87
Maximum Sales Charge,
4.75% of offering
price (4.96% of net asset
value per share).......................................... $.44
Offering Price to
Public.................................................... $9.31
Total front-end sales charges paid by shareholders of RBB
Class Shares of the Portfolio for the year ended August 31, 1997 were $199.40.
A front-end sales charge will be imposed (unless an exemption
from the sales charge applies) when shares of other classes of the Fund are
redeemed and the proceeds are used to purchase RBB Class Shares of the
Portfolio.
VALUATION OF SHARES
-26-
<PAGE>
The net asset value per share of each class of the Portfolio
is calculated as of 12 noon Eastern Time and as of the close of the NYSE
(generally 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, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. 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 for each class of the Portfolio is calculated by adding the value of
the proportionate interest of the class in the Portfolio's cash, securities and
other assets, deducting the actual and accrued liabilities of the class, and
dividing the result by the number of outstanding shares of the class.
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 Portfolio 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
-27-
<PAGE>
Commission, funds advertising performance must include total return quotes
calculated according to the following formula:
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 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 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,
the 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
-28-
<PAGE>
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 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, 1997, both the average annual total return and the aggregate total
return for the Government Securities Portfolio were 4.20%. Calculated according
to the SEC rules, for the period beginning on the commencement of the
Portfolio's operations and ending August 31, 1996, the average annual total
return for the Portfolio (commencing August 1, 1991) was 5.66%. For the same
period, the aggregate total return for the Portfolio (commencing August 1, 1991)
was 39.86%.
Calculated according to the non-standardized computation,
which assumes no sales charges and reinvestment of all distributions for the
year ended August 31, 1997, both the average annual total return and the
aggregate total return for the Portfolio were 9.39%. Calculated also according
to the nonstandardized computation for the period beginning on the commencement
of the Portfolio's operations and ending on August 31, 1997, the average annual
total return for the Portfolio was 6.51%. The aggregate total return for the
Portfolio calculated according to the non-standardized computation for the
period beginning on the commencement of the Portfolio's operations and ending on
August 31, 1997 was 46.86%.
YIELD. The Portfolio may also advertise its yield. Under the
rules of the SEC, the 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.
-29-
<PAGE>
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.
The yield for the 30-day period ended August 31, 1997 for the
Portfolio was 5.40%.
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 MONEY FUND REPORT(R), 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 its 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.
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 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-
-30-
<PAGE>
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").
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 Requirement. 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 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
-31-
<PAGE>
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.
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
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.
The 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 mid-term or other 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. The Fund intends to distribute any net
long-term capital gains that may be realized by the Portfolio (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)
-32-
<PAGE>
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.
Distributions of net investment income received by the
Portfolios from investments in debt securities will be taxable to shareholders
as ordinary income and will not be treated as "qualifying dividends" for
purposes of the dividends received deduction.
The Portfolio may acquire stand-by 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
stand-by 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.
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 federal 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
-33-
<PAGE>
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.
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 to the
extent of such Portfolio's current and accumulated earnings 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 the 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 Shares exchanged for shares of another Portfolio for the purpose of
determining gain or loss on the exchange, where the Shares exchanged have been
held 90 days or less. The sales charge will increase the basis of the shares
acquired through exercise of the
-34-
<PAGE>
exchange privilege (unless the shares acquired are also exchanged for shares of
another 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 the Portfolio intends to distribute all of
its taxable income currently, it does not anticipate 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 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.
SPECIAL FEDERAL TAX CONSIDERATIONS. The following discussion
relates to the particular federal income tax consequences of the investment
policies of the Portfolio. The ability of the Portfolio to engage in options,
short sale and futures activities will be somewhat limited by the requirements
-35-
<PAGE>
for its continued qualification as a regulated investment company under the
Code, in particular the Distribution Requirement and the Asset Diversification
Requirement.
The options transactions that the Portfolio enters 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 Portfolio 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
investment company taxable income and ordinary income, the Portfolio 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
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 to a fund that
did not engage in options transactions.
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
Portfolio enters into, as well as futures transactions entered into by the
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
-36-
<PAGE>
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 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").
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 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 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
-37-
<PAGE>
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.
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
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.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 13.93 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
-38-
<PAGE>
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 Numeric Investors Micro
Cap), 50 million shares are classified as Class GG Common Stock (n/i Numeric
Investors Growth), 50 million shares are classified as Class HH Common Stock
(n/i Numeric Investors 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), 100 million shares
-39-
<PAGE>
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
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 Now 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 an 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 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.
-40-
<PAGE>
The classes of Common Stock have been grouped into fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, n/i Numeric Investors 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 BEA
Family represents interests in ten non-money market portfolios; the n/i Numeric
Investors Family represents interest in four non-money market portfolios, the
Boston Partners Family represents interest in three 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 voting 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 voting securities 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
-41-
<PAGE>
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 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 voting securities
of Common Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------------------------------------------------------------------------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
-42-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
- -----------------------------------------------------------------------------
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
- -----------------------------------------------------------------------------
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
- -----------------------------------------------------------------------------
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
- -----------------------------------------------------------------------------
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
- -----------------------------------------------------------------------------
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
- -----------------------------------------------------------------------------
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
- -----------------------------------------------------------------------------
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
- -----------------------------------------------------------------------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
-43-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- -----------------------------------------------------------------------------
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
- -----------------------------------------------------------------------------
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
- -----------------------------------------------------------------------------
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
- -----------------------------------------------------------------------------
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
- -----------------------------------------------------------------------------
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
- -----------------------------------------------------------------------------
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
- -----------------------------------------------------------------------------
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
- -----------------------------------------------------------------------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
-44-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
- -----------------------------------------------------------------------------
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
- -----------------------------------------------------------------------------
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
- -----------------------------------------------------------------------------
Charles Schwab & Co. 88.82
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- -----------------------------------------------------------------------------
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
- -----------------------------------------------------------------------------
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
- -----------------------------------------------------------------------------
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
- -----------------------------------------------------------------------------
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
- -----------------------------------------------------------------------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
-45-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
- -----------------------------------------------------------------------------
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- -----------------------------------------------------------------------------
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
- -----------------------------------------------------------------------------
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
- -----------------------------------------------------------------------------
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
- -----------------------------------------------------------------------------
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
- -----------------------------------------------------------------------------
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
- -----------------------------------------------------------------------------
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- -----------------------------------------------------------------------------
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
-46-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
- -----------------------------------------------------------------------------
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
- -----------------------------------------------------------------------------
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
- -----------------------------------------------------------------------------
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
- -----------------------------------------------------------------------------
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
- -----------------------------------------------------------------------------
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp.
Collective Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
- -----------------------------------------------------------------------------
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
- -----------------------------------------------------------------------------
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
- -----------------------------------------------------------------------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
- -----------------------------------------------------------------------------
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
-47-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
- -----------------------------------------------------------------------------
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
- -----------------------------------------------------------------------------
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
- -----------------------------------------------------------------------------
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
- -----------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- -----------------------------------------------------------------------------
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
- -----------------------------------------------------------------------------
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
- -----------------------------------------------------------------------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
-48-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- -----------------------------------------------------------------------------
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
- -----------------------------------------------------------------------------
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
- -----------------------------------------------------------------------------
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
- -----------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- -----------------------------------------------------------------------------
Chase Manhattan Bank 6.1%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
- -----------------------------------------------------------------------------
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
-49-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
- -----------------------------------------------------------------------------
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
- -----------------------------------------------------------------------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
- -----------------------------------------------------------------------------
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
- -----------------------------------------------------------------------------
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
- -----------------------------------------------------------------------------
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
- -----------------------------------------------------------------------------
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
- -----------------------------------------------------------------------------
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
-50-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
- -----------------------------------------------------------------------------
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- -----------------------------------------------------------------------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- -----------------------------------------------------------------------------
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- -----------------------------------------------------------------------------
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
- -----------------------------------------------------------------------------
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
- -----------------------------------------------------------------------------
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -----------------------------------------------------------------------------
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
-51-
<PAGE>
=============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -----------------------------------------------------------------------------
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- -----------------------------------------------------------------------------
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- -----------------------------------------------------------------------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
- -----------------------------------------------------------------------------
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
=============================================================================
As of the same 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; and as of the same date, directors and officers as a group
owned less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered
-52-
<PAGE>
bank holding company may perform services comparable to those that are to be
performed by these companies, and future changes in either federal or state
statutes and regulations relating to permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1997
(the "1997 Annual Report") are incorporated by reference into this Statement of
Additional Information. No other parts of the 1997 Annual Report are
incorporated by reference herein. The financial statements included in the 1997
Annual Report have been audited by the Fund's independent accountants, Coopers &
Lybrand, L.L.P. The reports of Coopers & Lybrand L.L.P. are incorporated herein
by reference. Such financial statements have been incorporated herein in
reliance upon such reports given upon their authority as experts in accounting
and auditing. Copies of the 1997 Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
-53-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's Ratings Service ("S&P") 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. The following summarizes
the rating categories used by S&P for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's Investor Service ("Moody's") commercial paper ratings
are opinions of the ability of issuers to repay punctually senior debt
obligations not having an original maturity in excess of one year, unless
explicitly noted. The following summarizes the rating categories used by Moody's
for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
A-1
<PAGE>
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by S&P for corporate
and municipal debt:
"AAA" - This designation represents the highest rating
assigned by S&P. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
A-2
<PAGE>
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options;
A-3
<PAGE>
and interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon
the completion of some act or the fulfillment of some condition
are rated conditionally. These are bonds secured by (a) earnings
A-4
<PAGE>
of projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
MUNICIPAL NOTE RATINGS
A S&P rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following summarizes the
ratings used by S&P Ratings Group for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality,
enjoying strong protection by established cash flows,
A-5
<PAGE>
superior liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
A-6
<PAGE>
APPENDIX B
As stated in the Prospectus, the Portfolio may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Appendix.
I. INTEREST RATE FUTURES CONTRACTS.
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Portfolio may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Portfolio presently could accomplish a similar result to
that which it hopes to achieve through the use of futures contracts by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase, or conversely, selling short-term bonds
and investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Portfolio, through
using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest
rate futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most
B-1
<PAGE>
cases the contracts are closed out before the settlement date without the making
or taking of delivery of securities. Closing out a futures contract sale is
effected by a Portfolio entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument and the same
delivery date. If the price of the sale exceeds the price of the offsetting
purchase, a Portfolio is immediately paid the difference and thus realizes a
gain. If the offsetting purchase price exceeds the sale price, a Portfolio pays
the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Portfolio entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, a Portfolio
realizes a gain, and if the purchase price exceeds the offsetting sale price, a
Portfolio realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges principally, the Chicago Board of
Trade and the Chicago Mercantile Exchange and the New York Futures Exchange. The
Portfolio would deal only in standardized contract's on recognized exchanges.
Each exchange guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the exchange
membership.
A public market now exists in futures contracts covering
various financial instruments including long-term Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month Treasury Bills; and ninety-day
commercial paper. The Portfolio may trade in any futures contract for which
there exists a public market, including, without limitation, the foregoing
instruments.
II. STOCK INDEX FUTURES CONTRACTS.
GENERAL. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks included. Some stock index futures contracts are based on broad
market indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts are
traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
The Portfolio will sell index futures contracts in order to
offset a decrease in market value of its securities that
B-2
<PAGE>
might otherwise result from a market decline. The Portfolio may do so either to
hedge the value of its portfolio as a whole, or to protect against declines,
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, the Portfolio will purchase index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the long futures position, but a long futures position may be terminated without
a corresponding purchase of securities.
In addition, the Portfolio may utilize stock index futures
contracts in anticipation of changes in the composition of its holdings. For
example, in the event that the Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
The Portfolio may also sell futures contracts in connection with this strategy,
in order to protect against the possibility that the value of the securities to
be sold as part of the restructuring of its portfolio will decline prior to the
time of sale.
III. FUTURES CONTRACTS ON FOREIGN CURRENCIES.
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by a Fund to
hedge against exposure to fluctuations in exchange rates between the U.S. dollar
and other currencies arising from multinational transactions.
IV. MARGIN PAYMENTS.
Unlike when a Portfolio purchases or sells a security, no
price is paid or received by a Portfolio upon the purchase or sale of a futures
contract. Initially, a Portfolio will be required to deposit with the broker or
in a segregated account with a Portfolio's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to a Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
B-3
<PAGE>
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instrument fluctuates making the long
and short positions in the futures contract more or less valuable, a process
known as "marking-to-market." For example, when a Portfolio has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and a
Portfolio will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Portfolio has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and a Portfolio would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the investment
adviser may elect to close the position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
Portfolio's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Portfolio, and the Portfolio realizes a loss or gain.
V. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS.
There are several risks in connection with the use of futures
by a Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, a
Portfolio would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, a Portfolio
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of securities being hedged and movements in the price of futures
contracts, a Portfolio may buy or sell futures contracts in a greater dollar
amount than the dollar amount of securities being hedged if the volatility over
a particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to be
appropriate by the investment adviser. Conversely, a Portfolio may buy or sell
fewer futures contracts if the volatility over a particular time period of the
B-4
<PAGE>
prices of the securities being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the investment adviser. It is also possible that, where a
Portfolio has sold futures to hedge its portfolio against a decline in the
market, the market may advance and the value of securities held by a Portfolio
may decline. If this occurred, a Portfolio would lose money on the future and
also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities or a currency before a Portfolio is able to
invest its cash (or cash equivalents) in securities (or options) in an orderly
fashion, it is possible that the market may decline instead; if a Portfolio then
concludes not to invest in securities or options at that time because of concern
as to possible further market decline or for other reasons, a Portfolio will
realize a loss on the futures contract that is not offset by a reduction in the
price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the investment adviser may
still not result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will
B-5
<PAGE>
exist for any particular contract or at any particular time. In such event, it
may not be possible to close a futures investment position, and in the event of
adverse price movements, the Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event futures contracts
have been used to hedge portfolio securities, such securities will not be sold
until the futures contract can be terminated. In such circumstances, an increase
in the price of the securities, if any, may partially or completely offset
losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures
contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by the Portfolios is also subject to
the investment adviser's ability to predict correctly movements in the direction
of the market. For example, if a Portfolio has hedged against the possibility of
a decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, a Portfolio will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if a Portfolio has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. A Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
VI. OPTIONS ON FUTURES CONTRACTS.
The Portfolio may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option.
B-6
<PAGE>
Upon exercise, the writer of the option is obligated to pay the difference
between the cash value of the futures contract and the exercise price. Like the
buyer or seller of a futures contract, the holder, or writer, of an option has
the right to terminate its position prior to the scheduled expiration of the
option by selling, or purchasing, an option of the same series, at which time
the person entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not be fully reflected in
the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts.
VII. ACCOUNTING AND TAX TREATMENT.
Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts held by the Portfolio at the
close of the Portfolio's taxable year will be treated for federal income tax
purposes as sold for their fair market value on the last business day of such
year, a process known as "mark-to-market." Forty percent of any gain or loss
resulting from such constructive sale will be treated as short-term capital gain
or loss and sixty percent of such gain or loss will be treated as long-term
capital gain or loss without regard to the length of time a Portfolio holds the
futures contract ("the 40-60 rule"). The amount of any capital gain or loss
actually realized by a Portfolio in a subsequent sale or other disposition of
those futures contracts will be adjusted to reflect any capital gain or loss
taken into account by a Portfolio in a prior year as a result of the
constructive sale of the contracts. With respect to futures contracts to sell,
which will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by a Portfolio,
losses as
B-7
<PAGE>
to such contracts to sell will be subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which will also be applicable, the holding period of the
securities forming part of the straddle will (if they have not been held for the
long-term holding period) be deemed not to begin prior to termination of the
straddle. With respect to certain futures contracts, deductions for interest and
carrying charges will not be allowed. Notwithstanding the rules described above,
with respect to futures contracts to sell which are properly identified as such,
a Portfolio may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for federal income tax purposes
as sold on the last business day of a Portfolio's taxable year, but gains and
losses will be subject to such short sales, wash sales, loss deferral rules and
the requirement to capitalize interest and carrying charges. Under temporary
regulations, a Portfolio would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, the 40-60 rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, no more than 50% of any net gain may be treated as long-term
and no more than 40% of any net loss may be treated as short-term. Options on
futures contracts generally receive federal tax treatment similar to that
described above.
Certain foreign currency contracts entered into by the
Portfolios may be subject to the "mark-to-market" process. If the Portfolio
makes a Capital Asset Election with respect to such contracts, the contracts
will be subject to the 40-60 rule, described above. Otherwise, such gain or loss
will be treated as 100% ordinary gain or loss. To receive such federal income
tax treatment, a foreign currency contract must meet the following conditions:
(1) the contract must require delivery of a foreign currency of a type in which
regulated futures contracts are traded or upon which the settlement value of the
contract depends; (2) the contract must be entered into at arm's length at a
price determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market. The Treasury Department has
broad authority to issue regulations under the provisions respecting foreign
currency contracts. As of the date of this Statement of Additional Information,
the Treasury has not issued any such regulations. Foreign currency contracts
entered into by a Portfolio may result in the creation of one or more straddles
for federal income tax
B-8
<PAGE>
purposes, in which case certain loss deferral, short sales, and wash sales rules
and the requirement to capitalize interest and carrying charges may apply.
Some investments may be subject to special rules which govern
the federal income tax treatment of certain transactions denominated in terms of
a currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
"mark-to-market" rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency rules.
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. It is anticipated that
some of the non-U.S. dollar denominated investments and foreign currency
contracts that a Portfolio may make or may enter into will be subject to the
special currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Portfolio which are not
subject to special currency rules (such as foreign equity investments other than
certain preferred stocks) will be treated as capital gain or loss and will not
be segregated from the gain or loss on the underlying transaction.
Under the federal income tax provisions applicable to
regulated investment companies, less than 30% of a company's gross income must
be derived from gains realized on the sale or other disposition of securities
held for less than three months. With respect to futures contracts and other
financial instruments
B-9
<PAGE>
subject to the "mark-to-market" rules, the Internal Revenue Service has ruled in
private letter rulings that a gain realized from such a futures contract or
financial instrument will be treated as being derived from a security held for
three months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the "mark-to-market" rules, and will be treated as being derived from a security
held for less than three months only if the contract or instrument is terminated
(or transferred) during the taxable year (other than by reason of the
mark-to-market rules) and less than three months have elapsed between the date
the contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of the Funds' futures contracts and other investments that qualify as part
of a "designated hedge," as defined in the Code, may be netted.
B-10
<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.
CASH PRESERVATION
----------------------- PORTFOLIOS
CONTENTS
PAGE OF
THE RBB FUND, INC.
INTRODUCTION ......................... 1
FINANCIAL HIGHLIGHTS ................. 5
INVESTMENT OBJECTIVES AND POLICIES ... 8
INVESTMENT LIMITATIONS ............... 14 MONEY MARKET PORTFOLIO
PURCHASE AND REDEMPTION OF SHARES .... 16 AND
NET ASSET VALUE ...................... 23 MUNICIPAL MONEY
MANAGEMENT ........................... 24 MARKET PORTFOLIO
DISTRIBUTION OF SHARES ............... 26
DIVIDENDS AND DISTRIBUTIONS .......... 27
TAXES ................................ 28
DESCRIPTION OF SHARES ................ 30
OTHER INFORMATION .................... 31
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
Drinker Biddle & Reath LLP Prospectus
Philadelphia, Pennsylvania December 1, 1997
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
=================================================
<PAGE>
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 the Cash Preservation Classes offered by this Prospectus represent
interests in a taxable money market portfolio and a municipal money market
portfolio. 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.
PNC Institutional Management Corporation serves as investment adviser
for these Portfolios and PNC Bank, National Association serves as sub-adviser
for the Portfolios and custodian for the Fund. PFPC Inc. serves as administrator
of the Municipal Money Market Portfolio and the transfer and dividend disbursing
agent for the Fund. Counsellors Securities Inc. acts as distributor for the
Fund.
<PAGE>
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 1, 1997, 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. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the SEC Internet Website (http://www.sec.gov).
- --------------------------------------------------------------------------------
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 1, 1997
<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. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. Each of the two classes (collectively, the "Cash
Preservation Classes") of the Fund's shares ("Cash Preservation Shares" or
"Shares") 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 (together, the "Portfolios").
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
U.S. dollar denominated instruments, such as 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 Portfolios' 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.
<PAGE>
An investor may purchase 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. 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."
An investment in either of the Cash Preservation Classes is subject to
certain risks, as set forth in detail under "Investment Objectives and
Policies." 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."
-2-
<PAGE>
FEE TABLE
The Fee Table below contains a summary of the annual operating expenses of the
Cash Preservation Classes of the Portfolios based on expenses incurred for the
fiscal year ended August 31, 1997, as a percentage of average daily net assets.
An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (CASH PRESERVATION CLASSES)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
Management Fees (after waivers)(1)................. .22% .04%
12b-1 Fees(1)...................................... .40 .40
Other Expenses (after waivers)(1).................. .33 .54
--- ---
Total Fund Operating Expenses
(Cash Preservation Classes) (after
waivers)(1)...................................... .95% .98%
=== ===
(1) Management Fees and 12b-1 Fees are based on average daily
net assets and are calculated daily and paid monthly.
Before waivers for the Money Market Portfolio and Municipal
Money Market Portfolio, Management Fees would be .37% and
.33%, respectively, Other Expenses would be 9.91% and
25.85%, respectively, and Total Fund Operating Expenses
would be 10.68% and 26.58% 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market*..................... $10 $30 $53 $117
Municipal Money Market*........... $10 $31 $54 $120
* 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)" 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. Long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charges permitted by the National Association of Securities Dealers, Inc.
-3-
<PAGE>
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.) 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 figures
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.
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.
-4-
<PAGE>
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 periods
indicated. The financial data included in this table for each of the periods
ended August 31, 1993 through August 31, 1997 are part of the Fund's financial
statements for each of the Portfolios, which have been incorporated by reference
into the Statement of Additional Information and have been audited by Coopers &
Lybrand L.L.P. ("Coopers"), the Fund's independent accountants. The financial
data for each of the Portfolios for the periods ended August 31, 1989, 1990,
1991 and 1992 are a part of previous financial statements audited by Coopers.
The financial data should be read in conjunction with the financial statements
and notes thereto. Further information about the performance of the Portfolios
is available in the Annual Report to Shareholders. Both the Statement of
Additional Information and the Annual Report to Shareholders may be obtained
free of charge by calling the telephone number on page 1 of this Prospectus.
-5-
<PAGE>
CASH PRESERVATION CLASSES
CASH PRESERVATION 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 FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- --------------- ---------------
<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. 0.0464 0.0471 0.0487 0.0278 0.0243 0.0375
Net gains on -------- -------- -------- -------- -------- --------
securities (both
realized and
unrealized)......... -- -- -- -- -- 0.0007
-------- -------- -------- -------- -------- --------
Total from
investment
operations...... 0.0464 0.0471 0.0487 0.0278 0.0243 0.0382
-------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income).. (0.0464) (0.0471) (0.0487) (0.0278) (0.0243) (0.0375)
Distributions
(from capital
gains).............. -- -- -- -- -- (0.0007)
-------- -------- -------- -------- -------- --------
Total
distributions... (0.0464) (0.0471) (0.0487) (0.0278) (0.0243) (0.0382)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............ 4.74% 4.81% 4.98% 2.81% 2.46% 3.89%
Ratios/Supplemental
Data
Net assets,
end of period (000). $ 242 $ 202 $ 236 $ 231 $ 1,229 $ 1,233
Ratios of expenses
to average
net assets.......... .95%(a) .95%(a) .95%(a) .95%(a) .95%(a) .95%(a)
Ratios of net
investment income to
average net assets.. 4.64% 4.71% 4.87% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
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. 0.0626 0.0763 0.0780
Net gains on ------- ------- --------
securities (both
realized and
unrealized)......... -- -- --
------- ------- --------
Total from
investment
operations...... 0.0626 0.0763 0.0780
------- ------- --------
Less distributions
Dividends (from net
investment income).. (0.0626) (0.0763) (0.0780)
Distributions
(from capital
gains).............. -- -- --
-------- ------- --------
Total
distributions... (0.0626) (0.0763) (0.0780)
-------- ------- --------
Net asset value,
end of period......... $ 1.00 $ 1.00 $ 1.00
======== ======= ========
Total return............ 6.45% 7.90% 8.81%(b)
Ratios/Supplemental
Data
Net assets,
end of period (000). $ 1,412 $ 1,799 $ 2,213
Ratios of expenses
to average
net assets.......... .95%(a) .94%(a) .95%(a)(b)
Ratios of net
investment income to
average net assets.. 6.26% 7.63% 8.59%(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 Money Market Portfolio would have been 10.68%,
12.08%, 9.34%, 2.52%, 2.25%, 2.30%, 2.13% and 1.69% for the years ended
August 31, 1997, 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.
</FN>
</TABLE>
-6-
<PAGE>
CASH PRESERVATION CLASSES
CASH PRESERVATION 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 FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- --------------- ---------------
<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. 0.0272 0.0274 0.0281 0.0174 0.0174 0.0266
Net gains on -------- -------- -------- -------- -------- --------
securities (both
realized and
unrealized)......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total from
investment
operations...... 0.0272 0.0274 0.0281 0.0174 0.0174 0.0266
-------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment
income)............. (0.0272) (0.0274) (0.0281) (0.0174) (0.0174) (0.0266)
Distributions
(from capital
gains).............. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total
distributions... (0.0272) (0.0274) (0.0281) (0.0174) (0.0174) (0.0266)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............ 2.76% 2.78% 2.84% 1.75% 1.75% 2.69%
Ratios/Supplemental
Data
Net assets,
end of period (000)... $ 97 $ 116 $ 161 $ 201 $ 157 $ 214
Ratios of expenses
to average
net assets.......... .98%(a) .98%(a) .98%(a) .98%(a) .98%(a) .98%(a)
Ratios of net
investment income to
average net assets.. 2.72% 2.74% 2.81% 1.74% 1.74% 2.66%
</TABLE>
<TABLE>
<CAPTION>
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. 0.0408 0.0499 0.0497
Net gains on -------- ------- --------
securities (both
realized and
unrealized)......... -- -- --
-------- ------- --------
Total from
investment
operations...... 0.0408 0.0499 0.0497
-------- ------- --------
Less distributions
Dividends (from net
investment
income)............. (0.0408) (0.0499) (0.0497)
Distributions
(from capital
gains).............. -- -- --
-------- -------- --------
Total
distributions... (0.0408) (0.0499) (0.0497)
-------- -------- --------
Net asset value,
end of period......... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return............ 4.16% 5.11% 5.53%(b)
Ratios/Supplemental
Data
Net assets,
end of period (000)... $ 281 $ 236 $ 36
Ratios of expenses
to average
net assets.......... .97%(a) .98%(a) .94%(a)(b)
Ratios of net
investment income to
average net assets.. 4.08% 4.99% 5.49%(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 Municipal Money Market Portfolio, would
have been 26.58%, 19.20%, 10.80%, 11.52%, 8.95%, 5.91%, 5.59% and 15.08% for
the years ended August 31, 1997, 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.
</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 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." There is no
assurance that the investment objective of the Portfolio will be achieved. 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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
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 ("Rating Organizations"). 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 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
-8-
<PAGE>
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 13 months, depending upon the note involved) to demand
payment of the principal of a note. The notes are not typically rated by credit
rating agencies, but issuers of variable rate demand notes must satisfy the same
criteria as set forth above for issuers of commercial paper. If an issuer of a
variable rate demand note defaulted on its payment obligation, the Portfolio
might be unable to dispose of the note because of the absence of an active
secondary market. For this or other reasons, the Portfolio might suffer a loss
to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
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
-9-
<PAGE>
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 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a Portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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 borrowing 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
-10-
<PAGE>
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 Rating Organizations (e.g., commercial paper rated
"A-1" or "A-2" by Standard & Poor's Ratings Services ("S&P")), (3) securities
that are rated at the time of purchase by the only Rating Organization 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 a Rating Organization ("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, and 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, GICs, and other securities
-11-
<PAGE>
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 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"). There is no assurance that
the investment objective of the Portfolio will be achieved.
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.
-12-
<PAGE>
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 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).
-13-
<PAGE>
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" and "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. 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 and Municipal Money Market Portfolios' investment
objectives and policies described above may be changed by the Fund's Board of
Directors without shareholder approval. The Portfolios may not, however, change
the following investment limitations (except as noted) without shareholder
approval. (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:
-14-
<PAGE>
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 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 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.
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 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 a 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 borrowing are in excess of 5% of a Portfolio's net
assets. (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.)
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.
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.
-15-
<PAGE>
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 Rating Organization, are rated (at the time of
purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization 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.
The Municipal Money Market Portfolio may not:
1. 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, the Portfolio may not, without shareholder approval,
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.
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,
wire or exchange from
-16-
<PAGE>
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 wire). The Fund reserves the
right to reject any purchase order.
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.
Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order 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. 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. On any Business Day, 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 the close of regular trading on the NYSE
(generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE 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 the close
of regular trading on the NYSE or later, and orders as to which payment has been
converted to Federal Funds as of the close of regular trading on the NYSE or
later on a Business Day will be processed as of 12:00 noon Eastern Time on the
following Business Day.
INITIAL INVESTMENT
BY MAIL - You may purchase Shares in either of the Cash Preservation
Classes by mail by 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" to
Cash Preservation Portfolios, c/o PFPC, P.O. Box 8916, Wilmington, Delaware
19899. The check must also specify the name of 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.
-17-
<PAGE>
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. The Fund
currently does not charge for effecting wire transfers but reserves the right to
do so in the future. 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 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 PFPC 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. Complete and sign the Application and mail it to the address shown
thereon. PFPC will not process initial purchases 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 (a dealer who has entered
into a dealer agreement with the Distributor) from whom it was obtained
generally.
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 the close of regular trading on the NYSE
(generally 4:00 p.m. Eastern Time) on a Business Day will be processed as of the
close of regular trading on the NYSE on that Business Day but the Shares
acquired will not be entitled to receive dividends declared on such Business
Day. Federal Funds received after the close of regular trading on the NYSE 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 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.
-18-
<PAGE>
An Application will be returned to an investor unless it contains the name of
the Authorized Dealer from whom it was obtained.
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, an investor should consult with a tax
adviser.
SUBSEQUENT INVESTMENTS
Once an account has been opened, additional investments may be made by
mail, wire, exchange, or the automatic investment program. The minimum
subsequent investment is $100 ($1,000 if payment is by 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."
BY EXCHANGE - Follow the procedures given under "Redemption and
Exchange of Shares -- Exchange Privilege" below.
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 AND EXCHANGE 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.
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
-19-
<PAGE>
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 according to the procedures described below under
"Exchange Privilege."
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 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.
PAYMENT OF REDEMPTION PROCEEDS
Redemption proceeds will be mailed by check to your registered address
unless you have designated in your Application or Telephone Authorization Form
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 the close of regular trading on the NYSE
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.
ADDITIONAL 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
-20-
<PAGE>
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 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.
EXCHANGE PRIVILEGE
Shareholders who wish to exchange Shares of one Cash Preservation Class
for another Cash Preservation Class may do so by mail or by telephone. In
addition to exchanges between Cash Preservation Classes, shareholders may
exchange Shares of a Cash Preservation Class for shares of the RBB Class of the
Government Securities Portfolio (the "Participating Class") by mail or telephone
provided they have completed the appropriate section of the Application
beforehand. Shares of the Participating Class may be acquired by exchange at the
next determined public offering price, including sales charges, if any,
applicable to such shares. In order to establish a systematic withdrawal plan
for the new account, an exchanging shareholder must file a written request. 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. An exchange of Shares will be treated as a sale for
federal tax purposes.
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
-21-
<PAGE>
new account is to be different in any respect, the request must be in writing
with all signatures guaranteed. A signature guarantee may be obtained from a
domestic bank or trust company, broker, dealer, clearing agency or savings
associations who are participants in a medallion program recognized by the
Securities Transfer Association. The three recognized medallion programs are the
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(MSP). Signature guarantees that are not part of these programs will not be
accepted.
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.
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.
TELEPHONE TRANSACTIONS
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 REDEEM OR
EXCHANGE SHARES BY TELEPHONE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL
EXCHANGE AND REDEMPTION 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 simply contact PFPC by
telephone to request the redemption or exchange by calling (800) 430-9618.
Neither the Fund, the Portfolios, the Distributor, PFPC nor any other Fund
Agent, 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 they reasonably believe 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 portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative
-22-
<PAGE>
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 (7)
maintaining tapes of telephone transactions for six months, if the fund elects
to record shareholder telephone transactions. For accounts held of record by
broker-dealers (other than the Distributor), financial institutions, securities
dealers, financial planners or other industry professionals, 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.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class 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 the close of regular trading
on the NYSE 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, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays on which the NYSE is
closed, as well as Veterans' Day and Columbus Day. The net asset value per share
of each class of a Portfolio is calculated by adding the value of the
proportionate interest of the class in the Portfolio's securities, cash and
other assets, deducting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class.
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.
-23-
<PAGE>
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 twenty-two 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 $38.7 billion of assets, of
which approximately $35.2 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 multibank 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 with respect to
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
-24-
<PAGE>
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
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. 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, 1997, the Fund paid
investment advisory fees aggregating .22% and .04% of the average net assets of
the Money Market Portfolio and the Municipal Money Market Portfolio,
respectively. For that same period, PIMC waived approximately .15% and .29% 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
-25-
<PAGE>
Additional Information under "Investment Advisory, Distribution and Servicing
Arrangements."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc. with a principal business
address at 466 Lexington Avenue, New York, New York, acts as distributor of the
Shares of each of the Cash Preservation Classes of the Fund pursuant to a
distribution agreement and various supplements thereto (collectively, the
"Distribution Agreements").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. 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
on the relative net assets of the investment portfolios at the time such
expenses were accrued. The Cash Preservation Classes of the Fund pay their own
distribution fees, and may pay a different share than other classes of the Fund
of other expenses (excluding advisory and custodial fees) if these expenses are
actually incurred in a different amount by the Cash Preservation Classes or if
they receive different services.
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 lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1996 the Fund's total
expenses were 10.68% of the average daily net assets with respect to the Cash
Preservation Class of the Money Market Portfolio (not taking into account
waivers and reimbursements of 9.73%) and were 26.58% of the average daily net
assets with respect to the Cash Preservation Class of the Municipal Money Market
Portfolio (not taking into account waivers and reimbursements of 25.60%).
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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
-26-
<PAGE>
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 Agreements, 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 Agreements and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including to Authorized 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 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 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 Cash Preservation
Class the fee agreed to under the relevant Distribution Agreement. Payments
under the Plans are not based on expenses actually incurred by the Distributor,
and the payments may exceed distribution expenses actually incurred.
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.
-27-
<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 the close of regular
trading on the NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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
-28-
<PAGE>
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 up to 28% 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 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 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.
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.
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
-29-
<PAGE>
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 13.93 billion shares are currently
classified into 82 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
Agreements entered into with the Distributor and pursuant to each of the
distribution plans, the Distributor is entitled to receive from each class as
compensation for distribution services provided to that class 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 OF THE
MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE CASH PRESERVATION CLASSES OF THESE PORTFOLIOS.
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
-30-
<PAGE>
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 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 15, 1997, 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 (800) 430-9618.
-31-
<PAGE>
(This Page Intentionally Left Blank)
-32-
<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 1, 1997 (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General......................................... 2 3
Investment Objectives and Policies.............. 2 8
Directors and Officers.......................... 12 N/A
Investment Advisory, Distribution and
Servicing Arrangements.................. 16 24,27
Portfolio Transactions.......................... 22 N/A
Purchase and Redemption Information............. 24 16
Valuation of Shares............................. 24 23
Performance Information......................... 26 N/A
Taxes ........................................ 28 28
Additional Information Concerning
Fund Shares............................. 32 30
Miscellaneous................................... 36 N/A
Financial Statements............................ 47 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 twenty-two
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 , 1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
In determining the average weighted maturity of the Money Market or the
Municipal Money Market Portfolio and whether a variable rate demand instrument
has a remaining maturity of 13 months or less, each instrument will be deemed by
-2-
<PAGE>
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. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of variable or floating rate notes if the issuer defaulted on its
payment obligations or during periods that the Portfolio is not entitled to
exercise its demand right, and the Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market
and Municipal Money Market Portfolios may purchase "when- issued" and delayed
delivery securities purchased for delivery beyond the normal settlement date at
a stated price and yield. While the Money Market or Municipal Money Market
Portfolios has such commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian cash
or liquid 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, 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 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. Because 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, it is expected that commitments to purchase "when-issued"
securities will not exceed 25% of the value of a Portfolio's 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
-3-
<PAGE>
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.
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 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. These Portfolios' 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 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
-4-
<PAGE>
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, the 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, as
amended. 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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks and non-bank dealers of U.S.
Government securities that are listed on the
-5-
<PAGE>
Federal Reserve Bank of New York's list of reporting dealers, if such banks and
non-bank dealers are deemed creditworthy by the Portfolio's adviser or
sub-adviser. A Portfolio's adviser or sub-adviser will continue to monitor
creditworthiness of the seller under a repurchase agreement, and will require
the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price (including accrued
premium) provided in the repurchase agreement or the daily amortization of the
difference between the purchase price and the repurchase price specified in the
repurchase agreement. The Portfolio's adviser or sub-adviser will mark-to-market
daily the value of the securities. 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
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 ("Rating Organizations")
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 Rating Organization 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 13 months 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 a
Rating Organization ("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
13 months 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
-6-
<PAGE>
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 Rating Organization 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 that 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 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.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
-7-
<PAGE>
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,
among others, 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
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% for all borrowings of the Portfolio; or
mortgage, pledge or 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 are in excess of 5% of
the Portfolio's net assets. (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;
-8-
<PAGE>
(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)
-9-
<PAGE>
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
shareholder approval.
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 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
-10-
<PAGE>
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 Rating Organization (as defined in the
Prospectus), are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii)
if rated by only one Rating Organization are rated by such Rating
Organization, 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
-11-
<PAGE>
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 ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Arnold M. Reichman - 49* Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and
Executive Officer of
Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
Robert Sablowsky - 58** Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); Prior to
October 1996, Executive
Vice President of
Gruntal & Co., Inc. (a
registered broker-
dealer).
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).
-12-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
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, 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 since 1969,
16th Floor Comcast Corporation
Philadelphia, PA 19107-3723 (cable television and
communications);
Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden - 72 Director and Self-employed
1200 Old Mill Lane Chairman of the businessman. From
Wyomissing, PA 19610 Board February 1980 to March
1987, Vice Chairman,
SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto service);
Director, Keystone
Insurance Co.
-13-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Edward J. Roach - 73 President and Certified Public
Suite 100 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;
President or Vice
President and Treasurer
of various investment
companies advised by PNC
Institutional Management
Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones - 58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker Biddle
1345 Chestnut Street & Reath LLP; Director,
Philadelphia, PA 19107-3496 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 positions 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 Fahnestock Co., Inc., a
registered 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.
-14-
<PAGE>
The Nominating Committee recommends to the Board 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 the Distributor, and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------ ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, -0- N/A N/A -0-
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
<FN>
- ----------------------
1 A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is an affiliated person of the investment adviser
of any other investment companies.
</FN>
</TABLE>
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 and one other employee) pursuant
to which the
-15-
<PAGE>
Fund will contribute on a quarterly basis amounts equal to 10% of the quarterly
compensation of each eligible employee. By virtue of the services performed by
PNC Institutional Management Corporation ("PIMC"), the Portfolios' 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 two part-time employees. Drinker Biddle & Reath LLP,
of which Mr. Jones is a partner, receives legal fees as counsel to the Fund. 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. Pursuant to the
Sub-Advisory Agreements, PNC Bank is entitled to receive from PIMC an annual fee
of 75% of the advisory fees paid to PIMC on behalf of the Money Market and
Municipal Money Market Portfolios. Such advisory and sub- advisory agreements
are hereinafter collectively referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $5,366,431 $3,603,130 $469,986
Portfolio
Municipal Money $ 201,095 $1,269,553 $ 14,921
Market Portfolio
-16-
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ----------------- ------- --------------
Money Market $4,174,375 $3,527,715 $342,158
Portfolio
Municipal Money $ 190,687 $1,218,973 $ 17,576
Market Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ----------------- ------- --------------
Money Market $2,274,697 $2,589,832 $12,047
Portfolio
Municipal Money $ 67,752 $1,041,321 $11,593
Market Portfolio
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) 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; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Fund to its directors and officers; (g)
organizational costs; (h) fees to the investment adviser, sub-adviser and PFPC;
(i) fees and expenses of officers and directors who are not affiliated with the
Portfolios' investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolios and their shares for distribution under federal and state
securities laws; (q) expenses of preparing prospectuses and statements of
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of
-17-
<PAGE>
shares of the Fund; (r) the expense of reports to shareholders, shareholders'
meetings and proxy solicitations that are not attributable to a particular class
of shares of the Fund; (s) fidelity bond and directors' and officers' liability
insurance premiums; (t) the expense of using independent pricing services; and
(u) other expenses which are not expressly assumed by the Portfolio's investment
adviser under its advisory agreement with the Portfolio. The Cash Preservation
Classes of the Fund pay their own distribution fees, and may pay a different
share than other classes of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the Cash
Preservation Classes or if they receive different services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
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 Agreement 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 Agreements may also be
terminated by PIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Agreements 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
-18-
<PAGE>
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 services under 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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
PORTFOLIO FEES PAID WAIVERS REIMBURSEMENTS
- --------- --------- ------- --------------
Municipal Money $448,548 $0 $0
Market Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
PORTFOLIO FEES PAID WAIVERS REIMBURSEMENTS
- --------- --------- ------- --------------
Municipal Money $428,209 $0 $0
Market Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIO WAIVERS) WAIVERS REIMBURSEMENTS
- --------- --------- ------- --------------
Municipal Money $321,790 $6,233 $0
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)
-19-
<PAGE>
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 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 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 Portfolio. 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
-20-
<PAGE>
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 agreement, 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 Agreements") and separate Plans of
Distribution, as amended, 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
appropriate efforts to distribute shares of each of the Cash Preservation
Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, 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 was approved 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").
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 Plans and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are 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 Cash Preservation Class under the Plans 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 Plans
remain in effect, the selection and nomination of the 12b-1 Directors shall be
committed to the discretion of directors who are not interested persons of the
Fund.
-21-
<PAGE>
During the fiscal year ended August 31, 1997, the Fund paid
distribution fees to the Fund's Distributor under the Plans for the Cash
Preservation Classes of the Money Market Portfolio and the Municipal Money
Market Portfolio in the aggregate amounts of $6,570,720 and $1,131,857,
respectively. Of those amounts, $6,447,204 and $1,111,658, respectively, was
paid to dealers with whom the Fund's Distributor had entered into dealer
agreements, and $123,516 and $20,199, respectively, was 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 positions with the Distributor. Mr.
Sablowsky, a Director of the Fund, had an indirect interest in the operation of
the Plans by virtue of his position with Fahnestock & Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
or less), and except that both Portfolios may purchase variable rate securities
with remaining maturities of 13 months 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 13 months or less. Because both Portfolios intend
to purchase only securities with remaining maturities of 13 months 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. 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
-22-
<PAGE>
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 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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolios, held the following securities:
-23-
<PAGE>
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Portfolio Bear Stearns Companies, Inc. $105,000,000
Commercial Paper
Money Market Portfolio Bear Stearns Companies, Inc. $ 20,000,000
Corporate Obligation
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 class 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
adding the value of the proportionate interest of each class in the Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Fund is
determined independently of the other classes. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
liabilities. Each Portfolio's net asset value per share is
-24-
<PAGE>
computed twice each day, as of 12:00 noon (Eastern Time) and as of the close of
the NYSE (generally 4:00 p.m. Eastern Time), on each Business Day. "Business
Day" means each weekday when both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and on
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays is the NYSE as well as Columbus Day and Veterans' 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.
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 13 months, will
limit portfolio investments, including repurchase agreements (where permitted),
to those United States dollar-denominated instruments that PIMC determines
-25-
<PAGE>
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 annualized yield for the seven-day period ended August 31,
1997 for the Cash Preservation Classes of each of the Money Market Portfolio and
the Municipal Money Market Portfolio
before waivers was as follows:
-26-
<PAGE>
TAX-EQUIVALENT
YIELD
(ASSUMES A
EFFECTIVE FEDERAL INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- ----- ----------------
Money Market 4.62% 4.73% N/A
Municipal Money 2.27% 2.30% 3.15%
Market
The annualized yield for the seven-day period ended August 31,
1997 for the Cash Preservation Classes of each of the Money Market Portfolio and
the Municipal Money Market Portfolio after waivers was as follows:
TAX-EQUIVALENT
YIELD
(ASSUMES A
EFFECTIVE FEDERAL INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- ----- ----------------
Money Market 4.77% 4.88% N/A
Municipal Money 2.55% 2.58% 3.54%
Market
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 accounts 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
-27-
<PAGE>
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 MONEY FUND
REPORT(R), 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
-28-
<PAGE>
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").
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. Exempt interest dividends to
shareholders of the Portfolio is not included in the shareholders' 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.
-29-
<PAGE>
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 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 Portfolios may acquire stand-by commitments with
respect to Municipal Obligations held in its portfolio and will treat any
interest received on Municipal Obligations subject to such stand-by 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
-30-
<PAGE>
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 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 mid-term or other long-term capital gain,
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.
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 earnings and profits.
-31-
<PAGE>
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, 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.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 13.93 billion shares are
currently classified in 82 classes as follows: 100 million shares are classified
as Class A Common Stock, 100
-32-
<PAGE>
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 Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH Common Stock (n/i Numeric Investors 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
-33-
<PAGE>
Large Cap), 100 million shares are classified as Class SS Common Stock (Boston
Partners Advisors Large Cap), 100 million shares are classified as Class TT
Common Stock (Boston Partners Investor Mid Cap), 100 million shares are
classified as Class UU Common Stock (Boston Partners Institutional Mid Cap), 100
million shares are classified as Class VV Common Stock (Boston Partners
Institutional Bond), 100 million shares are classified as Class WW Common Stock
(Boston Partners Investor Bond), 50 million shares classified as Class XX Common
Stock (n/i Numeric Investors Larger Cap Value), 700 million shares are
classified as Class Janney Money Market Common Stock (Money), 200 million shares
are classified as Class Janney Municipal Money Market Common Stock (Municipal
Money), 500 million shares are classified as Class Janney Government Obligations
Money Market Common Stock (U.S. Government Money), 100 million shares are
classified as Class Janney 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
-34-
<PAGE>
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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Funds Family,
the Beta Family, the n/i Numeric Investors 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 Sansom Street Family represents interests in
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios; the 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 BEA
Family represents interests in ten non-money market portfolios; the n/i Numeric
Investors Family represents interests in four non-money market portfolios; the
Boston Partners Family represents interests in three non-money market
portfolios; the 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 voting 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 voting securities 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
-35-
<PAGE>
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 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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103 serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------------------------------------------------------------------------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
-36-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
- --------------------------------------------------------------------------
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
- --------------------------------------------------------------------------
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
- --------------------------------------------------------------------------
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
- --------------------------------------------------------------------------
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
- --------------------------------------------------------------------------
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
- --------------------------------------------------------------------------
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
- --------------------------------------------------------------------------
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
-37-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- --------------------------------------------------------------------------
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
- --------------------------------------------------------------------------
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
- --------------------------------------------------------------------------
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
- --------------------------------------------------------------------------
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
- --------------------------------------------------------------------------
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
- --------------------------------------------------------------------------
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
- --------------------------------------------------------------------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
-38-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
- --------------------------------------------------------------------------
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
- --------------------------------------------------------------------------
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
- --------------------------------------------------------------------------
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
- --------------------------------------------------------------------------
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
- --------------------------------------------------------------------------
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
- --------------------------------------------------------------------------
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
- --------------------------------------------------------------------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
-39-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
- --------------------------------------------------------------------------
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- --------------------------------------------------------------------------
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
- --------------------------------------------------------------------------
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
- --------------------------------------------------------------------------
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
- --------------------------------------------------------------------------
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
- --------------------------------------------------------------------------
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
-40-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
- --------------------------------------------------------------------------
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
- --------------------------------------------------------------------------
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
- --------------------------------------------------------------------------
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
- --------------------------------------------------------------------------
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
- --------------------------------------------------------------------------
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
- --------------------------------------------------------------------------
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
- --------------------------------------------------------------------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
- --------------------------------------------------------------------------
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
-41-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
- --------------------------------------------------------------------------
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
- --------------------------------------------------------------------------
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
- --------------------------------------------------------------------------
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
- --------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
- --------------------------------------------------------------------------
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
- --------------------------------------------------------------------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
-42-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
n/i Growth Fund Charles Schwab & Co. Inc. 18.6%
(Class GG) Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
- --------------------------------------------------------------------------
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
- --------------------------------------------------------------------------
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
- --------------------------------------------------------------------------
n/i Growth and Value Charles Schwab & Co. Inc. 22.9%
Fund (Class HH) Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
- --------------------------------------------------------------------------
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
-43-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
- --------------------------------------------------------------------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
- --------------------------------------------------------------------------
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
- --------------------------------------------------------------------------
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
- --------------------------------------------------------------------------
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
- --------------------------------------------------------------------------
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
- --------------------------------------------------------------------------
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
-44-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
- --------------------------------------------------------------------------
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
- --------------------------------------------------------------------------
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
- --------------------------------------------------------------------------
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
-45-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
- --------------------------------------------------------------------------
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
==========================================================================
As of the same 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; and as of the same date, directors and officers as a group
owned less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered
-46-
<PAGE>
bank holding company may perform services comparable to those that are to be
performed by these companies, and future changes in either federal or state
statutes and regulations relating to permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1997 Annual Report are incorporated by
reference herein. The financial statements included in the 1997 Annual Report
have been audited by the Fund's independent accountants, Coopers & Lybrand
L.L.P. The reports of Coopers & Lybrand L.L.P. are incorporated herein by
reference. Such financial statements have been incorporated herein in reliance
upon such reports given upon their authority as experts in accounting and
auditing. Copies of the 1997 Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
-47-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high
A-1
<PAGE>
internal cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the
Prime rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment
default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<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................................................................ 3
FINANCIAL HIGHLIGHTS........................................................ 7
INVESTMENT OBJECTIVES AND POLICIES.......................................... 11
INVESTMENT LIMITATIONS...................................................... 19
PURCHASE AND REDEMPTION OF SHARES........................................... 22
NET ASSET VALUE............................................................. 27
DISTRIBUTION OF SHARES...................................................... 28
SHAREHOLDER SERVICING....................................................... 29
MANAGEMENT.................................................................. 29
DIVIDENDS AND DISTRIBUTIONS................................................. 33
TAXES....................................................................... 33
DESCRIPTION OF SHARES....................................................... 35
OTHER INFORMATION........................................................... 37
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
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
================================================================================
================================================================================
THE SANSOM
STREET
FAMILY
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY
MARKET PORTFOLIO
AND
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
Prospectus
December 1, 1997
================================================================================
<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 the Sansom Street Classes 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. 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
<PAGE>
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
these Portfolios, and PNC Bank, National Association serves as sub-adviser for
the Portfolios and custodian for the Fund. PFPC Inc. serves as the administrator
of the Municipal Money Market Portfolio and as transfer and dividend disbursing
agent for the Fund. Counsellors Securities Inc. acts as distributor 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 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 1, 1997, 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. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the SEC Internet Website (http://www.sec.gov).
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 1, 1997
-2-
<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. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. Each of the three classes (collectively, the "Sansom
Street Classes") of the Fund's shares (collectively, the "Sansom Street Shares"
or "Shares") 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
(collectively, the "Portfolios").
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
-3-
<PAGE>
Portfolios will be able to maintain a stable net asset value of $1.00 per share.
The Portfolios' 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 administrator to the 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 investment in any of the Portfolios is subject to certain risks, as set
forth in detail under "Investment Objectives and Policies." 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."
-4-
<PAGE>
FEE TABLE
The Fee Table below contains a summary of the annual operating expenses
incurred by the Sansom Street Class of the Money Market Portfolio for the fiscal
year ended August 31, 1997 as a percentage of average daily net assets. The
figures shown for the Sansom Street Classes of the Municipal Money Market
Portfolio and Government Obligations Money Market Portfolio are based on
expenses expected to be incurred by such Classes of these Portfolios in the
current fiscal period in the event that Shares of these Classes are offered to
the public. No shares of these Classes were offered during the fiscal year ended
August 31, 1997. An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (SANSOM STREET CLASSES)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
Management Fees (after waivers)(1)...... .22% .04% .30%
12b-1 Fees(1) .......................... .06 .05 .05
Other Expenses.......................... .21 .30 .24
--- --- ---
Total Fund Operating Expenses
(Sansom Street Classes)
(after waivers)(1).................... .49% .39% .59%
==== ==== ===
(1) Management Fees and 12b-1 Fees are each based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio and Government
Obligations Money Market Portfolio, Management Fees would be .37%, .33% and
.41%, respectively, and Total Fund Operating Expenses would be .64%, .68%
and .70%, 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market*............................ $5 $16 $27 $61
Municipal Money Market*.................. $4 $13 $22 $49
Government Obligations Money Market*..... $6 $19 $33 $74
* 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" 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.
-5-
<PAGE>
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 figures reflected in the Fee Table. In addition, the investment
adviser is currently voluntarily assuming additional expenses of the Money
Market 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 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 the 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 shareholders 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.
-6-
<PAGE>
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, 1993
through August 31, 1997 are part of the Fund's financial statements for each of
the Portfolios, which have been incorporated by reference into the Statement of
Additional Information and have been audited by Coopers & Lybrand L.L.P.
("Coopers"), the Fund's independent accountants. The financial data for each
such Portfolio for the periods ended August 31, 1989, 1990, 1991 and 1992 are a
part of previous financial statements audited by Coopers. No financial data for
the periods ended August 31, 1994, 1995, 1996 and 1997 are included for the
Sansom Street Class of the 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 Portfolio as such Class ceased
operations on December 4, 1991. The financial data included in the table should
be read in conjunction with the financial statements and notes thereto. Further
information about the performance of the Portfolios is available in the Annual
Report to Shareholders. Both the Statement of Additional Information and the
Annual Report to Shareholders may be obtained free of charge by calling the
telephone number on page 1 of this Prospectus.
-7-
<PAGE>
SANSOM STREET CLASSES
THE SANSOM STREET 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 FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <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
-------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income.... 0.0510 0.0518 0.0543 0.0334 0.0304 0.0435 0.0684
Net gains on securities
(both realized and
unrealized) .......... -- -- -- -- -- 0.0007 --
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations......... 0.0510 0.0518 0.0543 0.0334 0.0304 0.0442 0.0684
-------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income)..... (0.0510) (0.0518) (0.0543) (0.0334) (0.0304) (0.0435) (0.0684)
Distributions (from
capital gains)......... -- -- -- -- -- (0.0007) --
-------- -------- -------- -------- -------- -------- --------
Total distributions.. (0.0510) (0.0518) (0.0543) (0.0334) (0.0304) (0.0442) (0.0684)
-------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return............... 5.22% 5.30% 5.57% 3.39% 3.08% 4.51% 7.06%
Ratios/Supplemental Data
Net assets, end of
period (000) .......... $570,018 $524,359 $441,614 $373,745 $190,794 $228,079 $138,418
Ratios of expenses to
average net assets..... .49%(a) .48%(a) .39%(a) .39%(a) .34%(a) .35%(a) .37%(a)
Ratios of net investment
income to average
net assets............. 5.10% 5.18% 5.43% 3.34% 3.04% 4.35% 6.84%
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31,
1990 1989
------------- ---------------
<S> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00
-------- -------
Income from investment
operations:
Net investment income.... 0.0810 0.0818
Net gains on securities
(both realized and
unrealized) .......... -- --
-------- -------
Total from investment
operations......... 0.0810 0.0818
-------- -------
Less distributions
Dividends (from net
investment income)..... (0.0810) (0.0818)
Distributions (from
capital gains)......... -- --
-------- -------
Total distributions.. (0.0810) (0.0818)
-------- -------
Net asset value,
end of period .......... $ 1.00 $ 1.00
======== =======
Total return............... 8.40% 9.25%(b)
Ratios/Supplemental Data
Net assets, end of
period (000) .......... $106,743 $79,656
Ratios of expenses to
average net assets..... .47%(a) .50%(a)(b)
Ratios of net investment
income to average
net assets............. 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 .64%, .65%, .59%, .60%,
.60%, .61%, .61% and .73% for the years ended August 31, 1997, 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>
-8-
<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
- ----------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1993 AUGUST 31, 1992 AUGUST 31, 1991 AUGUST 31, 1990 AUGUST 31, 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 (000)............. $ 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
income to average
net assets............... 2.33% 3.25% 4.71% 5.59% 5.93%(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 is
not reported for the periods ended August 31, 1997, 1996, 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, 1997, 1996, 1995 and 1994.
</FN>
</TABLE>
-9-
<PAGE>
SANSOM STREET CLASSES
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
OCTOBER 18, 1988
FOR THE FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1992(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 distributors
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 (000)................ -- $ 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% 6.99% 8.43% 8.91%(b)
<FN>
(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.
</FN>
</TABLE>
-10-
<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 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." There is no assurance that the investment
objective of the Portfolio will be achieved. 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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent requirements and less market liquidity. 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 ("Rating Organization"). 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 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
-11-
<PAGE>
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 13 months, depending upon the note involved) to demand payment of the
principal of a note. The notes are not typically rated by credit rating
agencies, but issuers of variable rate demand notes must satisfy the same
criteria as set forth above for issuers of commercial paper. If an issuer of a
variable rate demand note defaulted on its payment obligation, the Portfolio
might be unable to dispose of the note because of the absence of an active
secondary market. For this or other reasons, the Portfolio might suffer a loss
to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
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
-12-
<PAGE>
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 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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 -- Municipal Obligations."
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
-13-
<PAGE>
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 Rating Organizations (e.g., commercial paper rated "A-1" or "A-2" by
Standard & Poor's Ratings Services ("S&P")), (3) securities that are rated at
the time of purchase by the only Rating Organization 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 a Rating Organization ("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, GICs, and other securities
-14-
<PAGE>
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"). There is no assurance that
the investment objective of the Portfolio will be achieved.
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.
-15-
<PAGE>
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.
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).
-16-
<PAGE>
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 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 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
and "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 as described under "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
-17-
<PAGE>
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, including mortgage-related securities. Obligations of certain
agencies and instru- mentalities 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. There is no assurance that
the investment objective of the Portfolio will be achieved.
Due to fluctuations in interest rates, the market values of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 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 more complete 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 more complete description of
reverse repurchase agreements see "Investment Objectives and Policies--Money
Market Portfolio--Reverse Repurchase Agreements."
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. Mortgage-related securities
consist of mortgage loans which are assembled
-18-
<PAGE>
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. The Fund may also acquire asset-backed securities as
described under "Investment Objectives and Policies--Money Market
Portfolio--Asset-Backed Securities."
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.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities as described under "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Money Market, Municipal Money Market and Government Obligations Money
Market Portfolios' respective investment objectives and the policies described
above may be changed by the Fund's Board of Directors without shareholder
approval. The Portfolios may not, however, change the following investment
limitations (except as noted) 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 are in excess of 5%
of the Portfolio's net assets. (This borrowing provision is not for
-19-
<PAGE>
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.
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 Rating
-20-
<PAGE>
Organization, are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii) if
rated by only one Rating Organization, are rated by such Rating
Organization 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.
The Municipal Money Market Portfolio 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 in obligations of issuers in the same industry.
In addition, the Portfolio may not, without a shareholder vote, 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.
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
-21-
<PAGE>
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
Sansom Street Shares are sold without a sales load on a continuous basis by
the Fund's Distributor. Only Shares of the Sansom Street Class representing
interests in the Money Market Portfolio are currently offered to the public.
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 broker-dealers (a "Dealer") that have
entered into a dealer agreement with the Fund's Distributor. The minimum initial
investment by an investor is $1,500. There is no minimum subsequent investment.
Purchases of Shares may be effected through the customers 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 a 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
-22-
<PAGE>
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 average annual daily net asset 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," 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 purchase order in good 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." 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. 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 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. 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.
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 and the Dealers to transmit
promptly to PFPC a customer's redemption request. In the case of shareholders
holding share certificates, the certificates must accompany the
-23-
<PAGE>
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 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
customers 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 the close of regular trading on the NYSE (generally 4:00
p.m. Eastern Time) on a Business Day will be wired in Federal Funds to the
customers 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 through an Account 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 the close of regular trading of the
NYSE on a Business Day, the redemption will be effective as of the close of
regular trading of the NYSE 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 may 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.
-24-
<PAGE>
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 may be obtained
from a domestic bank or trust company, broker, dealer, clearing agency or
savings association who are participants in a medallion program recognized by
the Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(MSP). Signature guarantees that are not part of these programs will not be
accepted.
Direct investors may redeem Shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone 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
redemption by calling (888) 261-4073. Neither the Fund, the Portfolios, the
Distributor, PFPC nor any other Fund agent will be liable for any loss,
liability, cost or expense for following the procedures described below or for
following instructions communicated by telephone that they reasonably believe 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 the name of the portfolio, 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 broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, additional documentation or
information regarding the scope of a
-25-
<PAGE>
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 an attorney-in-fact under power of
attorney.
The proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form 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 the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. 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, although no fee is
currently contemplated.
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 may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cashed at other banks.
-26-
<PAGE>
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 redemption request in
proper form. Although the Fund will redeem Shares purchased by check before the
check clears, payment of redemption proceeds may be delayed 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.
Investors should consider purchasing shares using a certified or bank check if
they anticipate an immediate need for redemption proceeds.
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 falls below $500 and during such thirty-day notice
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 values per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders are determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE 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, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays as the NYSE is closed,
as well as Veterans' Day and Columbus Day. The net asset values per share of
each class of the Portfolios are calculated by adding the value of the
proportionate interest of each class in the securities, cash, and other assets
of the Portfolio, deducting actual and accrued liabilities of such class and
dividing the result by the number of outstanding shares of the class. The net
asset value per share of each class is determined independently of any of the
Fund's other classes.
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
-27-
<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.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Counsellors Securities Inc. (the "Distributor") acts as distributor for
each of the Sansom Street Classes of the Fund pursuant to a distribution
agreement and various supplements thereto (collectively, the "Distribution
Agreements") with the Fund. 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
Agreements 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 Agreements 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 Agreement for the Money Market Portfolio, the
Distributor has agreed to accept compensation for its services thereunder and
under the relevant Plan in the amount of .06% on an annualized basis. 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
-28-
<PAGE>
waive from time to time all or any portion of its distribution fee.
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. Payments under the Plans are not based on expenses actually
incurred by the Distributor, and the payments may exceed distribution expenses
actually incurred.
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund has adopted a Shareholder Servicing Plan on behalf of the Classes
under which the Fund may enter into service agreements with the Banks. As
compensation for their services under these agreements, the Plan provides that
Banks may receive up to .20% (on an annualized basis) of the average daily net
asset value of such Shares. 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. For the fiscal year ended
August 31, 1997, the Fund paid PNC Bank shareholder services fees aggregating
.10% of the average daily net assets of the Money Market Portfolio under the
Plan.
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 twenty-two investment portfolios. Each of the
Sansom Street Classes represents interests in one of the following portfolios:
-29-
<PAGE>
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 $38.7 billion of assets, of
which approximately $35.2 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
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 assets in excess of $500
million. For the 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 the Portfolios 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.
-30-
<PAGE>
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 fiscal year ended August 31, 1997, the Fund paid investment
advisory fees aggregating .22% of the average net assets of the Money Market
Portfolio. For the same period PIMC waived approximately .15% of the average net
assets of the Money Market Portfolio.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money Market Portfolio
and generally assists such 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. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
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."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned subsidiary
of Warburg Pincus Asset Management, Inc., with a principal business address at
466 Lexington Avenue, New York, New York, acts as distributor of the Shares of
each of the Sansom Street Classes of the Fund pursuant to a distribution
agreement and various supplements thereto (collectively, the "Distribution
Agreements") with the Fund on behalf of each of the Sansom Street Classes.
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will
-31-
<PAGE>
be allocated among all investment portfolios of the Fund based on the relative
net assets of the investment portfolios at the time such expenses were accrued.
The Sansom Street Classes of the Fund pay their own distribution fees, and may
pay a different share than other classes of the Fund of other expenses
(excluding advisory and custodial fees) if those expenses are actually incurred
in a different amount by the Sansom Street Classes or if they receive different
services.
The investment adviser may assume 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 lowering yield to
investors.
For the fiscal year ended August 31, 1997, the total expenses were .64% of
average net assets with respect to the Sansom Street Class of the Money Market
Portfolio (not taking into account waivers and reimbursements of .15%). The
Sansom Street Classes of the Government Obligations Money Market Portfolio and
Municipal Money Market Portfolio did not incur any expenses, as no Shares of
such Classes had been sold to the public during the fiscal year ended August 31,
1997.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Act of 1956 or any bank or nonbank
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
-32-
<PAGE>
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.
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 the close of regular trading
on the NYSE. 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, it 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, and
out of the portion of such net capital gain that constitutes mid-term capital
gain, will be taxed to shareholders as long-term capital gain or mid-term
capital gain, as the case may be, regardless of the length of time a share-
-33-
<PAGE>
holder 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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 federal alternative minimum tax at a rate of 28% 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 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
-34-
<PAGE>
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 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 13.93 billion shares are currently
classified into 82 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,
Municipal Money Market and Government Obligations Money Market Portfolios 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 Agreements entered into with the Distributor and pursuant to
each of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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
-35-
<PAGE>
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 OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET AND GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIOS AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE SANSOM STREET CLASSES OF THESE PORTFOLIOS.
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 15, 1997, 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.
-36-
<PAGE>
The Fund will issue share certificates for 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.
-37-
<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 1, 1997 (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 1, 1997.
CONTENTS
Prospectus
PAGE PAGE
---- ----------
General............................................ 2 3,4,35
Investment Objectives and Policies................. 2 11
Directors and Officers............................. 16 N/A
Investment Advisory, Distribution and
Servicing Arrangements....................... 21 28,29,30
Portfolio Transactions............................. 28 30
Purchase and Redemption Information................ 29 22
Valuation of Shares................................ 30 27
Performance Information............................ 32 N/A
Taxes.............................................. 34 35
Additional Information Concerning
Fund Shares.................................. 38 35
Miscellaneous...................................... 42 N/A
Financial Statements............................... 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 twenty-two
separate investment portfolios. This Statement of Additional Information
pertains to three classes of shares (the "Sansom Street Classes") each
representing interests in one of three investment portfolios (the "Portfolios")
of the Fund: the Money Market Portfolio, the Municipal Money Market Portfolio
and the Government Obligations Money Market Portfolio. The Sansom Street Classes
are offered by the Prospectus dated December 1, 1997. 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, as amended (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 or liquid 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 or the Municipal Money Market Portfolio may
have maturities of more than 13 months, provided: (i) the Portfolio is entitled
to the payment of principal at any time, or during specified intervals not
exceeding 13 months, 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 13 months. 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 13
months or less, each instrument will be
-2-
<PAGE>
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. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of variable floating rate notes if the issuer defaulted on its
payment obligations or during periods that the Portfolio is not entitled to
exercise its demand right, and the Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market
and Municipal Money Market Portfolios may purchase "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 such commitments outstanding, they will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash
or liquid 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, 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 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. Because 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, it is expected that commitments to purchase "when issued"
securities will not exceed 25% of the value of a Portfolio's 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
-3-
<PAGE>
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 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 the relevant 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. These Portfolios' 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 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
-4-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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
-5-
<PAGE>
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, the 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, as
amended. 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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks 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, if such banks and non-bank dealers are deemed
creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller
-6-
<PAGE>
to maintain during the term of the agreement the value of the securities subject
to the agreement to equal at least the repurchase price (including accrued
interest). In addition, the Portfolio's adviser or sub-adviser will require that
the value of this collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default, be equal to or
greater than the repurchase price (including accrued premium) provided in the
repurchase agreement or the daily amortization of the difference between the
purchase price and the repurchase price specified in the repurchase agreement.
The Portfolio's adviser or sub-adviser will mark-to-market daily the value of
the securities. 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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of
-7-
<PAGE>
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Money Market and Government Obligations Money Market
Portfolios may invest in multiple class pass-through securities, including
collateralized mortgage obligations ("CMOs"). These multiple class securities
may be issued by U.S. Government agencies or instrumentalities, including FNMA
and FHLMC, or by trusts formed by private originators of, or investors in,
mortgage loans. In general, CMOs are debt obligations of a legal entity that are
collateralized by a pool of residential or commercial mortgage loans or mortgage
pass-through securities (the "Mortgage Assets"), the payments on which are used
to make payments on the CMOs. Investors may purchase beneficial interests in
CMOs, which are known as "regular" interests or "residual" interests. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making required payments of principal of and interest on
the CMOs, as well as the related administrative expenses of the issuer. Residual
interests generally are junior to, and may be significantly more volatile than,
"regular" CMO interests. The Portfolios do not currently intend to purchase
residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
-8-
<PAGE>
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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 ("Rating Organizations")
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 Rating Organization 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 13 months 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 a Rating Organization ("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
-9-
<PAGE>
excess of 13 months 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 Rating Organization 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 that 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 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>
The Portfolios may purchase securities which are not registered under
the Securities Act but which nay be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
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,
among others, 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% for all borrowings of the Portfolio; or
mortgage, pledge or 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 are in excess of 5% of
the Portfolio's net assets. (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.);
-11-
<PAGE>
(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, 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.
-12-
<PAGE>
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 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
shareholder approval.
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
-13-
<PAGE>
majority of the Money Market Portfolio's outstanding shares, but any such change
may require the approval of the Securities and Exchange Commission ("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 Rating Organization (as defined in the
Prospectus), are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii)
if rated by only one Rating Organization, are rated by such Rating
Organization 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.
-14-
<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.
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.
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% 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 are in excess of 5% of the Portfolio's net assets. (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
-15-
<PAGE>
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
shareholder approval.
The Portfolio may purchase securities on margin only to
obtain short-term credit necessary for clearance of portfolio
transactions.
-------------------
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
NAME AND ADDRESS PRINCIPAL OCCUPATION
AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- ------------------ ----------------------
Arnold M. Reichman, 49* Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus
Asset Management,
Inc.; Director and
Executive Officer of
Counsellors Securities
Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus
Asset Management, Inc.
-16-
<PAGE>
NAME AND ADDRESS PRINCIPAL OCCUPATION
AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- ------------------ ----------------------
Robert Sablowsky, 58** Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); prior to
October 1996,
Executive Vice
President of Gruntal &
Co., Inc., (a
registered broker-dealer).
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
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, Director and
Executive Vice
President, Cellucap
Mfg. Co., Inc.
(manufacturer of
disposable headwear).
-17-
<PAGE>
NAME AND ADDRESS PRINCIPAL OCCUPATION
AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- ------------------ ----------------------
Julian A. Brodsky, 63 Director Director and Vice-
1234 Market Street Chairman since 1969
16th Floor Comcast Corporation
Philadelphia, PA (cable television and
19107-3723 communications);
Director, 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 Beecham
Corporation
(pharmaceuticals); Director,
AAA Mid- Atlantic (auto
service); Director, Keystone
Insurance Co.
Edward J. Roach, 73 President and Certified Public
Suite 100 Treasurer Accountant; Vice
Bellevue Park Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf; Trustee
Emeritus, Immaculata
College; President or Vice
President and Treasurer of
various investment companies
advised by PNC Institutional
Management Corporation;
Director, The Bradford
Funds, Inc.
-18-
<PAGE>
NAME AND ADDRESS PRINCIPAL OCCUPATION
AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ---------------- ------------------ ----------------------
Morgan R. Jones, 58 Secretary Chairman of the law
Drinker Biddle & firm of Drinker Biddle
Reath LLP & Reath LLP;
1345 Chestnut Street Director, Rocking
Philadelphia, PA Horse Child Care
19107-3496 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 Fahnestock Co.,
Inc., a registered 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 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 the Distributor, and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
and Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings
of the Board of Directors or any committee thereof. For the year ended August
31, 1997, each of the following members of
-19-
<PAGE>
the Board of Directors received compensation from the Fund in the following
amounts:
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM REGISTRANT
AGGREGATE ACCRUED AS ANNUAL BENEFITS AND FUND
COMPENSATION PART OF FUND UPON COMPLEX1 PAID
NAME OF PERSON/ POSITION FROM REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- ------------------------ --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
<FN>
- ----------------------
1 A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any other investment companies.
</FN>
</TABLE>
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 and one other employee)
pursuant to which the Fund will contribute on a quarterly basis amounts equal to
10% of the quarterly compensation of each eligible employee. By virtue of the
services performed by PNC Institutional Management Corporation ("PIMC"), the
Portfolios' 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
-20-
<PAGE>
Fund itself requires only two part-time employees. Drinker Biddle & Reath LLP,
of which Mr. Jones is a partner, receives legal fees as counsel to the Fund. 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. Pursuant to the
sub-advisory agreements, PNC Bank is entitled to receive from PIMC an annual fee
calculated at the rate of 75% of the advisory fees paid to PIMC on behalf of the
Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios. Such advisory and sub-advisory agreements are hereinafter
collectively referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
================================================================================
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Money Market $5,366,431 $3,603,130 $469,986
Portfolio
- --------------------------------------------------------------------------------
Municipal Money $201,095 $1,269,553 $14,921
Market Portfolio
- --------------------------------------------------------------------------------
Government $1,774,123 $647,063 $404,193
Obligations Money
Market Portfolio
- --------------------------------------------------------------------------------
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
================================================================================
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Money Market $ 4,174,375 $ 3,527,715 $ 342,158
Portfolio
- --------------------------------------------------------------------------------
Municipal Money $ 190,687 $ 1,218,973 $ 17,576
Market Portfolio
- --------------------------------------------------------------------------------
Government $ 1,638,622 $ 671,811 $ 406,954
Obligations Money
Market Portfolio
================================================================================
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
================================================================================
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Money Market $ 2,274,697 $ 2,589,832 $ 12,047
Portfolio
- --------------------------------------------------------------------------------
Municipal Money $ 67,752 $ 1,041,321 $ 11,593
Market Portfolio
- --------------------------------------------------------------------------------
Government $ 780,122 $ 398,363 $ 0
Obligations Money
Market Portfolio
================================================================================
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
-21-
<PAGE>
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. The Sansom Street classes of the Fund pay their own
distribution fees, and may pay a different share than other classes of the Fund
(excluding advisory, sub-advisory and custodial fees) if those expenses are
actually incurred in a different amount.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
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, as
adjourned. Each Advisory Agreement 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 Agreements may also be
terminated by PIMC or PNC Bank,
-22-
<PAGE>
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements 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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
================================================================================
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Municipal Money Market $ 448,548 $ 0 $ 0
Portfolio
================================================================================
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
================================================================================
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Municipal Money Market $ 428,209 $ 0 $ 0
Portfolio
================================================================================
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
-23-
<PAGE>
================================================================================
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- --------------------------------------------------------------------------------
Municipal Money Market $ 321,790 $ 6,233 $ 0
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 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 Portfolio, (b) addresses and mails all
communications by each Portfolio to record owners of Shares of 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 Portfolio. 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
reimbursement of its out-of-pocket expenses.
-24-
<PAGE>
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 each of the Sansom Street
Classes (collectively, the "Distribution Agreements"), 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 appropriate efforts to distribute
shares of each of the Sansom Street Classes. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreements, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus.
Each of the Plans was approved 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").
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 Plans and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are 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 Plans shall not be materially
increased without the affirmative vote of the holders of a majority of the
Fund's shares in the affected Sansom Street Class; and (4) while the Plans
remain in effect, the selection and nomination of the 12b-1 Directors shall be
committed to the discretion of the directors who are not interested persons of
the Fund. The Fund believes that the 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 positions with the
Distributor. Mr. Sablowsky, a Director of the Fund, had an indirect interest in
the operation of the Plans by virtue of his position with Fahnestock & Co., Inc.
During the year or period ended August 31, 1997, the Fund paid
distribution fees to the Fund's Distributor under the Plans for the Sansom
Street 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 $358,899, $0 and $0, respectively. Of the amount paid
-25-
<PAGE>
to the Distributor on behalf of the Money Market Portfolio, $91,119 was paid to
Robertson Stephens and $267,780 as 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, 1997 no shares of the Sansom Street Classes of the
Municipal Money Market and Government Obligations Money Market Portfolios were
sold to the public.
As stated in the Prospectus for the Sansom Street Classes, the
Fund has adopted a Shareholder Servicing Plan on behalf of the Sansom Street
Classes under which the Fund may enter into service agreements with banks that
are affiliated with PNC Bank Corp. (the "Banks"). The Plan provides that the
Banks that are recordholders of shares of the Sansom Street Classes may receive
a fee of up to .20% under the Plan for services to their customers who are
beneficial owners of shares of the Sansom Street Classes ("Customers"). The Fund
has entered into agreements with the Banks pertaining to the provision of
support services to the 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, 1997, 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 $535,524, $0 and $0,
respectively.
-26-
<PAGE>
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less. Because all Portfolios intend to purchase only
securities with remaining maturities of 13 months or less, their 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
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
-27-
<PAGE>
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 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.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following Portfolios held the following securities:
================================================================================
PORTFOLIO SECURITY VALUE
- --------------------------------------------------------------------------------
Money Market Bear Stearns $ 105,000,000
Portfolio Companies, Inc.
Commercial Paper
- --------------------------------------------------------------------------------
Money Market Bear Stearns $ 20,000,000
Portfolio Companies, Inc.
Corporate
Obligation
================================================================================
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
-28-
<PAGE>
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.)
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 class 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
adding the value of the proportionate interest of the class in a Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Fund is
determined independently of the other classes of the Fund. A Portfolio's "net
assets" equal the value of a Portfolio's investments and other securities less
its liabilities. Each Portfolio's net asset value per share is computed twice
each day, as of 12:00 noon (Eastern Time) and as of the close of the NYSE
(generally 4:00 p.m. (Eastern Time), on each Business Day. "Business Day" means
each weekday when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE is closed weekends and on New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The FRB is
currently closed on weekends and the same holidays the NYSE as well as Veterans'
Day and Columbus Day.
-29-
<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 greater than 13 months 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 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
-30-
P
<PAGE>
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 annualized yields for the seven-day period ended August
31, 1997 for the Sansom Street Class of the Money Market Portfolio before
waivers was as follows:
================================================================================
TAX-EQUIVALENT YIELD
(ASSUMES A FEDERAL
EFFECTIVE INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------------------------------------------------------------------------------
Money Market 5.08% 5.21% N/A
================================================================================
The annualized yields for the seven-day period ended August
31, 1997 for the Sansom Street Class of the Money Market Portfolio after waivers
was as follows:
================================================================================
TAX-EQUIVALENT YIELD
(ASSUMES A FEDERAL
EFFECTIVE INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------------------------------------------------------------------------------
Money Market 5.23% 5.36% N/A
================================================================================
-31-
<PAGE>
During the foregoing time period, Shares of the Sansom Street
Classes of the Municipal Money Market and Government Obligations Money Market
Portfolios were not offered.
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 accounts 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 MONEY FUND
REPORT(R), 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 publication that monitors the
performance of mutual funds.
-32-
<PAGE>
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").
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
-33-
<PAGE>
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 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 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
-34-
<PAGE>
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 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 stand-by commitments with respect to Municipal Obligations
held in its portfolio and will treat any interest received on Municipal
Obligations subject to such stand-by 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 stand-by
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 or AMT Interest, up to 20% of the net assets of such
Portfolio may
-35-
<PAGE>
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 in accordance.
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 mid-term or other long-term capital gain, 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.
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 earnings 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, 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
-36-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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
-37-
<PAGE>
(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 Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH Common Stock (n/i Numeric Investors 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), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
700 million shares are classified as Class Janney Money Market Common Stock
(Money), 200 million shares are classified as Class Janney Municipal Money
Market Common Stock (Municipal Money), 500 million shares are classified as
Class Janney Government Obligations Money Market Common Stock (U.S. Government
Money), 100 million shares are classified as Class Janney 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
-38-
<PAGE>
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.
The classes of Common Stock have been grouped into fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the n/i Numeric Investors 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 and the
Janney Montgomery Scott Money Funds Family represent 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 Numeric Investors Family represents
interests in four non-money market portfolios; the Boston Partners Family
represents
-39-
<PAGE>
interests in three non-money market portfolios; the Beta, Gamma, Delta, Epsilon,
Zeta, Eta and Theta Families represents interest 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 voting 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 voting securities 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 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).
-40-
<PAGE>
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------------------------------------------------------------------------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
- --------------------------------------------------------------------------------
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
- --------------------------------------------------------------------------------
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
- --------------------------------------------------------------------------------
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
- --------------------------------------------------------------------------------
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
-41-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
- --------------------------------------------------------------------------------
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
- --------------------------------------------------------------------------------
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
- --------------------------------------------------------------------------------
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- --------------------------------------------------------------------------------
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
- --------------------------------------------------------------------------------
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
- --------------------------------------------------------------------------------
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
- --------------------------------------------------------------------------------
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
-42-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
- --------------------------------------------------------------------------------
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------------
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
- --------------------------------------------------------------------------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
- --------------------------------------------------------------------------------
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
- --------------------------------------------------------------------------------
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
- --------------------------------------------------------------------------------
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
- --------------------------------------------------------------------------------
Charles Schwab & Co. 88.82
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
-43-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
- --------------------------------------------------------------------------------
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
- --------------------------------------------------------------------------------
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
- --------------------------------------------------------------------------------
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
- --------------------------------------------------------------------------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
- --------------------------------------------------------------------------------
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
- --------------------------------------------------------------------------------
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- --------------------------------------------------------------------------------
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
- --------------------------------------------------------------------------------
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
-44-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
- --------------------------------------------------------------------------------
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
- --------------------------------------------------------------------------------
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
- --------------------------------------------------------------------------------
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
- --------------------------------------------------------------------------------
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
- --------------------------------------------------------------------------------
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
- --------------------------------------------------------------------------------
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
-45-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
- --------------------------------------------------------------------------------
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
- --------------------------------------------------------------------------------
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
- --------------------------------------------------------------------------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
- --------------------------------------------------------------------------------
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
- --------------------------------------------------------------------------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
- --------------------------------------------------------------------------------
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
- --------------------------------------------------------------------------------
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
- --------------------------------------------------------------------------------
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
- --------------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-46-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
- --------------------------------------------------------------------------------
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
- --------------------------------------------------------------------------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
- --------------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
- --------------------------------------------------------------------------------
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
- --------------------------------------------------------------------------------
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
-47-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
n/i Growth and Value Charles Schwab & Co. Inc. 22.9%
Fund (Class HH) Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
- --------------------------------------------------------------------------------
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
- --------------------------------------------------------------------------------
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------------
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
- --------------------------------------------------------------------------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
- --------------------------------------------------------------------------------
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
- --------------------------------------------------------------------------------
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
-48-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
- --------------------------------------------------------------------------------
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
- --------------------------------------------------------------------------------
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
- --------------------------------------------------------------------------------
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
-49-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
- --------------------------------------------------------------------------------
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------------
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
- --------------------------------------------------------------------------------
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
================================================================================
As of the same date, no person owned of record or, ot the
Fund's knowledge, beneficially, more than 25% of the outstanding shares of all
classes of the Fund; and as of the same date, directors and officers as a group
owned less than one percent of the shares of the Fund.
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
-50-
<PAGE>
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 underwriting securities, but such
banking laws and regulations do not prohibit such a holding company or affiliate
or banks generally from acting as investment adviser, administrator, 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 customers. PIMC, PNC Bank and
other institutions that are banks or bank affiliates are subject to such banking
laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1997
(the "1997 Annual Report") are incorporated by reference into this Statement of
Additional Information. No
-51-
<PAGE>
other parts of the 1997 Annual Report are incorporated by reference herein. The
financial statements included in the 1997 Annual Report have been audited by the
Fund's independent accountants, Coopers & Lybrand, L.L.P. The reports of Coopers
& Lybrand L.L.P. are incorporated herein by reference. Such financial statements
have been incorporated herein in reliance upon such reports given upon their
authority as experts in accounting and auditing. Copies of the 1997 Annual
Report may be obtained at no charge by telephoning the Distributor at the
telephone number appearing on the front page of this Statement of Additional
Information.
-52-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high
A-1
<PAGE>
internal cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the
Prime rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<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 ROBERTSON
BY THE FUND OR BY THE DISTRIBUTOR IN ANY STEPHENS
JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
_______________________ Money Market Portfolio
CONTENTS
PAGE
INTRODUCTION....................... 3
FINANCIAL HIGHLIGHTS............... 5
INVESTMENT LIMITATIONS............. 12
PURCHASE AND REDEMPTION OF SHARES.. 14
NET ASSET VALUE.................... 19
DISTRIBUTION OF SHARES............. 20 Prospectus and Summary
SHAREHOLDER SERVICING.............. 20 Description for the Sansom Street Shares
MANAGEMENT......................... 21 of the Money Market Portfolio
DIVIDENDS AND DISTRIBUTIONS.........24
TAXES.............................. 24
DESCRIPTION OF SHARES.............. 25
OTHER INFORMATION.................. 27 December 1, 1997
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities, Inc.
New York, New York
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
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 of one of such classes are offered by this Prospectus and represent
interests in the Fund's Money Market Portfolio.
The investment objective of the Money Market Portfolio is to provide as
high a level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in a diversified portfolio of U.S. dollar-denominated money market
instruments.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO 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 Portfolio, PNC Bank, National Association serves as sub-adviser for the
Portfolio and custodian for the Fund, and PFPC Inc. serves as transfer and
dividend disbursing agent for the Fund. Counsellors Securities Inc. acts as
distributor 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 1, 1997, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
this
<PAGE>
Prospectus. It may be obtained free of charge by calling the Fund's distributor
at (800) 888-9723. The Prospectus and Statement of Additional Information are
also available for reference, along with other related material on the SEC
Internet Website (http://www.sec.gov).
- --------------------------------------------------------------------------------
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 ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 1, 1997
-2-
<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. The
Fund is currently operating or proposing to operate twenty-two investment
portfolios. Shares ("Sansom Street Shares" or "Shares") of the Sansom Street
Class ("Sansom Street Class" or "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 it 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 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."
-3-
<PAGE>
FEE TABLE
The Fee Table below contains a summary of annual operating expenses
incurred by the Sansom Street Class of the Money Market Portfolio after fee
waivers and expense reimbursements for the fiscal year ended August 31, 1997 as
a percentage of average daily net assets. An example based on the summary is
also shown.
ANNUAL FUND OPERATING EXPENSES (SANSOM STREET CLASS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
MONEY MARKET
PORTFOLIO
Management Fees (after waivers)(1)................................ .22%
12b-1 Fees(1) .................................................... .06%
Other Expenses.................................................... .21%
----
Total Fund Operating Expenses (Sansom Street Class)
(after waivers)(1)................................................ .49%
====
(1) Management Fees and 12b-1 Fees are each based on average daily net
assets and are calculated daily and paid monthly. Before waivers for
the Money Market Portfolio, Management Fees would be .37% and Total
Fund Operating Expenses would be .64%.
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 Portfolio* $5 $16 $27 $62
* 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" 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"
-4-
<PAGE>
below.) Expense figures are based on actual costs and fees incurred by 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. In
addition, the investment adviser is currently voluntarily assuming additional
expenses of the Class. 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 shall 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.
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,
1993 through August 31, 1997, are a part of the Fund's financial statements for
the Portfolio which are incorporated by reference into the Statement of
Additional Information and have been audited by Coopers & Lybrand L.L.P.
("Coopers"), the Fund's independent accountants. The financial data for such
Portfolio for the periods ended August 31, 1989,
-5-
<PAGE>
1990, 1991 and 1992 are a part of previous financial statements audited by
Coopers. The financial data included in this table should be read in conjunction
with the financial statement and related notes. Further information about the
Portfolio is available in the Fund's Annual Report to Shareholders. Both the
Statement of Additional Information and the Annual Report to Shareholders may be
obtained from the Fund free of charge by calling the telephone number on page 1
of this Prospectus.
-6-
<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 For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- --------------- ---------------
<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 0.0510 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on
securities (both
realized and
unrealized)........ -- -- -- -- -- 0.0007
-------- -------- -------- -------- -------- --------
Total from
investment
operations..... 0.0510 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- -------- --------
Less distributions
Dividends (from
net investment
income)............ (0.0510) (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from
capital gains)..... -- -- -- -- -- (0.0007)
-------- -------- -------- -------- -------- --------
Total distributions.... (0.0510) (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return........... 5.22% 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios/Supplemental Data
Net assets,
end of period (000) $570,018 $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses
to average net
assets............. .49%(a) .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net
investment income
to average net
assets............. 5.10% 5.18% 5.43% 3.34% 3.04% 4.35%
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
For the Period
September 30, 1988
For the For the (Commencement of
Year Ended Year Ended 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 0.0684 0.0810 0.0818
Net gains on
securities (both
realized and
unrealized)........ -- -- --
-------- -------- --------
Total from
investment
operations..... 0.0684 0.0810 0.0818
-------- -------- --------
Less distributions
Dividends (from
net investment
income)............ (0.0684) (0.0810) (0.0818)
Distributions (from
capital gains)..... -- -- --
-------- -------- --------
Total distributions.... (0.0684) (0.0810) (0.0818)
-------- -------- --------
Net asset value,
end of period.......... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return........... 7.06% 8.40% 9.25%(b)
Ratios/Supplemental Data
Net assets,
end of period (000) $138,418 $106,743 $79,656
Ratios of expenses
to average net
assets............. .37%(a) .47%(a) .50%(a)(b)
Ratios of net
investment income
to average net
assets............. 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 .64%, .65%, .59%, .60%, .61%, .61%
and .73% for the years ended August 31, 1997, 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>
-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 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." There is no assurance that the investment
objective of the Portfolio will be achieved. 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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
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 ("Rating Organization"). 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 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
-8-
<PAGE>
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 13 months, depending upon the note involved) to demand
payment of the principal of a note. The notes are not typically rated by credit
rating agencies, but issuers of variable rate demand notes must satisfy the same
criteria as set forth above for issuers of commercial paper. If an issuer of a
variable rate demand note defaulted on its payment obligation, the Portfolio
might be unable to dispose of the note because of the absence of an active
secondary market. For this or other reasons, the Portfolio might suffer a loss
to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
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
-9-
<PAGE>
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 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds currently
with an agreement by the portfolio to repurchase them at an agreed upon time and
price. 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 Statement of Additional Information
under "Investment Objectives and Policies."
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
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
-10-
<PAGE>
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 Rating Organizations (e.g., commercial paper rated
"A-1" or "A-2" by Standard & Poor's Ratings Services ("S&P")), (3) securities
that are rated at the time of purchase by the only Rating Organization 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 a Rating Organization ("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, GICs, 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
-11-
<PAGE>
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.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Portfolio's investment objective and policies described above may
be changed by the Fund's Board of Directors without shareholder approval. 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 are in excess of 5% of
the Portfolio's net assets. (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
-12-
<PAGE>
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
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 shareholder vote.
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 (as defined below). "First Tier
Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or
more Rating Organizations in the highest rating category for such
securities, (ii) if rated by only one Rating Organization, are rated by
such Rating Organization 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 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.
-13-
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
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 a 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 shares of the Sansom Street Class of the Portfolio are 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 do not require customers to
pay a transaction fee.
DIRECT PURCHASES THROUGH A DEALER. An investor may make an initial
investment by mail by completing and signing an application obtained from a
Dealer (an "Application) and mailing
-14-
<PAGE>
it, together with a check payable to "Sansom Street Money Market," 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 purchase order in good 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. 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. Purchase orders for Shares are
accepted only on 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. 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
"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 and the Dealers 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 next 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
-15-
<PAGE>
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 the close of regular trading on
the NYSE (generally 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. If all shares are redeemed, all accrued but unpaid
dividends on those share will be paid with the redemption proceeds.
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
bank business day. If the redemption request is received between 12:00 noon and
the close of regular trading on the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading on the NYSE 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 requests to Sansom Street Money Market,
c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. It is recommended that such
requests 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
-16-
<PAGE>
owner. On redemption requests of $5,000 or more, a signature guarantee is
required. A signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or foreign association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are the Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone 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
redemption by calling (888) 261-4073. Neither the Fund, the Portfolio, the
Distributor, PFPC nor any other Fund agent will be liable for any loss,
liability, cost or expense for following the procedures described below or for
following instructions communicated by telephone that they reasonably believe 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 the name of the Portfolio, 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 broker-dealers, financial
institutions, securities dealers, financial planners or other industry
professionals, 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 an attorney-in-fact under power of
attorney.
Proceeds of a telephone redemption request will be mailed by
check to an investor's registered address unless he has
-17-
<PAGE>
designated in his Application or Telephone Authorization Form 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 the close of regular trading on the NYSE will result in
redemption proceeds being wired to the investor's bank account on the next bank
business day. 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, although no fee is currently contemplated.
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 may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares purchased by check before the check
clears, payment of the redemption proceeds may be delayed 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
-18-
<PAGE>
by wire payment. Investors should consider purchasing Shares using a certified
or bank check or money order if they anticipate an immediate need for redemption
proceeds.
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 30
days' notice, if such account drops below $500 and during such 30-day notice
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 Sansom Street Class 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 the
close of regular trading on the NYSE 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, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE is closed as well as Veterans' Day and Columbus Day. The
net asset value per share of each class of the Portfolio is calculated by adding
the value of the proportionate interest of the class in the securities, cash and
other assets of the Portfolio, deducting actual and accrued liabilities of the
class and dividing the result by the number of outstanding shares of the class.
The net asset value of each class is calculated independently of each other
class.
The Fund seeks to maintain for the Sansom Street Class of 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.
-19-
<PAGE>
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement 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 SEC, 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.
Under each of the Distribution Agreements and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
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 Dealers for other expenses
incurred in the promotion of the sale of Fund shares. The Distributor and/or
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 Sansom Street Class the fee
set forth above. Payments under the Plan are not based on expenses actually
incurred by the Distributor, and the payments may exceed distribution expenses
actually incurred.
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
their customers in consideration for payment of .25% (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
-20-
<PAGE>
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 that Class does not exceed the income of that 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
- --------------------------------------------------------------------------------
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 twenty-two separate investment
portfolios. The Sansom Street Class represents 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
subsidiary currently manage over $38.7 billion of assets, of which approximately
$35.2 billion are mutual funds. PNC Bank, a national bank whose principal
business address is 1600 Market Street, Philadelphia, Pennsylvania 19103, is a
wholly-owned subsidiary of PNC Bancorp, Inc. PNC Bancorp, Inc. is a bank holding
company and a wholly-owned subsidiary of PNC Bank Corp., a multi-bank holding
company.
As investment adviser to the Portfolio, PIMC manages such Portfolio and
is responsible for all purchases and sales of Portfolio securities. PIMC also
assists generally in supervising the operations of the Portfolio, and maintains
the 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.
-21-
<PAGE>
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. 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, 1997, the Fund paid
investment advisory fees aggregating .22% of the average net assets of the
Portfolio. For the same period, PIMC waived fees of approximately .15% of the
average 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. 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."
DISTRIBUTOR
Counsellors Securities Inc., a wholly-owned subsidiary of Warburg
Pincus Asset Management, Inc. with a principal business address at 466 Lexington
Avenue, New York, New York, acts as distributor for the Sansom Street Class of
the Fund pursuant to a distribution agreement and various supplements thereto
(the "Distribution Agreement"). 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 and promotional expenses. The Distributor monitors the
support services provided by the Banks as described in "Shareholder Servicing"
below.
-22-
<PAGE>
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. 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
on the relative net assets of the investment portfolios at the time such
expenses were accrued. The Sansom Street Classes of the Fund pay their own
distribution fees, and may pay a different share than other classes of the Fund
of other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the Sansom Street Classes or if they
receive different services.
The investment adviser may assume expenses of the Portfolio from time
to time. In certain circumstances, it may assume such expenses on the condition
that it be 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 lowering a Portfolio's expense ratio and of increasing yield to
investors.
For the fiscal year ended August 31, 1997, the total expenses were .64%
of average net assets with respect to the Sansom Street Class of the Money
Market Portfolio (not taking into account waivers of .15%).
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 engage 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
-23-
<PAGE>
might be required to after materials 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 the close of regular
trading of the NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, regardless of the length of time a
share-
-24-
<PAGE>
holder 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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 13.93 billion shares are currently
classified into 82 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 Agreements entered into with the
Distributor and pursuant to each of the distribution plans, the Distributor is
entitled to receive from each class as compensation for distribution services
provided to that class a distribution fee based on average daily net assets. A
salesperson or any other person entitled to receive
-25-
<PAGE>
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 OF THE MONEY
MARKET PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE SANSOM STREET CLASS OF
THIS PORTFOLIO.
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.
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 15, 1997, 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.
-26-
<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) 430-9618.
-27-
<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 1, 1997 (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General......................................... 2 3
Investment Objectives and
Policies...................................... 2 8
Directors and Officers.......................... 14 N/A
Investment Advisory, Distribution and
Servicing Arrangements........................ 20 20,21
Portfolio Transactions.......................... 25 N/A
Purchase and Redemption
Information................................... 26 14
Valuation of Shares............................. 27 19
Performance Information......................... 29 N/A
Taxes........................................... 31 24
Additional Information Concerning
Fund Shares................................... 34 25
Miscellaneous................................... 38 N/A
Financial Statements............................ 49 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 twenty-two
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 1, 1997. 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, as amended (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, or liquid 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 13 months,
provided: (i) the Portfolio is entitled to the payment of principal at any time,
or during specified intervals not exceeding 13 months, 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 13
months. In determining the average weighted maturity of the Money Market
Portfolio and whether a variable rate demand instrument has a remaining maturity
of 13 months or less, each instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the
2
<PAGE>
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. The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for a
Portfolio to dispose of variable or floating rate notes if the issuer defaulted
on its payment obligations or during periods that the Portfolio is not entitled
to exercise its demand right and the Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may
purchase "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 such commitments outstanding, it will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash
or liquid 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, it expected that commitments to purchase "when- issued"
securities will not exceed 25% of the value of the Portfolio's 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
3
<PAGE>
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 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 Portfolios 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. 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 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
4
<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.
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, the 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, as
amended. 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). The financial institutions with which the
Portfolio may enter into repurchase agreements will be banks 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, if such banks and non-bank dealers
are deemed creditworthy by the
5
<PAGE>
Portfolio's adviser or sub-adviser. A Portfolio's adviser or sub-adviser will
continue to monitor creditworthiness of the seller under a repurchase agreement,
and will require the seller to maintain during the term of the agreement the
value of the securities subject to the agreement to equal at least the
repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
(including accrued premium) provided in the repurchase agreement or the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark-to-market daily the value of the securities. 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.
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 13 months, 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
6
<PAGE>
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.
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 that
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.
MORTGAGE-RELATED SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban
7
<PAGE>
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Money Market Portfolio may invest in multiple class
pass-through securities, including collateralized mortgage obligations ("CMOs").
These multiple class securities may be issued by U.S. Government agencies or
instrumentalities, including FNMA and FHLMC, or by trusts formed by private
originators of, or investors in, mortgage loans. In general, CMOs are debt
obligations of a legal entity that are collateralized by a pool of residential
or commercial mortgage loans or mortgage pass-through securities (the "Mortgage
Assets"), the payments on which are used to make payments on the CMOs. Investors
may purchase beneficial interests in CMOs, which are known as "regular"
interests or "residual" interests. The residual in a CMO structure generally
represents the interest in any excess cash flow remaining after making required
payments of principal of and interest on the CMOs, as well as the related
administrative expenses of the issuer. Residual interests generally are junior
to, and may be significantly more volatile than, "regular" CMO interests. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and
8
<PAGE>
must be fully retired no later than its final distribution date. Principal
prepayments on the Mortgage Assets underlying the CMOs may cause some or all of
the classes of CMOs to be retired substantially earlier than their final
distribution dates. Generally, interest is paid or accrues on all classes of
CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs, payments of principal, including any
principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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 Rating
Organizations (as defined in the Prospectus) in the two highest rating
categories for such securities (e.g., commercial paper
9
<PAGE>
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 Rating Organization 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 13 months 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 a
Rating Organization ("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
13 months 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 Rating Organization 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
that 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
10
<PAGE>
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.
The Portfolio may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Portfolio's
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
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,
among others, 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% 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
11
<PAGE>
Portfolio's total assets at the time of such borrowing; or purchase
portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (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 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
12
<PAGE>
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
(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
shareholder approval.
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 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
13
<PAGE>
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 Rating Organization (as defined in the
Prospectus), are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii)
if rated by only one Rating Organization, are rated by such Rating
Organization 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.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages, business
addresses and principal occupations during the past five years are:
14
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
*Arnold M. Reichman -49 Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary, Warburg
Pincus Asset Management, Inc.;
Director and Executive Officer
of Counsellors Securities
Inc.; Director/Trustee of
various investment companies
advised by Warburg Pincus
Asset Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); Prior to
October 1996,
Executive Vice
President of Gruntal &
Co., Inc. (a
registered broker-
dealer).
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).
15
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE 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 since 1969,
16th Floor Comcast Corporation
Philadelphia, PA 19107-3723 (cable television and
communications); Director,
Comcast Cablevision of
Philadelphia (cable television
and communications) and Nextel
(wireless communications).
16
<PAGE>
POSITION PRINCIPAL OCCUPATION NAME AND ADDRESS AND AGE WITH
FUND DURING PAST FIVE YEARS ------------------------ ---------
- ---------------------- Donald van Roden -72 Director Self-employed 1200 Old Mill
Lane and businessman. From Wyomissing, PA 19610 Chairman February 1980 to March
of the 1987, Vice Chairman, Board SmithKline Beecham Corporation
(pharmaceuticals); Director, AAA Mid-Atlantic (auto service); Director, Keystone
Insurance Co.
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice
Bellevue Park Treasurer Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf; Trustee
Emeritus, Immaculata College;
President or Vice President
and Treasurer of various
investment companies advised
by PNC Institutional
Management Corporation;
Director, The Bradford Funds,
Inc.
Morgan R. Jones -58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker Biddle
1345 Chestnut Street & Reath LLP; Director,
Philadelphia, PA 19107-3496 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 positions 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 Fahnestock Co.,
Inc., a registered broker-dealer.
17
<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 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 the Distributor, and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
18
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------ ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and
Chairman
<FN>
- ----------------------
1 A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is na affiliated person of the investment adviser
of any other investment companies.
</FN>
</TABLE>
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 and one other
employee), pursuant to which the Fund will contribute on quarterly basis amounts
equal to 10% of the quarterly compensation of each eligible employee. By virtue
of the services performed by PNC Institutional Management Corporation ("PIMC"),
the Portfolio'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 two
part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to the Fund. 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
19
<PAGE>
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. Pursuant to the sub-advisory agreement, PNC Bank is
entitled to receive from PIMC an annual fee calculated at the annual rate of 75%
of the advisory fees received by PIMC on behalf of the Money Market Portfolio.
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
Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $5,366,431 $3,603,130 $469,986
Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $4,174,375 $3,527,715 $342,158
Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $2,274,697 $2,589,832 $12,047
Portfolio
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
20
<PAGE>
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) 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; (d) any extraordinary
expenses; (e) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; (f) the cost of
investment company literature and other publications provided by the Fund to its
directors and officers; (g) organizational costs; (h) fees to the investment
adviser, sub-adviser and PFPC; (i) fees and expenses of officers and directors
who are not affiliated with the Portfolios' investment adviser or Distributor;
(j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees;
(o) brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Sansom Street Classes of
the Fund pay their own distribution fees, and may pay a different share than the
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Sansom Street Classes or if they receive different services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved on
July 9, 1997 by a vote of the Fund's Board of
21
<PAGE>
Directors, including a majority of those directors who are not parties to the
Advisory Agreements or "interested persons" (as defined in the 1940 Act) of such
parties. The Advisory Agreements were each approved by the shareholders of the
Money Market Portfolio at a special meeting held December 22, 1989, as
adjourned. Each Advisory Agreement 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 Agreements may also be terminated by PIMC
or PNC Bank, respectively, on 60 days' written notice to the Fund. Each of the
Advisory Agreements 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 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,
22
<PAGE>
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 a fee
for each redemption check cleared and reimbursement of its out-of-pocket
expenses.
DISTRIBUTION AGREEMENT. Pursuant to the terms of a
distribution agreement, dated as of April 10, 1991, and a supplement entered
into by the Distributor and the Fund on behalf of the Sansom Street Class (the
"Distribution Agreement"), 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
appropriate efforts to distribute shares of the Sansom Street Class. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution Agreement, a distribution fee, to be calculated
daily and paid monthly, at the annual rate set forth in the Prospectus.
The Plan as amended was approved 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").
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 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 12b-1 Directors shall be
committed to the discretion of the directors who are not interested persons of
the Fund.
During the year ended August 31, 1997, 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
23
<PAGE>
aggregate amount of $358,899. Of that amount, $91,119 was paid to Robertson
Stephens and $267,780 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 positions with the Distributor. Mr.
Sablowsky, a Director of the Fund, had an indirect interest in the operation of
the Plan by virtue of his position with Fahnestock Co., Inc.
As stated in the Prospectus for the Sansom Street Class, the
Fund has adopted a Shareholder Servicing Plan on behalf of the Sansom Street
Classes under which the Fund may enter into service agreements with banks that
are affiliated with PNC Bank Corp. (the "Banks"). The Plan provides that banks
(the "Banks") that are recordholders of Shares of the Sansom Street classes may
receive a fee of up to .20% under the Plan for services to their customers
("Customers") who are beneficial owners of Shares. The Fund has entered into
agreements with the Banks pertaining to the provision of support services to the
Banks' Customers 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 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, 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, 1997, the Fund paid fees to
Banks under the relevant agreement for the Sansom Street Class of the Money
Market Portfolio in the amount of $535,524. During the year ended August 31,
1996, the Fund paid fees to Banks under the relevant agreement for the Sansom
Street Class of
24
<PAGE>
the Money Market Portfolio in the amount of $471,499. 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 $391,361.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase only securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
or less), and except that the Money Market Portfolio may purchase variable rate
securities with remaining maturities of 13 months 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 13 months or less. Because the
Portfolio intends to purchase only securities with remaining maturities of 13
months 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
25
<PAGE>
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 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.
The Fund is required to identify any securities of RBB's
regular broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Fund as of the end of its most recent fiscal year. As of
August 31, 1997, the following portfolios, held the following securities:
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Portfolio Bear Stearns Companies, $105,000,000
Inc. Commercial Paper
Money Market Portfolio Bear Stearns Companies, $ 20,000,000
Inc. Corporate Obligation
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
26
<PAGE>
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
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 each class 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
adding the value of the proportionate interest of the class in a Portfolio's
cash, securities, and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value of each class of the Fund is determined
independently of each other class. The Portfolio's "net assets" equal the value
of the Portfolio's investments and other securities less its liabilities. The
Portfolio's net asset value per share is computed twice each day, as of 12:00
noon (Eastern Time) and as of the close of the NYSE (generally 4:00 p.m. Eastern
Time), on each Business Day. "Business Day" means each weekday when both the
NYSE and the Federal Reserve Bank of Philadelphia (the "FRB") are open.
Currently, the NYSE is closed weekends and on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day,
27
<PAGE>
Thanksgiving Day and Christmas Day and the preceding Friday and subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays as the NYSE as well as
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.
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 13 months 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 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
28
<PAGE>
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 annualized yield for the seven-day period ended August 31,
1997 for the Sansom Street Class of the Money Market Portfolio before waivers
was as follows:
TAX EQUIVALENT YIELD
(ASSUMES A FEDERAL)
EFFECTIVE INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- --------- ------------------
Money Market 5.08% 5.21% N/A
The annualized yield for the seven-day period ended August 31,
1997 for the Sansom Street Class of the Money Market Portfolio after waivers was
as follows:
29
<PAGE>
TAX EQUIVALENT YIELD
(ASSUMES A FEDERAL
EFFECTIVE INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- --------- ------------------
Money Market 5.23% 5.36% N/A
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 accounts or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of a portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
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 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 MONEY FUND
REPORT(R), 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.
30
<PAGE>
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or their shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
The Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, the Portfolio
is exempt from federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the 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").
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.
31
<PAGE>
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 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 stand-by commitments
with respect to Municipal Obligations held in its portfolio and will treat any
interest received on Municipal
32
<PAGE>
Obligations subject to such stand-by 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 stand-by
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.
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 mid-term or other long-term capital gain, 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.
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 earnings 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
33
<PAGE>
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.
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 13.93 billion shares are
currently classified in 82 classes 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
34
<PAGE>
(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 Numeric Investors Micro Cap), 50
million shares are classified as Class GG Common Stock (n/i Numeric Investors
Growth), 50 million shares are classified as Class HH Common Stock (n/i Numeric
Investors 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),
100 million shares are classified as Class TT Common Stock (Boston Partners
Investor Mid Cap), 100 million shares are classified as Class UU Common
35
<PAGE>
Stock (Boston Partners Institutional Mid Cap), 100 million shares are classified
as Class VV Common Stock (Boston Partners Institutional Bond), 100 million
shares are classified as Class WW Common Stock (Boston Partners Investor Bond),
50 million shares are classified as Class XX Common Stock (n/i Numeric Investors
Larger Cap Value), 700 million shares are classified as Class Janney Money
Market Common Stock (Money), 200 million shares are classified as Class Janney
Municipal Money Market Common Stock (Municipal Money), 500 million shares are
classified as Class Janney Government Obligations Money Market Common Stock
(U.S. Government Money), 100 million shares are classified as Class Janney 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 Sansom 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 fourteen
separate "families": the Cash Preservation Family, the
36
<PAGE>
Sansom Street Family, the Bedford Family, the BEA Family, n/i Numeric Investors
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 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 BEA Family represents interests in ten non-money market
portfolios; the n/i Numeric Investors Family represents interests in four
non-money market portfolios; the Boston Partners Family represents interests in
three non-money market portfolios; the Janney Montgomery Scott Money Funds
Family and Beta, Gamma, Delta, Epsilon, Zeta, Eta and Theta Families represents
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 voting 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 voting securities 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 and the
election of directors are
37
<PAGE>
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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
38
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
39
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
40
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
41
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
42
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
43
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
44
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
45
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
46
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
47
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible
48
<PAGE>
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1997 Annual Report are incorporated by
reference herein. The financial statements included in the 1997 Annual Report
have been audited by the Fund's independent accountants, Coopers & Lybrand,
L.L.P. The reports of Coopers & Lybrand L.L.P. are incorporated herein by
reference. Such financial statements have been incorporated herein in reliance
upon such reports given upon their authority as experts in accounting and
auditing. Copies of the 1997 Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
49
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high
A-1
<PAGE>
internal cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or
A-5
<PAGE>
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for
corporate and municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present
A-6
<PAGE>
which make the long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
A-7
<PAGE>
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more
A-8
<PAGE>
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries.
A-9
<PAGE>
The following summarizes the rating categories used by IBCA for long-term debt
ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
A-10
<PAGE>
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG")
A-11
<PAGE>
and variable rate demand obligations are designated Variable Moody's Investment
Grade ("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the ratings by Moody's
Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<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
FINANCIAL HIGHLIGHTS.............................................. 6
INVESTMENT OBJECTIVES AND POLICIES................................ 11
INVESTMENT LIMITATIONS............................................ 22
PURCHASE AND REDEMPTION OF SHARES................................. 25
NET ASSET VALUE................................................... 31
MANAGEMENT........................................................ 32
DISTRIBUTION OF SHARES............................................ 36
DIVIDENDS AND DISTRIBUTIONS....................................... 36
TAXES............................................................. 37
DESCRIPTION OF SHARES............................................. 39
OTHER INFORMATION................................................. 41
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
================================================================================
================================================================================
GRUNTAL & CO. INCORPORATED
ESTABLISHED 1880
MEMBER NEW YORK STOCK EXCHANGE
PROSPECTUS
THE BEDFORD FAMILY
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
DECEMBER 1, 1997
<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. The Fund is
currently operating or proposing to operate twenty-two separate investment
portfolios. The shares (collectively, the "Bedford Shares" or "Shares") of the
classes (collectively, the "Bedford Classes") 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 (together, 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.
<PAGE>
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. The New York Municipal Money Market
Portfolio may invest a significant percentage of its assets in a single
issuer, and therefore investment in this Portfolio may be riskier than
an investment in other types of money market funds.
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 Portfolios, 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 1, 1997, 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. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the SEC Internet Website (http://www.sec.gov).
-2-
<PAGE>
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 1, 1997
-3-
<PAGE>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (BEDFORD CLASSES)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
The Fee Table below contains a summary of the annual operating expenses
of the Bedford Classes of the Portfolios based on expenses incurred for the
fiscal year ended August 31, 1997, as a percentage of average daily net assets.
An example based on the summary is also shown.
<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).............. .22% .04% .30% .02%
12b-1 Fees(1) .................................. .53 .56 .56 .52
Other Expenses.................................. .22 .25 .115 .26
--- --- ---- ---
Total Fund Operating Expenses
(Bedford Classes) (after waivers)(1).......... .97% .85% .975% .80%
=== === ==== ===
<FN>
(1) Management Fees and 12b-1 Fees are based on average daily net assets and
are calculated daily and paid monthly. Before 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%, .41% and .35%, respectively, and Total Fund
Operating Expenses would be 1.12%, 1.14%, 1.09% and 1.13%, 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 $31 $54 $119
Municipal Money Market*................... $ 9 $27 $47 $105
Government Obligations Money Market*...... $10 $31 $54 $120
New York Municipal Money Market*.......... $ 8 $26 $44 $ 99
* 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 Classes)" 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. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
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.
-4-
<PAGE>
(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
Classes. 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 figures 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 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 Shares of the Bedford Classes, 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."
-5-
<PAGE>
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, 1993 through
August 31, 1997 are part of the Fund's financial statements for each of the
Portfolios, which have been incorporated by reference into the Statement of
Additional Information and have been audited by Coopers & Lybrand L.L.P.,
("Coopers") the Fund's independent accountants. The financial data for each of
the Portfolios for the periods ended August 31, 1989, 1990, 1991 and 1992 are a
part of previous financial statements audited by Coopers. Further information
about the performance of the Portfolios is available in the Annual Report to
Shareholders. Both the Statement of Additional Information and the Annual Report
to Shareholders may be obtained free of charge by calling the telephone number
on page 1 of this Prospectus.
-6-
<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 FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <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
---------- ---------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.0462 0.0469 0.0486 0.0278 0.0243 0.0375 0.0629
Net gains on securities
(both realized and
unrealized).......... -- -- -- -- -- 0.0007 --
---------- ---------- -------- -------- -------- -------- --------
Total from invest-
ment operations 0.0462 0.0469 0.0486 0.0278 0.0243 0.0382 0.0629
---------- ---------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income).. (0.0462) (0.0469) (0.0486) (0.0278) (0.0243) (0.0375) (0.0629)
Distributions (from
capital gains)..... -- -- -- -- -- (0.0007) --
---------- ---------- -------- -------- -------- -------- --------
Total distributions (0.0462) (0.0469) (0.0486) (0.0278) (0.0243) (0.0382) (0.0629)
---------- ---------- -------- -------- -------- -------- --------
Net asset value, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======== ======== ======== ========
Total return........... 4.72% 4.79% 4.97% 2.81% 2.46% 3.89% 6.48%
Ratios/Supplemental Data
Net assets, end of
period (000)....... $1,392,911 $1,109,334 $935,821 $710,737 $782,153 $736,842 $747,530
Ratios of expenses to
average net assets. .97%(a) .97%(a) .96%(a) .95%(a) .95%(a) .95%(a) .92%(a)
Ratios of net investment
income to average net
assets............. 4.62% 4.69% 4.86% 2.78% 2.43% 3.75% 6.29%
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
AUGUST 31, AUGUST 31,
1990 1989
---------- ------------------
<S> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00
-------- --------
Income from investment
operations:
Net investment income 0.0765 0.0779
Net gains on securities
(both realized and
unrealized).......... -- --
-------- --------
Total from invest-
ment operations 0.0765 0.0779
-------- --------
Less distributions
Dividends (from net
investment income).. (0.0765) (0.0779)
Distributions (from
capital gains)..... -- --
-------- --------
Total distributions (0.0765) (0.0779)
-------- --------
Net asset value, end of
period............... $ 1.00 $ 1.00
======== ========
Total return........... 7.92% 8.81%(b)
Ratios/Supplemental Data
Net assets, end of
period (000)....... $709,757 $152,311
Ratios of expenses to
average net assets. .92%(a) .93%(a)(b)
Ratios of net investment
income to average net
assets............. 7.65% 8.61%(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 1.12%,
1.14%, 1.17%, 1.16%, 1.19%, 1.20%, 1.17% and 1.16% for the years ended
August 31, 1997, 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>
-7-
<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 FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <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
-------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.0285 0.0288 0.0297 0.0195 0.0195 0.0287 0.0431
Net gains on securities
(both realized and
unrealized)......... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total from invest-
ment operations. 0.0285 0.0288 0.0297 0.0195 0.0195 0.0287 0.0431
-------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income).. (0.0285) (0.0288) (0.0297) (0.0195) (0.0195) (0.0287) (0.0431)
Distributions (from
capital gains)...... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total
distributions... (0.0285) (0.0288) (0.0297) (0.0195) (0.0195) (0.0287) (0.0431)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return........... 2.88% 2.92% 3.01% 1.97% 1.96% 2.90% 4.40%
Ratios/Supplemental Data
Net assets, end of
period (000)....... $213,034 $201,940 $198,425 $182,480 $215,577 $176,950 $215,140
Ratios of expenses to
average net assets. .85%(a) .84%(a) .82%(a) .77%(a) .77%(a) .77%(a) .74%(a)
Ratios of net investment
income to average net
assets............. 2.85% 2.88% 2.97% 1.95% 1.95% 2.87% 4.31%
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS)
AUGUST 31, TO AUGUST 31,
1990 1989
---------- -----------------
<S> <C> <C>
Net asset value,
beginning of period. $ 1.00 $ 1.00
-------- --------
Income from investment
operations:
Net investment income 0.0522 0.0513
Net gains on securities
(both realized and
unrealized)......... -- --
-------- --------
Total from invest-
ment operations. 0.0522 0.0513
-------- --------
Less distributions
Dividends (from net
investment income).. (0.0522) (0.0513)
Distributions (from
capital gains)...... -- --
-------- --------
Total
distributions... (0.0522) (0.0513)
-------- --------
Net asset value, end of
period............... $ 1.00 $ 1.00
======== ========
Total return........... 5.35% 5.72%(b)
Ratios/Supplemental Data
Net assets, end of
period (000)....... $195,566 $ 85,806
Ratios of expenses to
average net assets. .75%(a) .73%(a)(b)
Ratios of net investment
income to average net
assets............. 5.22% 5.70%(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 Municipal Money Market Portfolio would have been
1.14%, 1.12%, 1.14%, 1.12%, 1.16%, 1.15%, 1.13% and 1.14% for the years
ended August 31, 1997, 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>
-8-
<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 FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <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
-------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.0449 0.0458 0.0475 0.0270 0.0231 0.0375 0.0604
Net gains on securities
(both realized and
unrealized)........ -- -- -- -- -- 0.0009 --
-------- -------- -------- -------- -------- -------- --------
Total from invest-
ment operations.. 0.0449 0.0458 0.0475 0.0270 0.0231 0.0384 0.0604
-------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income). (0.0449) (0.0458) (0.0475) (0.0270) (0.0231) (0.0375) (0.0604)
Distributions (from
capital gains)..... -- -- -- -- -- (0.0009) --
-------- -------- -------- -------- -------- -------- --------
Total distributions (0.0449) (0.0458) (0.0475) (0.0270) (0.0231) (0.0384) (0.0604)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return........... 4.59% 4.68% 4.86% 2.73% 2.33% 3.91% 6.21%
Ratios/Supplemental Data
Net assets, end of
period (000)....... $209,715 $192,599 $163,398 $166,418 $213,741 $225,101 $368,899
Ratios of expenses to
average net assets. .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .95%(a)
Ratios of net investment
income to average net
assets............. 4.49% 4.58% 4.75% 2.70% 2.31% 3.75% 6.04%
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS)
AUGUST 31, TO AUGUST 31,
1990 1989
---------- -----------------
<S> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00
-------- --------
Income from investment
operations:
Net investment income 0.0748 0.0725
Net gains on securities
(both realized and
unrealized)........ -- --
-------- --------
Total from invest-
ment operations.. 0.0748 0.0725
-------- --------
Less distributions
Dividends (from net
investment income). (0.0748) (0.0725)
Distributions (from
capital gains)..... -- --
-------- --------
Total distributions (0.0748) (0.0725)
-------- --------
Net asset value, end of
period............... $ 1.00 $ 1.00
======== ========
Total return........... 7.74% 8.64%(b)
Ratios/Supplemental Data
Net assets, end of
period (000)....... $209,378 $ 66,281
Ratios of expenses to
average net assets. .95%(a) .96%(a)(b)
Ratios of net investment
income to average net
assets............. 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
1.09%, 1.10%, 1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17% for the years
ended August 31, 1997, 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>
-9-
<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 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,
1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------------
<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..... 0.0276 0.0278 0.0290 0.0198 0.0234 0.0300 0.0369 0.0060
Net gains on securities (both
realized and unrealized) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.......... 0.0276 0.0278 0.0290 0.0198 0.0234 0.0300 0.0369 0.0060
------- ------- ------- ------- ------- ------- ------- -------
Less distributions
Dividends (from net investment
income)................. (0.0276) (0.0278) (0.0290) (0.0198) (0.0234) (0.0300) (0.0369) (0.0060)
Distributions (from capital
gains).................. -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions... (0.0276) (0.0278) (0.0290) (0.0198) (0.0234) (0.0300) (0.0369) (0.0060)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= =======
Total return................ 2.80% 2.83% 2.94% 2.00% 2.37% 3.04% 3.76% 4.50%(b)
Ratios/Supplemental Data
Net assets, end of
period (000)............ $79,146 $68,116 $60,330 $52,222 $55,677 $40,751 $34,183 $35,662
Ratios of expenses to average
net assets.............. .80%(a) .78%(a) .76%(a) .50%(a) .14%(a) .33%(a) .89%(a) .95%(a)(b)
Ratios of net investment income to
average net assets...... 2.76% 2.78% 2.90% 1.98% 2.34% 3.00% 3.69% 4.41%(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 New York Municipal Money Market Portfolio would have been 1.13%,
1.14%, 1.22%, 1.20%, 1.20%, 1.22%, and 1.25% for the years ended August 31,
1997, 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>
-10-
<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 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." There is no
assurance that the investment objective of the Portfolio will be achieved. 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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
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 ("Rating Organization"). 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 purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is
U.S. dollar-denominated
-11-
<PAGE>
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 13 months, depending upon the note involved) to
demand payment of the principal of a note. The notes are not typically rated by
credit rating agencies, but issuers of variable rate demand notes must satisfy
the same criteria as set forth above for issuers of commercial paper. If an
issuer of a variable rate demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of an
active secondary market. For this or other reasons, the Portfolio might suffer a
loss to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk, The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
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
-12-
<PAGE>
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 13 months
or less. Asset-backed securities are considered an industry for industry
concentration purposes. See "Investment Limitations." In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by a Portfolio will generally be at lower
rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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."
-13-
<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 Rating Organizations (e.g., commercial paper rated
"A-1" or "A-2" by Standard & Poor's Ratings Services ("S&P")), (3) securities
that are rated at the time of purchase by the only Rating Organization 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 a Rating Organization ("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, and 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
-14-
<PAGE>
the prices at which they are valued, GICs, 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"). There is
no assurance that the investment objective of the Portfolio will be achieved.
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
-15-
<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.
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
-16-
<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 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 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" and "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 as described under "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.
-17-
<PAGE>
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. There is no assurance that the investment objective of the Portfolio
will be achieved.
Due to fluctuations in interest rates, the market values of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 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 more complete 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 more complete description of
reverse repurchase agreements, see "Investment Objectives and Policies--Money
Market Portfolio-- Reverse Repurchase Agreements."
-18-
<PAGE>
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. Mortgage- related
securities consist of mortgage loans which 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. The
Fund may also acquire asset-backed securities as described under "Investment
Objectives and Policies--Money Market Portfolio-Asset-Backed Securities."
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 advisers 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.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "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 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
-19-
<PAGE>
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 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 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 more complete 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 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."
-20-
<PAGE>
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 Investors Service, Inc. ("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" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines. 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 than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio would be mitigated by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities.
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.
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
-21-
<PAGE>
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
S&P and 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 as described under "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 shareholder approval. The Portfolios may not, however,
change the following investment limitations (except as noted) 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.")
-22-
<PAGE>
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.
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
-23-
<PAGE>
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 Rating Organization, are rated (at
the time of purchase) by two or more Rating Organizations in the
highest rating category for such securities, (ii) if rated by only one
Rating Organization, are rated by such Rating Organization 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.
The Municipal Money Market Portfolio 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 in 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 or
AMT Interest.
-24-
<PAGE>
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 provisions applicable to regulated investment
companies.
The New York Municipal Money Market Portfolio 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 shareholder approval, 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. Bedford Shares are sold without a sales load on a continuous
basis by the Distributor. The Distributor is located
-25-
<PAGE>
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 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 good order 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. 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. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC 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 PFPC after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
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 the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE 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 the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
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 investment 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 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, and this Prospectus should be read
in conjunction with any information received from a broker.
-26-
<PAGE>
Shareholders whose shares are held in the street name account of a
broker and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
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 the close of regular trading on the NYSE 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" 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
-27-
<PAGE>
this service. The Fund does not currently charge for effecting wire transfers
but reserves the right to do so in the future. 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 your name, address,
telephone number, Social Security or Tax Identification Number, the Bedford
Class selected, the amount being wired, and by which bank or Dealer. PFPC will
then provide an investor with a Fund account number. (Investors with existing
accounts should also notify PFPC 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 initial purchases 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 through an account may redeem
-28-
<PAGE>
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 the close of regular
trading on the NYSE on a Business Day, the redemption will be effective as of
the close of regular trading on the NYSE 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 may 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 may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone 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
-29-
<PAGE>
by telephone to request the redemption by calling (888) 261-4073. Neither the
Fund, the Distributor, the Portfolios, PFPC nor any other Fund agent will be
liable for any loss, liability, cost or expense for following the procedures
below or for following instructions communicated by telephone that they
reasonably believe 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 Portfolio, 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 broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, 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.
Proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form 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 the close of regular
trading of the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. 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, although no fee is
currently contemplated.
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
-30-
<PAGE>
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check if they anticipate an immediate need for
redemption proceeds.
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 thirty day notice
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 class of the Portfolios for the
purpose of pricing purchase and redemption
-31-
<PAGE>
orders is determined twice each day, once as of 12:00 noon Eastern Time and once
as of the close of regular trading on the NYSE 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, Dr. Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday. The FRB is currently closed on weekends
and the same holidays on which the NYSE is closed as well as Veterans' Day and
Columbus Day. The net asset value of each class of the Portfolios is calculated
by adding the proportionate interest of each class in the value of the
securities, cash and other assets of the Portfolio, subtracting the actual and
accrued liabilities of the class and dividing the result by the number of
outstanding shares of the class. The net asset value per share of each class of
the Fund is determined independently of any of the Fund's other classes.
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 twenty-two investment portfolios. Each of the
Bedford Classes represents interests in one of the following portfolios: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio.
-32-
<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 $38.7 billion of
assets, of which approximately $35.2 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 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
-33-
<PAGE>
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, 1997, the Fund paid
investment advisory fees aggregating .22% of the average net assets of the Money
Market Portfolio, .04% 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 .02% of the average net assets of the New York Municipal
Money Market Portfolio. For that same year, PIMC waived approximately .15%,
.29%, .11% and .33% 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. PFPC's principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809.
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 Dealers for the provision of certain shareholder support
services to customers of such 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."
-34-
<PAGE>
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
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 a distribution
agreement and various supplements thereto (collectively, the "Distribution
Agreements").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. 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. The Bedford Classes
of the Fund pay their own distribution fees and may pay a different share than
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Bedford Classes or if they receive different services.
The investment adviser may assume 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 lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1997, the Fund's total
expenses were 1.12% of the average net assets with respect to the Bedford Class
of the Money Market Portfolio (not taking into account waivers and
reimbursements of .15%), were 1.14% 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 .29%), were 1.09% 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 .115%)
and were 1.13% 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 .33%).
-35-
<PAGE>
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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 Agreements, 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 Agreements and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including 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 Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or 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 Agreement. Payments under the
Plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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
-36-
<PAGE>
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 the close of regular
trading on the NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. Corporate taxpayers
are taxed at the same rates on both ordinary income and capital gains.
-37-
<PAGE>
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 28% 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.
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
-38-
<PAGE>
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 13.93 billion shares are currently
classified into 82 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,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios to expand its marketing alternatives and to
broaden its range of
-39-
<PAGE>
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 Agreements entered into with the
Distributor and pursuant to each of the distribution plans, the Distributor is
entitled to receive from each class as compensation for distribution services
provided to that class 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 OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE BEDFORD
CLASSES OF THESE PORTFOLIOS.
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
-40-
<PAGE>
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 15, 1997, 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).
-41-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-42-
<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 1, 1997 (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General............................................... 2 3
Investment Objectives and Policies.................... 2 11
Directors and Officers................................ 36 N/A
Investment Advisory, Distribution and
Servicing Arrangements.............................. 41 28,30
Portfolio Transactions................................ 48 N/A
Purchase and Redemption Information................... 49 21
Valuation of Shares................................... 50 27
Performance Information............................... 52 N/A
Taxes................................................. 54 32
Additional Information Concerning Fund
Shares.............................................. 59 34
Miscellaneous......................................... 62 N/A
Financial Statements.................................. 73 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 twenty-two
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 1,
1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
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
-2-
<PAGE>
instrument has a remaining maturity of 13 months 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. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of variable or floating rate notes if the issuer defaulted on its
payment obligations or during periods that the Portfolio is not entitled to
exercise its demand right, and the Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios has
such commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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,
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 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. Because 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, it is expected that commitments to purchase "when-issued"
securities will not exceed 25% of the value of a Portfolio's total assets absent
unusual market conditions. When the Money Market, Municipal Money Market or the
New York Municipal Money Market Portfolios engage 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, Municipal
Money Market and New York Municipal Money Market Portfolios 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
-3-
<PAGE>
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 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. These Portfolios'
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.
-4-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short
-5-
<PAGE>
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) 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.
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 13 months, 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
-6-
<PAGE>
is tax-exempt only if the bonds fall within certain defined categories of
qualified private activity bonds and meet the requirements specified in those
respective categories. In addition, interest on Alternative Minimum Tax
Securities that is received by taxpayers subject to alternative minimum tax is
taxable. The Act has generally not changed the tax treatment of bonds issued to
finance governmental operations. As used in this Prospectus, the term "private
activity bonds" also includes industrial development revenue bonds issued prior
to the effective date of the provisions of the Tax Reform Act of 1986. Investors
should also be aware of the possibility of state and local alternative minimum
or minimum income tax liability on interest from Alternative Minimum Tax
Securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S.
Government obligations include U.S. Treasury Bills, Treasury Notes and Treasury
Bonds and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export- Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the 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, as
amended. 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.
-7-
<PAGE>
Repurchase agreements are considered to be loans by a Portfolio under the 1940
Act.
MORTGAGE-RELATED SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage
-8-
<PAGE>
Assets"), the payments on which are used to make payments on the CMOs. Investors
may purchase beneficial interests in CMOs, which are known as "regular"
interests or "residual" interests. The residual in a CMO structure generally
represents the interest in any excess cash flow remaining after making required
payments of principal of and interest on the CMOs, as well as the related
administrative expenses of the issuer. Residual interests generally are junior
to, and may be significantly more volatile than, "regular" CMO interests. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security
-9-
<PAGE>
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income 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 ("Rating Organizations")
in the two highest rating categories for such securities (e.g., commercial paper
rated "A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b)
are rated (at the time of purchase) by the only Rating Organization 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 13 months 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 a Rating Organization ("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 13 months 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 Rating Organization or that are Unrated Securities.
-10-
<PAGE>
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 that 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.
Mutual funds do not typically hold a significant amount of
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.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
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,
among others, 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).
-11-
<PAGE>
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL
OBLIGATIONS.
Some of the significant financial considerations relating to
the Fund's investments in New York Municipal Obligations are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have 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 very
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 a large portion of 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 position.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and remained lower
until 1991; since then, it has been higher than the national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all monies and revenues estimated to be available
therefor,
-12-
<PAGE>
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 an explanation of any changes from the previous state financial plan.
The State's budget for the 1997-98 fiscal year was adopted by
the Legislature on August 4, 1997, more than four 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 necessary appropriations for State- supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General
Fund disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The
General Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced
on a cash basis. The Financial Plan projections include a reserve for future
needs of $530 million. As compared to the Governor's Executive Budget as amended
in February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local assistance ($1.3
billion). Resources used to fund these additional expenditures include increased
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re- estimates of
social service, fringe benefit and other spending, and certain non-recurring
resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of
-13-
<PAGE>
State and local taxes in New York and to improve the State's competitive
position vis-a-vis other states. The various elements of the State and local tax
and assessments reductions have little or no impact on the 1997-98 State
Financial Plan, and do not begin to materially affect the outyear projections
until the State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the federal government,
that are not under the control of the State. In addition, the financial plan is
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. Actual results, however, could differ
materially and adversely from the projections set forth in the 1997-98 State
Financial Plan, and those projections may be changed materially and adversely
from time to time.
In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the Division of Budget believes it could take similar actions should
variances occur in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts
and disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors have created structural
budget gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution, the Governor is required to propose a balanced budget each
year. There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the
-14-
<PAGE>
State's actions will be sufficient to preserve budgetary balance in a given
fiscal year or to align recurring receipts and disbursements in future fiscal
years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000- 2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2001 State fiscal year
could grow to nearly $12 billion.
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 State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in
the 1997-98 fiscal year are projected to be $35.09 billion, an increase of over
$2 billion or approximately 6% from the $33.04 billion recorded in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
-15-
<PAGE>
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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 general obligation 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 general obligation 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 from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general obligation and 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 and 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 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 public authority, municipality or other entity, the
State's obligation to make such 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to
-16-
<PAGE>
restructure and improve JDA's capital structure. Due to concerns regarding the
economic viability of its programs, JDA's loan and loan guarantee activities had
been suspended since the Governor took office in 1995. As a result of the
structural imbalances in JDA's capital structure, and defaults in its loan
portfolio and loan guarantee program incurred between 1991 and 1996, JDA would
have experienced a debt service cash flow shortfall had it not completed its
recent refinancing. JDA anticipates that it will transact additional
refinancings in 1999, 2000 and 2003 to complete its long-term plan of finance
and further alleviate cash flow imbalances which are likely to occur in future
years. The State does not anticipate that it will be called upon to make any
payments pursuant to the State guarantee in the 1997-98 fiscal year. JDA
recently resumed its lending activities under a revised set of lending programs
and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation empowered LGAC to issue its bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of these long-term obligations,
which were 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 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
the need for additional borrowing and provided a schedule for reducing it to the
cap. If borrowing above the cap was thus permitted in any fiscal year, it was
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.
On January 13, 1992, S&P 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. See Appendix A for an explanation of bond ratings. On August
28, 1997, S&P revised its ratings on the State's general obligation bonds from
A- to A and revised its ratings on the State's moral obligation, lease purchase,
guaranteed and contractual obligation debt. On January 6, 1992, Moody's reduced
its ratings on outstanding limited-liability State lease purchase and
contractual obligations from A to Baa1. On February 28, 1994,
-17-
<PAGE>
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 the 1997-98
fiscal year. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding bond anticipation
notes) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of State borrowings for the 1997-98 fiscal year is subject to change as market
conditions, interest rates and other factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved
two new authorizations for lease-purchase and contractual obligation financings.
An aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.
Principal and interest payments on general obligation bonds
and interest payments on bond anticipation notes were $749.6 million for the
1996-97 fiscal year, and are estimated to be $720.9 million for the 1997-98
fiscal year. Principal and interest payments on fixed rate and variable rate
bonds issued by LGAC were $329.5 million for the 1996-97 fiscal year, and are
estimated to be $329.6 million for the 1997-98 fiscal year. State lease-purchase
and contractual-obligation payments were $1.74 billion in fiscal year 1996-97,
and are estimated to be $2.21 billion in fiscal year 1997-98.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
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
-18-
<PAGE>
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 and upstate New York; (2) certain aspects
of New York State's Medicaid policies, including 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 to regulations promulgated by
the Superintendent of Insurance establishing certain excess medical malpractice
premium rates; (7) challenges to certain aspects of petroleum business taxes;
(8) an action alleging damages resulting from the failure by the State's
Department of Environmental Conservation to timely provide certain data; (9)
challenges to the constitutionality of Public Health Law 2807-d, which imposes a
gross receipts tax from certain patient care services; (10) an action seeking
reimbursement from the State for certain costs arising out of the provision of
pre-school services and programs for disabled children; (11) an action seeking
enforcement of certain sales and excise taxes and tobacco products and motor
fuel sold to non- Indian consumers on Indian reservations; and (12) a challenge
to the constitutionality of Clean Water/Clean Air Bond Act.
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 developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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 was required to make aggregate payments of $351.4 million.
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. Litigation challenging the
constitutionality of the treatment of certain monies held in a reserve fund was
settled in June 1996 and certain amounts in a Supplemental Reserve Fund
previously credited by the State
-19-
<PAGE>
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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.
AUTHORITIES. The fiscal stability of New York State is
related, in part, 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 is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by
the projects they finance or operate, such as fares,
-20-
<PAGE>
user fees on bridges, highway tolls and rentals for dormitory rooms and housing.
In recent years, however, New York State has provided financial assistance
through appropriations, in some cases of a recurring nature, to certain of the
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 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 may also be impacted by 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable GAAP. The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results.
There can be no assurance that the City will continue to maintain a balanced
budget as required by State law without additional tax or other revenue
increases or additional reductions in City services or entitlement programs,
which could adversely affect the City's economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
-21-
<PAGE>
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing the City's chronic structural budget problems and weak
economic outlook. S&P 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 created the Municipal Assistance Corporation
("MAC") in 1975. Since its creation, MAC has provided, among other things,
financing assistance to the City by refunding maturing City short-term debt and
transferring to the City funds received from sales of MAC bonds and notes. 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, subject to certain prior claims, 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. 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, 1997, MAC had
outstanding an aggregate of approximately $4.267 billion of its bonds. MAC is
authorized to issue bonds and notes to refund its outstanding bonds and notes
and to fund certain reserves, without limitation as to principal amount, and to
finance certain capital commitments to the Transit Authority and the New York
City School Construction Authority through the 1997 fiscal year in the event the
City fails to provide such financing.
-22-
<PAGE>
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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and the City
University of New York and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The financial plan included increased tax
revenue projections; reduced debt service costs; the assumed restoration of
Federal funding for programs assisting certain legal aliens; additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization, initiatives proposed by the
City Council and other initiatives; and a proposed discretionary transfer to the
1998 fiscal year of $300 million of debt service due in the 1999 fiscal year for
budget stabilization purposes. In addition, the financial plan reflected the
discretionary transfer to the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years, and included actions to eliminate a
previously projected budget gap for the 1998 fiscal year. These gap-closing
actions included (i) additional agency actions totaling $621 million; (ii) the
proposed sale of various assets; (iii) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City
-23-
<PAGE>
from March 1999; and (iv) entitlement savings of $128 million which would result
from certain of the reductions in Medicaid spending proposed in the Governor's
1997-1998 Executive Budget and the State making available to the City $77
million of additional Federal block grant aid, as proposed in the Governor's
1997-1998 Executive Budget. The 1998-2001 Financial Plan also set forth
projections for the 1999 through 2001 fiscal years and projected gaps of $1.8
billion, $2.8 billion and $2.6 billion for the 1999 through 2001 fiscal years,
respectively.
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide revenues of
$188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected
the increased costs which the City is prepared to incur as a result of welfare
legislation recently enacted by Congress. The 1998-2001 Financial Plan provided
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the
State has adopted its budget for the 1997-1998 fiscal year.
-24-
<PAGE>
The State budget (1) enacted a smaller sales tax reduction than the tax
reduction program assumed by the City in the Financial Plan, which will increase
projected City sales tax revenues; (2) provided for State aid to the City which
was less than assumed in the Financial Plan; and enacted a State-funded tax
relief program which begins a year later than reflected in the financial plan.
In addition, the net effect of tax law changes made in the Federal Balanced
Budget Act of 1997 are expected to increase tax revenues in the 1998 fiscal
year.
Although the City has maintained balanced budgets in each of
its last sixteen fiscal years and is projected to achieve balanced operating
results for the 1997 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998- 2001 Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general obligation bonds and $5.7 billion of bonds
to be issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City
-25-
<PAGE>
fiscal year 1999-2000. Indebtedness subject to the constitutional debt limit
includes liability on capital contracts that are expected to be funded with
general obligation bonds, as well as general obligation bonds. On June 2, 1997,
an action was commenced seeking a declaratory judgment declaring the legislation
establishing the Transitional Finance Authority to be unconstitutional. If such
legislation were voided, projected contracts for the City capital projects would
exceed the City's debt limit during fiscal year 1997-98. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment 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
-26-
<PAGE>
oversight of the fiscal affairs of Yonkers. Future actions taken by the State to
assist Yonkers could result in increased State expenditures for extraordinary
local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 State budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the total indebtedness
of all localities in New York State other than New York City was approximately
$19 billion. A small portion (approximately $102.3 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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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
-27-
<PAGE>
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% for all borrowings of the Portfolio; or
mortgage, pledge, or 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 are in excess of 5% of
the Portfolio's net assets. (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
-28-
<PAGE>
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:
-29-
<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
shareholder approval.
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 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
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
-30-
<PAGE>
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 Rating Organization (as defined in the Prospectus),
are rated (at the time of purchase) by two or more Rating Organizations
in the highest rating category for such securities, (ii) if rated by
only one Rating Organization, are rated by such Rating Organization 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.
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.
-31-
<PAGE>
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% 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 are in excess of 5% of the Portfolio's net
assets. (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
shareholder approval.
-32-
<PAGE>
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% for all borrowings
of the Portfolio; or mortgage, pledge, or 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 are
in excess of 5% of the Portfolio's net assets. (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;
-33-
<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
shareholder approval.
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
-34-
<PAGE>
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.
-35-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
*Arnold M. Reichman - 49 Director Senior Managing Director,
466 Lexington Avenue Chief Operating Officer
New York, NY 10017 and Assistant Secretary,
Warburg Pincus Asset
Management, Inc.; Director and
Executive Officer of
Counsellors Securities Inc.;
Director/Trustee of various
investment companies advised
by Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky - 58 Director Senior Vice
110 Wall Street President,
New York, NY 10005 Fahnestock Co., Inc.
(a registered
broker-dealer);
Prior to October
1996, Executive Vice
President of Gruntal
& Co., Inc. (a
registered broker-
dealer).
Francis J. McKay - 60 Director Since 1963,
7701 Burholme Avenue Executive Vice
Philadelphia, PA 19111 President, Fox Chase
Cancer Center (biomedical
research and medical care).
-36-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Marvin E. Sternberg - 62 Director Since 1974,
937 Mt. Pleasant Road Chairman, Director
Bryn Mawr, PA 19010 and 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, 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 since 1969;
16th Floor Comcast Corporation;
Philadelphia, PA 19107- (cable television
3723 and communications);
Director, Comcast Cablevision
of Philadelphia (cable
television and communications)
and Nextel (wireless
communications).
-37-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Donald van Roden - 72 Director and Self-employed
1200 Old Mill Lane Chairman of the businessman. From
Wyomissing, PA 19610 Board February 1980 to
March 1987, Vice Chairman,
SmithKline Beecham Corporation
(pharmaceuticals); Director,
AAA Mid-Atlantic (auto
service); Director, Keystone
Insurance Co.
Edward J. Roach - 73 President and Certified Public
Suite 100 Treasurer Accountant; Vice
Bellevue Park Corporate Chairman of the
Center Board, Fox Chase
400 Bellevue Parkway Cancer Center;
Wilmington, DE 19809 Trustee Emeritus,
Pennsylvania School for the
Deaf; Trustee Emeritus,
Immaculata College; President
or Vice President and
Treasurer of various
investment companies advised
by PNC Institutional
Management Corporation;
Director, The Bradford Funds,
Inc.
Morgan R. Jones - 58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker
1345 Chestnut Street Biddle & Reath LLP;
Philadelphia, PA 19107- Director, Rocking
3496 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 positions with Counsellors Securities
Inc., the Fund's distributor.
-38-
<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 Fahnestock Co.,
Inc., a registered 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 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 the Distributor, and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
-39-
<PAGE>
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------ ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, -0- N/A N/A -0-
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
<FN>
- ----------------------
1 A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is an affiliated person of the investment adviser
of any other investment companies.
</FN>
</TABLE>
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 and one other employee), pursuant
to which the Fund will contribute on a quarterly basis amounts equal to 10% of
the quarterly compensation of each eligible employee. By virtue of the services
performed by PNC Institutional Management Corporation ("PIMC"), the Portfolios'
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
two part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to the Fund. No officer, director or
employee of PIMC, PNC Bank, PFPC or the Distributor currently receives any
compensation from the Fund.
-40-
<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-adviser, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. Pursuant to the Sub-Advisory Agreements, PNC Bank is entitled
to receive a annual fee from PIMC for its sub-advisory services calculated at
the annual rate of 75% of the fees received by PIMC on behalf of the Money
Market, Municipal Money Market and Government Obligations Portfolios. 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 Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $5,366,431 $3,603,130 $469,986
Portfolio
Municipal Money $ 201,095 $1,269,553 $ 14,921
Market Portfolio
Government
Obligations $1,774,123 $ 647,063 $404,193
Money Market
Portfolio
New York
Municipal Money $ 21,831 $ 324,917 $0
Market Portfolio
-41-
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $4,174,375 $3,527,715 $342,158
Portfolio
Municipal Money $ 190,687 $1,218,973 $ 17,576
Market Portfolio
Government
Obligations Money $1,638,622 $ 671,811 $406,954
Market Portfolio
New York
Municipal Money $ 2,709 $ 268,017 $ 0
Market Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $2,274,697 $2,589,832 $12,047
Portfolio
Municipal Money $ 67,752 $1,041,321 $11,593
Market Portfolio
Government $ 780,122 $ 398,363 $ 0
Obligations Money
Market Portfolio
New York Municipal $ 0 $ 187,660 $12,656
Money Market
Portfolio
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) 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; (d) any
-42-
<PAGE>
extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment company literature and other publications provided by the
Fund to its directors and officers; (g) organizational costs; (h) fees to the
investment adviser, sub-adviser and PFPC; (i) fees and expenses of officers and
directors who are not affiliated with the Portfolios' investment adviser or
Distributor; (j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n)
auditing fees; (o) brokerage fees and commissions; (p) certain of the fees and
expenses of registering and qualifying the Portfolios and their shares for
distribution under federal and state securities laws; (q) expenses of preparing
prospectuses and statements of additional information and distributing annually
to existing shareholders that are not attributable to a particular class of
shares of the Fund; (r) the expense of reports to shareholders, shareholders'
meetings and proxy solicitations that are not attributable to a particular class
of shares of the Fund; (s) fidelity bond and directors' and officers' liability
insurance premiums; (t) the expense of using independent pricing services; and
(u) other expenses which are not expressly assumed by the Portfolio's investment
adviser under its advisory agreement with the Portfolio. The Bedford Classes of
the Fund pays their own distribution fees, and may pay a different share than
other classes of the Fund (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount by the Bedford Classes or
if they receive different services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
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 Agreement was approved with respect to the New York Municipal Money
Market Portfolio by the
-43-
<PAGE>
Portfolio's shareholders at a special meeting of shareholders held November 21,
1991, as adjourned. Each Advisory Agreement 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 Agreements may also be
terminated by PIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Agreements 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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money Market $448,548 $0 $0
Portfolio
New York Municipal Money $ 99,071 $0 $0
Market Portfolio
-44-
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money Market $428,209 $ 0 $0
New York Municipal $ 67,204 $10,146 $0
Money Market Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money Market
Portfolio $321,790 $ 6,233 $0
New York Municipal $ 8,960 $44,657 $0
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
-45-
<PAGE>
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 agreement, 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 Agreements") 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 appropriate efforts to distribute shares
of each of the Bedford
-46-
<PAGE>
Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, 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 was approved 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").
Among other things, each of the Plans provide that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plans and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are 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 Plans 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 Plans remain in effect, the
selection and nomination of the 12b-1 Directors 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, 1997, 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 $6,570,720,
$1,131,857, $1,136,708 and $361,209, respectively. Of those amounts $6,447,204,
$1,111,658, $1,119,407 and $354,311, respectively, was paid to dealers with whom
the Fund's Distributor had entered into dealer agreements, and $123,516,
$20,199, $17,301 and $6,898, 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. The
Fund believes that such Plans benefit the Fund by may 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 positions with the Distributor.
Mr. Sablowsky, a Director of the
-47-
<PAGE>
Fund, had an indirect interest in the operation of the Plans by virtue of his
position with a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months 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
-48-
<PAGE>
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 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.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolio held the following securities:
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Bear Sterns Companies,
Portfolio Inc. Commercial Paper $105,000,000
Money Market Bear Sterns Companies,
Portfolio Inc. Corporate Obligation $ 20,000,000
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
-49-
<PAGE>
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 class 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
adding the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Fund is
determined independently of the other classes. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
liabilities. Each Portfolio's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and as of the close of the NYSE (generally
4:00 p.m. Eastern Time), on each Business Day. "Business Day" means each weekday
when both the NYSE and the Federal Reserve Bank of Philadelphia (the "FRB") are
open. Currently, the NYSE is closed weekends and on New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day and the preceding Friday and
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays as the NYSE as well as
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
-50-
<PAGE>
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 takes 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 13 months, 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
-51-
<PAGE>
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 annualized yield for the seven-day period ended August 31,
1997 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 before waivers was
as follows:
TAX-EQUIVALENT
YIELD
(ASSUMES A
EFFECTIVE FEDERAL INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- --------- ------------------
Money Market 4.60% 4.71% N/A
Municipal Money Market 2.36% 2.39% 3.28%
Government Obligations 4.53% 4.63% N/A
Money Market
New York Municipal 2.30% 2.33% 3.19%
Money Market
-52-
<PAGE>
The annualized yield for the seven-day period ended August 31,
1997 for The Bedford Classes of the Money Market, Municipal Money Market,
Government Obligations Money Market Portfolio and the New York Money Market
Portfolio after waivers was as follows:
TAX-EQUIVALENT
YIELD
(ASSUMES A
EFFECTIVE FEDERAL INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- --------- ------------------
Money Market 4.75% 4.86% N/A
Municipal Money Market 2.64% 2.67% 3.67%
Government Obligations
Money Market 4.64% 4.75% N/A
New York Municipal
Money Market 2.63% 2.66% 3.65%
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 accounts 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
-53-
<PAGE>
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 MONEY FUND
REPORT(R), 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).
-54-
<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").
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.
-55-
<PAGE>
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 stand-by
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such stand-by
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 stand-by commitments that
-56-
<PAGE>
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 mid-term or other long-term capital gain, 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.
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
-57-
<PAGE>
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 earnings
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.
-58-
<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 13.93 billion shares are
currently classified in 82 classes 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 Numeric Investors Micro
Cap), 50 million shares are classified as Class GG Common Stock (n/i Numeric
Investors Growth), 50 million shares are classified as Class HH Common Stock
(n/i Numeric Investors 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
-59-
<PAGE>
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), (100 million shares are classified as Class TT Common Stock (Boston
Partners Investor Mid Cap), 100 million shares are classified as Class UU Common
Stock (Boston Partners Institutional Mid Cap), 100 million shares are classified
as Class VV Common Stock (Boston Partners Institutional Bond), 100 million
shares are classified as Class WW Common Stock (Boston Partners Investor Bond),
50 million shares are classified as Class XX Common Stock (n/i Numeric Investors
Larger Cap Value), 700 million shares are classified as Class Janney Money
Market Common Stock (Money), 200 million shares are classified as Class Janney
Municipal Money Market Common Stock (Municipal Money), 500 million shares are
classified as Class Janney Government Obligations Money Market Common Stock
(U.S. Government Money), 100 million shares are classified as Class Janney 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),
-60-
<PAGE>
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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Family, the
n/i Numeric Investors 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 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 BEA Family
represents interests in ten non-money market portfolios; the n/i Numeric
Investors family represents interests in four non-money market portfolios; the
Boston Partners Family represents interests in three non-money market
portfolios; the Janney Montgomery Scott Money Family and Beta, Gamma, Delta,
Epsilon, Zeta, Eta and Theta Families represents 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 voting 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 voting securities of
-61-
<PAGE>
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 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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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.
-62-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
-63-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
-64-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
-65-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
-66-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse
First Boston Employee's
Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
-67-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
-68-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-69-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
-70-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
-71-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------- ---------------- -------------
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser,
-72-
<PAGE>
administrator, 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
customers. PIMC, PNC Bank and other institutions that are banks or bank
affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1997 Annual Report are incorporated by
reference herein. The financial statements included in the 1997 Annual Report
have been audited by the Fund's independent accountants, Coopers & Lybrand,
L.L.P. The reports of Coopers & Lybrand L.L.P. are incorporated herein by
reference. Such
-73-
<PAGE>
financial statements have been incorporated herein in reliance upon such reports
given upon their authority as experts in accounting and auditing. Copies of the
1997 Annual Report may be obtained at no charge by telephoning the Distributor
at the telephone number appearing on the front page of this Statement of
Additional Information.
-74-
<PAGE>
APPENDIX
COMMERCIAL PAPER RATING
A Standard & Poor's Ratings Services ("S&P") 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. The following summarizes
the rating categories used by S&P for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's Investors Service, Inc. ("Moody's") commercial paper
ratings are opinions of the ability of issuers to repay punctually senior debt
obligations not having an original maturity in excess of one year, unless
explicitly noted. The following summarizes the rating categories used by Moody's
for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
A-1
<PAGE>
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATING
The following summarizes the ratings used by S&P for corporate
and municipal debt:
"AAA" - This designation represents the highest rating
assigned by S&P. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATING
An S&P rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by S&P for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Rating for municipal notes.
A-12
<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.............................. 3
FINANCIAL HIGHLIGHTS...................... 7
INVESTMENT OBJECTIVES AND POLICIES 11
INVESTMENT LIMITATIONS....................19
PURCHASE AND REDEMPTION OF SHARES.........21
NET ASSET VALUE...........................27 PROSPECTUS
MANAGEMENT................................28 THE BEDFORD FAMILY
DISTRIBUTION OF SHARES....................30
DIVIDENDS AND DISTRIBUTIONS...............31
TAXES.....................................32
DESCRIPTION OF SHARES.....................34
OTHER INFORMATION.........................35 MONEY MARKET PORTFOLIO
--------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
INVESTMENT ADVISER --------------------------------
PNC Institutional Management Corporation
Wilmington, Delaware GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
CUSTODIAN
PNC Bank, National Association --------------------------------
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania DECEMBER 1, 1997
============================================= ================================
<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 (together, 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, AT 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.
<PAGE>
PNC Institutional Management Corporation ("PIMC") serves as investment
adviser for the Portfolios, PNC Bank, National Association ("PNC Bank") serves
as sub-adviser for the Portfolios and custodian for the Fund and PFPC Inc.
serves as administrator for the Municipal Money Market Portfolio 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 1, 1997, 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. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the SEC Internet Website (http://www.sec.gov).
- --------------------------------------------------------------------------------
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 1, 1997
-2-
<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. The
Fund is currently operating or proposing to operate twenty-two 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 Portfolios' investment adviser is PNC Institutional Management
Corporation ("PIMC"). PNC Bank, National Association ("PNC Bank") serves as
sub-adviser to the Portfolios and custodian
-3-
<PAGE>
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."
-4-
<PAGE>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (BEDFORD CLASSES)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
The Fee Table below contains a summary of the annual operating expenses
of the Bedford Classes of the Portfolios based on expenses incurred for the
fiscal year ended August 31, 1997, as a percentage of average daily net assets.
An example based on the summary is also shown.
<TABLE>
<CAPTION>
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
Management Fees (after waivers)(1)............... .22% .04% .30%
12b-1 Fees ...................................... .53 .56 .56
Other Expenses .................................. .22 .25 .115
--- --- ----
Total Fund Operating Expenses (Bedford Classes)
(after waivers)(1)............................. .97% .85% .975%
==== ==== ====
<FN>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio and Government
Obligations Money Market Portfolio, Management Fees would be .37%, .33%
and .41%, respectively, and Total Fund Operating Expenses would be
1.12%, 1.14% and 1.09%, 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 $31 $54 $119
Municipal Money Market*.................. $ 9 $27 $47 $105
Government Obligations Money Market*..... $10 $31 $54 $120
* 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 Classes)" 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. Long-term Shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
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
-5-
<PAGE>
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 figures 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. 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 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 Bedford Shares are not
reflected in the yields of Shares of the Bedford Classes, 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."
-6-
<PAGE>
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 periods indicated. The financial data included in this table
for each of the periods ended August 31, 1993 through August 31, 1997 are a part
of the Fund's financial statements for each of the Portfolios, which are
incorporated by reference into the Statement of Additional Information and have
been audited by Coopers & Lybrand L.L.P. ("Coopers"), the Fund's independent
accountants. The financial data for each of the Portfolios for the periods ended
August 31, 1989, 1990, 1991 and 1992 are a part of previous financial statements
audited by Coopers. The financial data should be read in conjunction with the
financial statements and notes thereto. Further information about the
performance of the Portfolios is available in the Annual Report to Shareholders.
Both the Statement of Additional Information and the Annual Report to
Shareholders may be obtained free of charge by calling the telephone number on
page 1 of this Prospectus.
-7-
<PAGE>
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (c)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
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, 1997 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993
--------------- --------------- --------------- --------------- ---------------
<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...... .... 0.0462 0.0469 0.0486 0.0278 0.0243
Net gains on securities (both
realized and unrealized)...... -- -- -- -- --
---------- ---------- -------- -------- --------
Total from investment
operations................ 0.0462 0.0469 0.0486 0.0278 0.0243
---------- ---------- -------- -------- --------
Less distributors
Dividends (from net investment
income)....................... (0.0462) (0.0469) (0.0486) (0.0278) (0.0243)
Distributions (from capital
gains)........................ -- -- -- -- --
---------- ---------- -------- -------- --------
Total distributions......... (0.0462) (0.0469) (0.0486) (0.0278) (0.0243)
---------- ---------- -------- -------- --------
Net asset value, end of period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======== ========
Total return...................... 4.72% 4.79% 4.97% 2.81% 2.46%
Ratios/Supplemental Data
Net assets, end of period (000) $1,392,911 $1,109,334 $935,821 $710,737 $782,153
Ratios of expenses to average
net assets.................... .97%(a) .97%(a) .96%(a) .95%(a) .95%(a)
Ratios of net investment income to
average net assets............ 4.62% 4.69% 4.86% 2.78% 2.43%
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
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............ 0.0375 0.0629 0.0765 0.0779
Net gains on securities (both
realized and unrealized)....... 0.0007 -- -- --
-------- -------- -------- --------
Total from investment
operations................. 0.0382 0.0629 0.0765 0.0779
-------- -------- -------- --------
Less distributors
Dividends (from net investment
income)........................ (0.0375) (0.0629) (0.0765) (0.0779)
Distributions (from capital
gains)......................... (0.0007) -- -- --
-------- -------- -------- --------
Total distributions.......... (0.0382) (0.0629) (0.0765) (0.0779)
-------- -------- -------- --------
Net asset value, end of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return....................... 3.89% 6.48% 7.92% 8.81%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $736,842 $747,530 $709,757 $152,311
Ratios of expenses to average
net assets..................... .95%(a) .92%(a) .92%(a) .93%(a)(b)
Ratios of net investment income to
average net assets............. 3.75% 6.29% 7.65% 8.61%(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 1.12%,
1.14%, 1.17%, 1.16%, 1.19%, 1.20%, 1.17% and 1.16% for the years ended
August 31, 1997, 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>
-8-
<PAGE>
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (c)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
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, 1997 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993
--------------- --------------- --------------- --------------- ---------------
<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............. 0.0285 0.0288 0.0297 0.0195 0.0195
Net gains on securities (both
realized and unrealized)........ -- -- -- -- --
--------- --------- -------- -------- --------
Total from investment
operations.................. 0.0285 0.0288 0.0297 0.0195 0.0195
--------- --------- -------- -------- --------
Less distributors
Dividends (from net investment
income)......................... (0.0285) (0.0288) (0.0297) (0.0195) (0.0195)
Distributions (from capital
gains).......................... -- -- -- -- --
--------- --------- -------- -------- --------
Total distributions........... (0.0285) (0.0288) (0.0297) (0.0195) (0.0195)
--------- --------- -------- -------- --------
Net asset value, end of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ======== ======== ========
Total return........................ 2.88% 2.92% 3.01% 1.97% 1.96%
Ratios/Supplemental Data
Net assets, end of period (000) $ 213,034 $ 201,940 $198,425 $182,480 $215,577
Ratios of expenses to average
net assets...................... .85%(a) .84%(a) .82%(a) .77%(a) .77%(a)
Ratios of net investment income to
average net assets.............. 2.85% 2.88% 2.97% 1.95% 1.95%
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUAUGUST 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............. 0.0287 0.0431 0.0522 0.0513
Net gains on securities (both
realized and unrealized)........ -- -- -- --
-------- -------- -------- --------
Total from investment
operations.................. 0.0287 0.0431 0.0522 0.0513
-------- -------- -------- --------
Less distributors
Dividends (from net investment
income)......................... (0.0287) (0.0431) (0.0522) (0.0513)
Distributions (from capital
gains).......................... -- -- -- --
-------- -------- -------- --------
Total distributions........... (0.0287) (0.0431) (0.0522) (0.0513)
-------- -------- -------- --------
Net asset value, end of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return........................ 2.90% 4.40% 5.35% 5.72%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $176,950 $215,140 $195,566 $ 85,806
Ratios of expenses to average
net assets...................... .77%(a) .74%(a) .75%(a) .73%(a)(b)
Ratios of net investment income to
average net assets.............. 2.87% 4.31% 5.22% 5.70%(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 Municipal Money Market Portfolio would have been
1.14%, 1.12%,1.14%,I.12%,1.16%,I.15%, 1.13% and 1.14% for the years ended
August 31, 1997, 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>
-9-
<PAGE>
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
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, 1997 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993
--------------- --------------- --------------- --------------- ---------------
<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............. 0.0449 0.0458 0.0475 0.0270 0.0231
Net gains on securities (both
realized and unrealized)........ -- -- -- -- --
--------- --------- -------- -------- --------
Total from investment
operations.................. 0.0449 0.0458 0.0475 0.0270 0.0231
--------- --------- -------- -------- --------
Less distributors
Dividends (from net investment
income)......................... (0.0449) (0.0458) (0.0475) (0.0270) (0.0231)
Distributions (from capital
gains).......................... -- -- -- -- --
--------- --------- -------- -------- --------
Total distributions........... (0.0449) (0.0458) (0.0475) (0.0270) (0.0231)
--------- --------- -------- -------- --------
Net asset value, end of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ======== ======== ========
Total return........................ 4.59% 4.68% 4.86% 2.73% 2.33%
Ratios/Supplemental Data
Net assets, end of period (000) $209,715 $ 192,599 $163,398 $166,418 $213,741
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.............. 4.49% 4.58% 4.75% 2.70% 2.31%
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
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............. 0.0375 0.0604 0.0748 0.0725
Net gains on securities (both
realized and unrealized)........ 0.0009 -- -- --
-------- -------- -------- --------
Total from investment
operations.................. 0.0384 0.0604 0.0748 0.0725
-------- -------- -------- --------
Less distributors
Dividends (from net investment
income)......................... (0.0375) (0.0604) (0.0748) (0.0725)
Distributions (from capital
gains).......................... (0.0009) -- -- --
-------- -------- -------- --------
Total distributions........... (0.0384) (0.0604) (0.0748) (0.0725)
-------- -------- -------- --------
Net asset value, end of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= =========
Total return........................ 3.91% 6.21% 7.74% 8.64%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $225,101 $368,899 $209,378 $ 66,281
Ratios of expenses to average
net assets...................... .975%(a) .95%(a) .95%(a) .96%(a)(b)
Ratios of net investment income to
average net assets.............. 3.75% 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 1.09%, 1.10%,
1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17% for the years ended August 31,
1997, 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>
-10-
<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." There is no
assurance that the investment objective of the Portfolio will be achieved. 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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
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 ("Rating Organization"). 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 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-denom-
-11-
<PAGE>
inated 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 13 months, depending upon the note involved) to
demand payment of the principal of a note. The notes are not typically rated by
credit rating agencies, but issuers of variable rate demand notes must satisfy
the same criteria as set forth above for issuers of commercial paper. If an
issuer of a variable rate demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of an
active secondary market. For this or other reasons, the Portfolio might suffer a
loss to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
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
-12-
<PAGE>
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 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a Portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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
-13-
<PAGE>
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 Rating Organizations (e.g., commercial paper rated
"A-1" or "A-2" by Standard & Poor's Ratings Services ("S&P")), (3) securities
that are rated at the time of purchase by the only Rating Organization 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 a Rating Organization ("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, GICs, 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
-14-
<PAGE>
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"). There is
no assurance that the investment objective of the Portfolio will be achieved.
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
-15-
<PAGE>
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.
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.
-16-
<PAGE>
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis 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 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" and "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 as described under
"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
-17-
<PAGE>
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. There is no assurance that the investment
objective of the Portfolio will be achieved.
Due to fluctuations in interest rates, the market values of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 13 months if such securities provide for adjustments in
their interest rates not less frequently than every 13 months 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 more complete 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 more complete description of
reverse repurchase agreements, see "Investment Objectives and Policies -- Money
Market Portfolio -- Reverse Repurchase Agreements."
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. Mortgage- related
securities consist of mortgage loans which 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. The
Fund may also acquire asset-backed securities as described under "Investment
Objectives and Policies -- Money Market Portfolio -- Asset Backed Securities."
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
-18-
<PAGE>
loans of the Portfolio's securities will be fully collateralized and marked to
market daily.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "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 and Government Obligations
Money Market Portfolios' respective investment objectives and the policies
described above may be changed by the Fund's Board of Directors without
shareholder approval. 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 are in excess of 5%
of the Portfolio's net assets. (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.
-19-
<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. 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.
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 Rating Organization, are rated (at
the time of purchase) by two or more Rating Organizations in the
highest rating category for such securities, (ii) if rated by only one
Rating Organization, are rated by such Rating Organization 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.
-20-
<PAGE>
The Municipal Money Market Portfolio 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 in 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 or
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 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 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.
-21-
<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 good order 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. 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. On any Business Day, 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 PFPC after 12:00
noon Eastern Time but prior to the close of regular trading on the NYSE
(generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the closed of regular trading on the NYSE 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 the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
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 investment Account requirements. Even if 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, and 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 and who desire to
transfer such shares to the street name account of another broker should contact
their current broker.
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
-22-
<PAGE>
"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 available Federal Funds
to the Fund's custodian prior to the close of regular trading on the NYSE 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" 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. The Fund does not currently charge for
effecting wire transfers but reserves the right to do so in the future. 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 your name, address,
telephone number, Social Security or Tax Identification Number, the Bedford
Class selected, the amount being wired, and by which bank or Dealer. PFPC will
then provide an investor with a Fund account number. (Investors with existing
accounts should also notify PFPC prior to wiring funds.)
-23-
<PAGE>
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 initial purchases 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 through an Account 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 the close of regular trading on the NYSE on a
Business Day, the redemption will be effective as of the close of regular
trading on the NYSE 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.
-24-
<PAGE>
An investor's brokerage firm may 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 may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone 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
redemption by call (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe 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 portfolio, 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
-25-
<PAGE>
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
broker-dealers (other than the Distributor), financial institutions, securities
dealers, financial planners or other industry professionals, 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.
Proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form 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 the close of regular
trading on the NYSE 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,
although no fee is currently contemplated.
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 may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may not
-26-
<PAGE>
be presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check if they anticipate an immediate need for
redemption proceeds.
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 notice
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 values per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders are determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE 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, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays on which the NYSE is
closed as well as Veterans' Day and Columbus Day. The net asset value per share
of each class of the Portfolios is calculated by adding the proportionate
interest of each class in the value of the securities, cash and other assets of
the Portfolio, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. 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."
-27-
<PAGE>
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 twenty-two investment portfolios. Each of the
Bedford Classes represents interests in one of the following 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 $38.7 billion of assets, of
which approximately $35.2 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 each of the Money Market and Government Obligations
-28-
<PAGE>
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 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. 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, 1997, the Fund paid
investment advisory fees aggregating .22% of the average net assets of the Money
Market Portfolio, .04% 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 .15%, .29% and
.11% 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. PFPC's principal business
address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
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 Dealers for the
-29-
<PAGE>
provision of certain shareholder support services to customers of such 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."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal 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 a distribution agreement and
various supplements thereto (collectively, the "Distribution Agreements").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. 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. The Bedford Classes
of the Fund pay their own distribution fees and may pay a different share than
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Bedford Class or if they receive different services.
The investment adviser may assume 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 lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1997, the Fund's total
expenses were 1.12% of the average net assets with respect to the Bedford Class
of the Money Market Portfolio (not taking into account waivers of .15%), were
1.14% of the average net assets with respect to the Bedford Class of the
Municipal Money Market Portfolio (not taking into account waivers of .29%) and
were 1.09% of the average net assets with respect to the Bedford Class of the
Government Obligations Money Market Portfolio (not taking into account waivers
of .115%).
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreements and separate Plans of Distribution for each
-30-
<PAGE>
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 Agreements, 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 Agreements 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 Agreement. Payments under the
Plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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
-31-
<PAGE>
net asset value made as of the close of trading of the NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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 federal alternative minimum tax at a rate of
28% 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
-32-
<PAGE>
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. 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 other 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.
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.
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.
-33-
<PAGE>
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 13.93 billion shares are currently
classified into 82 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,
Municipal Money Market and Government Obligations Money Market Portfolios 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 Agreements entered into with the Distributor and pursuant to
each of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET AND GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIOS AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE BEDFORD CLASSES OF THESE PORTFOLIOS.
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
-34-
<PAGE>
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 (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 15, 1997, 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).
-35-
<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") each representing interests in one of 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 Bedford Family Prospectus of the
Fund, dated December 1, 1997 (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 1, 1997.
CONTENTS
Prospectus
Page Page
---- ----------
General......................................... 2 3
Investment Objectives and Policies.............. 2 11,19
Directors and Officers.......................... 16 N/A
Investment Advisory, Distribution
and Servicing Arrangements.................... 21 28
Portfolio Transactions.......................... 27 N/A
Purchase and Redemption Information............. 29 21
Valuation of Shares............................. 29 27
Performance Information......................... 31 N/A
Taxes........................................... 33 32
Additional Information Concerning
Fund Shares................................... 38 34
Miscellaneous................................... 41 N/A
Financial Statements............................ 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 AN 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 twenty-two
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 1, 1997. 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, as amended (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 or other liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
In determining the average weighted maturity of the Money Market or the
Municipal Money Market Portfolio and whether a variable rate demand instrument
has a remaining
-2-
<PAGE>
maturity of 13 months 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.
The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for a
Portfolio to dispose of variable or floating rate notes if the issuer defaulted
on its payment obligations or during periods that the Portfolio is not entitled
to exercise its demand right and the Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market
and Municipal Money Market Portfolios may purchase "when- issued" and delayed
delivery securities purchased for delivery beyond the normal settlement date at
a stated price and yield. While the Money Market or Municipal Money Market
Portfolios has such commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash
or liquid 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, 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 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. Because 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, it is expected that commitments to purchase "when issued"
securities will not exceed 25% of the value of a Portfolio's 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
-3-
<PAGE>
(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.
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 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. These Portfolios' 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
-4-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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
-5-
<PAGE>
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, as
amended. 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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks 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, if such banks and non-bank dealers are deemed
creditworthy by the portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the
-6-
<PAGE>
seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price (including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference between the purchase price
and the repurchase price specified in the repurchase agreement. The Portfolio's
adviser or sub-adviser will mark to market daily the value of the securities.
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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage
-7-
<PAGE>
loans. When FHLMC does not guarantee timely payment of principal, FHLMC may
remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMO interests. The Portfolios do not currently intend to purchase residual
interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
-8-
<PAGE>
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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 Rating
Organizations (as defined in the Prospectus) 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 Rating Organization 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 13 months 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 a Rating
Organization ("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
13 months
-9-
<PAGE>
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 Rating Organization 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 that 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.
-10-
<PAGE>
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
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,
among others, 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% 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
are in excess of 5% of the Portfolio's net assets. (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.);
-11-
<PAGE>
(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,
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.
-12-
<PAGE>
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
shareholder approval.
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
-13-
<PAGE>
majority of the 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 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 Rating Organization (as defined in the Prospectus),
are rated (at the time of purchase) by two or more Rating Organizations
in the highest rating category for such securities, (ii) if rated by
only one Rating Organization, are rated by such Rating Organization 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.
-14-
<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.
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.
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
are in excess of 5% of the Portfolio's net assets. (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
-15-
<PAGE>
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
shareholder approval.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
Principal Occupation
Name and Address and Age Position with Fund During Past Five Years
- ------------------------ ------------------ ----------------------
Arnold M. Reichman -- 49* Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer
and Assistant
Secretary, Warburg
Pincus Asset
Management, Inc.;
Director and
Executive Officer of
Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
-16-
<PAGE>
Principal Occupation
Name and Address and Age Position with Fund During Past Five Years
- ------------------------ ------------------ ----------------------
Robert Sablowsky -- 58** Director Senior Vice
110 Wall Street President,
New York, NY 10005 Fahnestock Co., Inc.
(a registered
broker-dealer);
Prior to October
1996, Executive Vice
President of Gruntal
& Co., Inc. (a
registered broker-
dealer.
Francis J. McKay -- 60 Director Since 1963,
7701 Burholme Avenue Executive Vice
Philadelphia, PA 19111 President, Fox Chase
Cancer Center
(Biomedical research
and medical care).
Marvin E. Sternberg -- 62 Director Since 1974,
937 Mt. Pleasant Road Chairman, Director
Bryn Mawr, PA 19010 and 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, Director and
Executive Vice
President, Cellucap
Mfg. Co., Inc.
(manufacturer of
disposable
headwear).
-17-
<PAGE>
Principal Occupation
Name and Address and Age Position with Fund During Past Five Years
- ------------------------ ------------------ ----------------------
Julian A. Brodsky -- 63 Director Director and Vice
1234 Market Street Chairman since 1969,
16th Floor Comcast Corporation
Philadelphia, PA 19107- (cable television
3723 and communications);
Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden -- 72 Director and Self-employed
1200 Old Mill Lane Chairman of the businessman. From
Wyomissing, PA 19610 Board February 1980 to
March 1987, Vice
Chairman, SmithKline
Beecham Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto
service); Director,
Keystone Insurance
Co.
Edward J. Roach -- 73 President and Certified Public
Suite 100 Treasurer Accountant; Vice
Bellevue Park Chairman of the
Corporate Center Board, Fox Chase
400 Bellevue Parkway Cancer Center;
Wilmington, DE 19809 Trustee Emeritus,
Pennsylvania School
for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and
Treasurer of various
investment companies
advised by PNC
Institutional
Management
Corporation;
Director, The
Bradford Funds, Inc.
-18-
<PAGE>
Principal Occupation
Name and Address and Age Position with Fund During Past Five Years
- ------------------------ ------------------ ----------------------
Morgan R. Jones -- 58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker
1345 Chestnut Street Biddle & Reath LLP;
Philadelphia, PA 19107- Director, Rocking
3496 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 Fahnestock Co.,
Inc., a registered 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 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 the Distributor and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives additional fee of $5,000 per year
for his services in this capacity. Directors who are not affiliated persons of
the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in attending
meetings of the Board of Directors or any committee thereof. For the year ended
August 31, 1997, each of the
-19-
<PAGE>
following members of the Board of Directors received compensation from the Fund
in the following amounts:
DIRECTORS' COMPENSATION
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM
AGGREGATE ACCRUED AS ANNUAL REGISTRANT
COMPENSATION PART OF BENEFITS AND FUND
NAME OF PERSON/ FROM FUND UPON COMPLEX1 PAID
POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- --------------- ------------ ---------- ---------- -------------
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and
Chairman
- ----------------------
1 A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any other investment companies.
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 and one other employee)
pursuant to which the Fund will contribute on a quarterly basis amounts equal to
10% of the quarterly compensation of each eligible employee. By virtue of the
services performed by PNC Institutional Management Corporation ("PIMC"), the
Portfolios' 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 two part-time employees.
Drinker Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees
as counsel to the Fund. No officer, director or employee of PIMC, PNC Bank, PFPC
or the Distributor currently receives any compensation from the Fund.
-20-
<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 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. Pursuant to the Sub-Advisory Agreements, PNC Bank is
entitled to receive from PIMC an annual fee calculated at the annual rate of 75%
of the fees received by PIMC on behalf of the Money Market, Municipal Money
Market and Government Obligations Money Market Portfolios. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND REIMBURSE-
PORTFOLIOS REIMBURSEMENTS) WAIVERS MENTS
- ---------- --------------- ------- ----------
Money Market Portfolio $5,366,431 $3,603,130 $469,986
Municipal Money Market $201,095 $1,269,553 $14,921
Portfolio
Government Obligations
Money Market Portfolio $1,774,123 $647,063 $404,193
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND REIMBURSE-
PORTFOLIOS REIMBURSEMENTS) WAIVERS MENTS
- ---------- --------------- ------- ----------
Money Market Portfolio $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Portfolio
Government Obligations $1,638,622 $ 671,811 $406,954
Money Market Portfolio
-21-
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND REIMBURSE-
PORTFOLIOS REIMBURSEMENTS) WAIVERS MENTS
- ---------- --------------- ------- ----------
Money Market Portfolio $2,274,697 $2,589,832 $12,047
Municipal Money Market $ 67,752 $1,041,321 $11,593
Portfolio
Government Obligations $ 780,122 $ 398,363 $ 0
Money Market Portfolio
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) 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; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Fund to its directors and officers; (g)
organizational costs; (h) fees paid to the investment adviser, sub-adviser and
PFPC; (i) fees and expenses of officers and directors who are not affiliated
with the Portfolios' investment adviser or Distributor; (j) taxes; (k) interest;
(l) legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolios and their shares for distribution under federal and state
securities laws; (q) expenses of preparing prospectuses and statements of
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of shares of the Fund; (r) the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Bedford Class of the Fund
pays its own
-22-
<PAGE>
distribution fees, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Bedford Class or if it receives different
services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved on
July 9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
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 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 Agreement 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 Agreements may also be
terminated by PIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Agreements 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
-23-
<PAGE>
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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
REIMBURSE-
PORTFOLIO FEES PAID WAIVERS MENTS
- --------- --------- ------- ----------
Municipal Money Market $448,548 $0 $0
Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
REIMBURSE-
PORTFOLIO FEES PAID WAIVERS MENTS
- --------- --------- ------- ----------
Municipal Money Market $428,209 $0 $0
Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
REIMBURSE-
PORTFOLIO FEES PAID WAIVERS MENTS
- --------- --------- ------- ----------
Municipal Money Market $321,790 $6,233 $0
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
-24-
<PAGE>
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 Bedford Class 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 each Portfolio to record owners of Shares of each such Portfolio, 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 Portfolio. 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
-25-
PHTRANS:160253_4.WP5
<PAGE>
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 agreement, 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 Agreements"), 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 appropriate efforts to distribute shares of
each of the Bedford Classes. As compensation for its distribution services, the
Distributor receives, pursuant to the terms of the Distribution Agreements, 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 was approved 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").
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 Plans and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are 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 Plans 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 Plans remain in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
During the year ended August 31, 1997, 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
-26-
<PAGE>
Money Market Portfolio in the aggregate amounts of $6,570,720, $1,131,857 and
$1,136,708, respectively. Of those amounts $6,447,204, $1,111,658 and
$1,119,407, respectively, was paid to dealers with whom the Distributor had
entered into sales agreements, and $123,516, $20,199 and $17,301, 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. 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, has an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less. Because all Portfolios intend to
purchase only securities with remaining maturities of 13 months 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
-27-
<PAGE>
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 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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most
-28-
<PAGE>
recent fiscal year. As of August 31, 1997, the following portfolios held the
following securities:
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Bear Stearns Companies, $105,000,000
Portfolio Inc. Commercial Paper
Money Market Bear Stearns Companies, $ 20,000,000
Portfolio Inc. Corporate Obligation
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 class 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
adding the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets subtracting the actual and accrued liabilities
of the Class and dividing the result by the number of outstanding shares of such
class. The net asset value of each class of a Portfolio is determined
independently of the other classes and the other Portfolios. A Portfolio's "net
-29-
<PAGE>
assets" equal the value of a Portfolio's investments and other securities less
its liabilities. Each Portfolio's net asset value per share is computed twice
each day, as of 12:00 noon (Eastern Time) and as of the close of regular trading
on the NYSE (generally 4:00 p.m. Eastern Time), on each Business Day. "Business
Day" means each weekday when both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE 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 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
-30-
<PAGE>
Act greater than 13 months 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.
The annualized yield for the seven (7) day period ended August
31, 1997 for the Bedford Classes of each of the Money Market Portfolio, the
Municipal Money Market Portfolio and the Government Obligations Money Market
Portfolio before waivers was as follows:
-31-
<PAGE>
TAX-EQUIVALENT
YIELD
EFFECTIVE (ASSUMES A
PORTFOLIO YIELD YIELD FEDERAL INCOME
- --------- ----- --------- TAX RATE OF 28%)
----------------
Money Market 4.60% 4.71% N/A
Municipal Money Market 2.36% 2.39% 3.28%
Government Obligations 4.53% 4.63% N/A
Money Market
The annualized yield for the seven (7) day period ended August
31, 1997 for the Bedford Classes of each of the Money Market Portfolio, the
Municipal Money Market Portfolio and the Government Obligations Money Market
Portfolio after waivers was as follows:
TAX-EQUIVALENT
YIELD
EFFECTIVE (ASSUMES A
PORTFOLIO YIELD YIELD FEDERAL INCOME
- --------- ----- --------- TAX RATE OF 28%)
----------------
Money Market 4.75% 4.86% N/A
Municipal Money Market 2.64% 2.67% 3.67%
Government Obligations 4.64% 4.75% N/A
Money Market
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 accounts 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
-32-
<PAGE>
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 MONEY FUND
REPORT(R), 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
-33-
<PAGE>
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").
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 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 is designed to provide
investors with current tax-exempt interest income.
-34-
<PAGE>
Exempt interest dividends distributed to shareholders of this 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 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 and Municipal Money Market
Portfolio may acquire stand-by commitments with respect to Municipal Obligations
held in its portfolio and will treat any interest received on Municipal
Obligations subject to such stand- by commitments as tax-exempt income. In Rev.
Rul. 82-144, 1982-2
-35-
<PAGE>
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 stand-by 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 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 mid-term or other long-term capital gain, 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.
If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will
-36-
<PAGE>
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 earnings 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.
-37-
<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 13.93 billion shares are
currently classified in 82 classes 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 Numeric Investors
Micro Cap), 50 million shares are classified as Class GG Common Stock (n/i
Numeric Investors Growth), 50 million shares are classified as Class HH Common
Stock (n/i Numeric Investors 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
-38-
<PAGE>
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), 100 million shares are classified as Class TT Common Stock
(Boston Partners Investor Mid Cap), 100 million shares are classified as Class
UU Common Stock (Boston Partners Institutional Mid Cap), 100 million shares are
classified as Class VV Common Stock (Boston Partners Institutional Bond), 100
million shares are classified as Class WW Common Stock (Boston Partners Investor
Bond), 50 million shares are classified as Class XX Common Stock (n/i Numeric
Investors Larger Cap Value), 700 million shares are classified as Class Janney
Money Market Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Market Common Stock (Municipal Money), 500 million shares
are classified as Class Janney Government Obligations Money Market Common Stock
(U.S. Government Money), 100 million shares are classified as Class Janney 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),
-39-
<PAGE>
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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the n/i Numeric Investors 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 and the
Janney Montgomery Scott Money Funds 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 Numeric Investors Family represents
interests in four non-money market portfolios; the Boston Partners Family
represents interests in three non-money market portfolios; the Beta, Gamma,
Delta, Epsilon, Zeta, Eta and Theta Families (collectively, the Additional
Families") represents 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 voting securities of an investment company such as the Fund shall
not be deemed to have been effectively acted upon unless approved by the
-40-
<PAGE>
holders of a majority of the outstanding voting securities 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 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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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.
-41-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
-42-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
-43-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
-44-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
-45-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse
First Boston Employee's
Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
-46-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
-47-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-48-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
-49-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
-50-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, transfer agent or custodian to such an
investment
-51-
<PAGE>
company, or from purchasing shares of such a company as agent for and upon the
order of customers. PIMC, PNC Bank and other institutions that are banks or bank
affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1997
(the "1997 Annual Report") are incorporated by reference into this Statement of
Additional Information. No other parts of the 1997 Annual Report are
incorporated by reference herein. The financial statements included in the 1997
Annual Report have been audited by the Fund's independent accountants, Coopers &
Lybrand, L.L.P. The reports of Coopers & Lybrand L.L.P. are incorporated herein
by reference. Such financial statements have been incorporated herein in
reliance
-52-
<PAGE>
upon such reports given upon their authority as experts in accounting and
auditing. Copies of the 1997 Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
-53-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market
A-1
<PAGE>
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing
A-2
<PAGE>
requirements, access to capital markets is good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
A-3
<PAGE>
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<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 BEDFORD
INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS MUNICIPAL
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE MONEY MARKET
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES PORTFOLIO
NOT CONSTITUTE AN OFFERING BY THE FUND OR BY
THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------------
PROSPECTUS
CONTENTS
INTRODUCTION........................... 3
FINANCIAL HIGHLIGHTS................... 6
INVESTMENT OBJECTIVES AND POLICIES..... 8
INVESTMENT LIMITATIONS................. 11
PURCHASE AND REDEMPTION OF SHARES...... 12
NET ASSET VALUE........................ 19
MANAGEMENT............................. 19
DISTRIBUTION OF SHARES................. 22
DIVIDENDS AND DISTRIBUTIONS............ 23
TAXES.................................. 23
DESCRIPTION OF SHARES.................. 25
OTHER INFORMATION...................... 26
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania December 1, 1997
<PAGE>
BEDFORD
MUNICIPAL MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
The Bedford Shares of the Municipal Money Market Portfolio are a class
of shares of common stock of The RBB Fund, Inc. (the "Fund"), an open-end
management investment company. Shares of the class offered by this Prospectus
represent interests in the 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 stability of principal.
The Municipal Money Market 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.
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 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.
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 the 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 1, 1997, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
this
<PAGE>
Prospectus. It may be obtained upon request free of charge from the Fund's
distributor by calling (800) 888-9723. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the SEC Internet Website (http://www.sec.gov).
================================================================================
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 1, 1997
-2-
<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. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. The shares ("Shares") of the Bedford Class (the "Class")
of common stock of the Fund 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 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 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 to
the Portfolio and custodian to the Fund, and PFPC Inc. ("PFPC") serves as the
administrator to the 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 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" or "forward commitment" basis, and
the purchase of stand-by commitments. These transactions involve certain special
risks, as set forth under "Investment Objectives and Policies."
-3-
<PAGE>
FEE TABLE
The Fee Table below contains a summary of the annual operating expenses
of the Bedford Class of the Municipal Money Market Portfolio based on expenses
incurred for the fiscal year ended August 31, 1997, as a percentage of average
daily net assets. An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (BEDFORD CLASS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
Management Fees (after waivers)(1)................... .04%
12b-1 Fees(1)........................................ .56%
Other Expenses(1).................................... .25%
Total Fund Operating Expenses (Bedford Class)
(after waivers and reimbursements)(1)................ .85%
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the
Bedford Municipal Money Market Portfolio, Management Fees would be
.33%, and Total Fund Operating 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Municipal Money Market
Portfolio* $9 $27 $47 $105
* 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" 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. Long-term Shareholders may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Bedford Class of the
Portfolio will bear directly or indirectly. (For more complete descriptions of
the various costs and expenses, see "Management-Investment Adviser and Sub-
-4-
<PAGE>
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 Class. However, there can be no assurance that
any future waivers of Management Fees will not vary from the figures 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 shareholders 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."
-5-
<PAGE>
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, 1993 through August 31, 1997, are a part of the
Fund's financial statements for the Portfolio which are incorporated by
reference into the Statement of Additional Information and have been audited by
Coopers & Lybrand L.L.P. ("Coopers"), the Fund's independent accountants. The
financial data for the Portfolio for the periods ended August 31, 1989, 1990,
1991 and 1992 are a part of previous financial statements audited by Coopers.
The financial data included in the table should be read in conjunction with the
financial statements and notes thereto. Further information about the
performance of the Portfolio is available in the Annual Report to Shareholders.
Both the Statement of Additional Information, and the Annual Report to
Shareholders may be obtained free of charge by calling the telephone number on
page 1 of this Prospectus.
-6-
<PAGE>
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
THE RBB FUND, INC FINANCIAL HIGHLIGHTS (c)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Municipal 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, August 31, August 31, August 31, August 31, August 31,
1997 1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------
<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 0.0285 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities
both realized and
unrealized)..... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total from investment
operations. 0.0285 0.0288 0.0297 0.0195 0.0195 0.0287
--------- --------- --------- --------- --------- ---------
Less distributions
Dividends (from net
investment income) (0.0285) (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from
capital gains).. -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions (0.0285) $(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 $ 1.00
========= ========= ========= ========= ========= =========
Total return........ 2.88% 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios/Supplemental Data
Net Assets, end of
period (000).... $ 213,034 $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to
average net assets .85%(a) .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment
income to average
net assets...... 2.85% 2.88% 2.97% 1.95% 1.95% 2.87%
</TABLE>
<TABLE>
<CAPTION>
=====================================================
For the Period
September 30,
For the For the 1988
Year Ended Year Ended (Commencement of
August 31, August 31, Operations) to
1991 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%
<FN>
(a) Without the waiver of advisory and administration fees, and without the
reimbursement of certain operating expenses, the ratios of expenses to
averag e net assets for the Municipal Money Market Portfolio would have
been 1.14%, 1.12%, 1.14%, 1.12%, 1.16%, 1.15%, 1.13% and 1.14% for the
years ended August 31, 1997, 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>
-7-
<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"). There is
no assurance that the investment objective of the Portfolio will be achieved.
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. 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
-8-
<PAGE>
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.
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
-9-
<PAGE>
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 highest rating
categories by one or more Rating Organizations ("Rating Organizations") for such
securities (e.g., commercial paper rated "A-1" or "A-2" by Standard & Poor's
Ratings Services ("S&P")), or rated "Prime-l" or "Prime-2" by Moody's Investors
Service, Inc. ("Moody's")), (3) securities that are rated at the time of
purchase by the only Rating Organization rating the security in one of its two
highest categories for such securities; (4) and securities that are not rated
and are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible
-10-
<PAGE>
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, and 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.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
================================================================================
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
shareholder approval. 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
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 this 5% limitation.
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
-11-
<PAGE>
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 are in excess of 5% of the Portfolio's net assets.
(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, the Portfolio may not, without Shareholder approval,
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
-12-
<PAGE>
purchase Shares through an account maintained by the investor with his brokerage
firm (an "Account") and may also purchase Shares directly by mail or 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 good order 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. 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. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC 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 PFPC after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
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 the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE 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 PFPC as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
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. Even if 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 and who desire to
transfer such shares to the
-13-
<PAGE>
street name account of another broker should contact their current broker.
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 available Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, 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" 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. An investor's bank or Dealer may impose a charge for this
service. The Fund does not currently charge for effecting wire transfers but
reserves the right to do so in the future. 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
-14-
<PAGE>
provide your name, address, telephone number, Social Security or Tax
Identification Number, the amount being wired, and by which bank or Dealer. PFPC
will then provide an investor with a Fund account number. (Investors with
existing accounts should also notify PFPC 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 Portfolio)
AMOUNT: (amount to be invested)
C. Complete and sign the Application and mail it to the address shown
thereon. PFPC will not process initial purchase orders until it receives a
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.
It is the responsibility of the Dealer 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. An investor who beneficially owns
Shares through an account may redeem Shares in his Account in accordance with
instructions and limitations
-15-
<PAGE>
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 the close of regular
trading on the NYSE on a Business Day, the redemption will be effective as of
the close of regular trading on the NYSE 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 may 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, each signature must be
guaranteed. A signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are the Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone 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
-16-
<PAGE>
by telephone to request the redemption by calling (888) 261-4073. Neither the
Fund, the Portfolio, the Distributor, PFPC nor any other Fund agent will be
liable for any loss, liability, cost or expense for following the procedures
below or for following instructions communicated by telephone that they
reasonably believe 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 Portfolio, 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; (6) and maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, 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 an
attorney-in-fact under power of attorney.
The proceeds of a telephone redemption request will be mailed by check
to an investor's registered address unless he has designated in his Application
or Telephone Authorization Form 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 the close of
regular trading on the NYSE, will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. 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, although no fee is currently
contemplated.
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
-17-
<PAGE>
("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 may
establish a higher minimum. An investor wishing to use this check writing
redemption procedure should complete specimen signature cards (available from
PFPC), 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. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of redemption proceeds may
be delayed 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. Investors should consider purchasing Shares
with a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in the Class involuntarily, on 30 days' notice,
if such account falls below $500 and during such 30-day notice 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.
-18-
<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class 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 the close of regular trading
of the NYSE 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, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays on which the NYSE is
closed as well as Veterans' Day and Columbus Day. The net asset value per share
of each class of the Portfolio is calculated by adding the value of the
proportionate interest of the class in the securities, cash and other assets of
the Portfolio, deducting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class.
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 twenty-two investment portfolios.
The Municipal Money Market Portfolio is one of these 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
-19-
<PAGE>
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 $38.7 billion of assets, of which approximately $35.2
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, 1997, the Fund paid
investment advisory fees aggregating .04% of the average net assets of the
Portfolio. For that same year, PIMC waived approximately .29% of investment
advisory fees payable to it with respect to the Portfolio.
-20-
<PAGE>
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. PFPC's principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809.
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."
DISTRIBUTOR
- --------------------------------------------------------------------------------
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
address at 466 Lexington Avenue, New York, New York, acts as distributor of the
Shares pursuant to a distribution agreement and various supplements thereto (the
"Distribution Agreement").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. 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
on the relative net assets of the investment portfolios at the time such
expenses were accrued. The Bedford Class of the Fund pays its own distribution
fees, and may pay a different share than other classes of the Fund of other
expenses (excluding advisory and custodial fees) if these expenses are actually
incurred in a different amount by the Bedford Class or if it receives different
services.
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
-21-
<PAGE>
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 lowering yield to investors.
For the fiscal year ended August 31, 1997, total expenses were 1.14% of
average net assets with respect to the Bedford Class of the Municipal Money
Market Portfolio (not taking into account waivers of .29%).
DISTRIBUTION OF SHARES
================================================================================
The Board of Directors of the Fund approved and adopted the
Distribution Agreement 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 Agreement, 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 Agreement and the Plan, the Distributor may
reallocate an amount up to the full fee that it receives to Dealers based upon
the aggregate investment amounts maintained by and services provided to
shareholders of the Class serviced by such Dealers. The Distributor may also
reimburse Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or 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 Agreement. Payments under the Plan are not based on expenses
actually
-22-
<PAGE>
incurred by the Distributor, and the payments may exceed distribution expenses
actually incurred.
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 the close of regular
trading on the NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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
-23-
<PAGE>
attributable to securities bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The current nominal maximum marginal rate on ordinary income for individuals,
trusts and estates is generally 39%, while the maximum rate imposed on mid-term
and other long-term capital gain of such taxpayers is 28% and 20%, respectively.
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 federal alternative minimum tax at a rate of 28% 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. 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 other Municipal Obligations must be taken into account by corporate
taxpayers in determining their adjusted current earnings adjustment for
alternative minimum tax purposes. Investors should additionally be aware of the
possibly 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.
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. 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
-24-
<PAGE>
on December 31 provided such dividends are paid during January of the following
year. The Fund 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. 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 13.93 billion shares are currently
classified into 82 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 Agreements entered into with the
Distributor and pursuant to each of the distribution plans, the Distributor is
entitled to receive from each class as compensation for distribution services
provided to that class 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.
-25-
<PAGE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE BEDFORD CLASS OF THE MUNICIPAL MONEY
MARKET PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO SUCH CLASS OF THIS
PORTFOLIO.
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 15, 1997, 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
-26-
<PAGE>
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).
-27-
<PAGE>
(This Page Intentionally Left Blank.)
-28-
<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 1, 1997 (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General.......................................... 2 2
Investment Objectives and Policies............... 2 5
Directors and Officers........................... 8 N/A
Investment Advisory, Distribution and
Servicing Arrangements......................... 12 12
Portfolio Transactions........................... 17 N/A
Purchase and Redemption Information.............. 19 8
Valuation of Shares.............................. 19 11
Performance Information.......................... 21
Taxes............................................ 23 15
Additional Information Concerning
Fund Shares.................................... 27 16
Miscellaneous.................................... 30 N/A
Financial Statements............................. 41 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 twenty-two
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 1, 1997. 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 13 months,
provided: (i) the Portfolio is entitled to the payment of principal at any time,
or during specified intervals not exceeding 13 months, 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 13
months. In determining the average weighted maturity of the Portfolio and
whether a variable rate demand instrument has a remaining maturity of 13 months
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. The absence of an
active secondary market with respect to particular variable and floating rate
instruments could make it difficult for a Portfolio to dispose of variable or
floating rate notes if the issuer defaulted on its payment obligations or during
periods that the Portfolio is not entitled to exercise its demand right, and the
Portfolio could, for these and other reasons, suffer a loss with respect to such
instruments.
-2-
<PAGE>
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the
Portfolio has such commitments outstanding, the Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash
or other liquid 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 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 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.
-3-
<PAGE>
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
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 or more
Rating Organizations (as defined in the Prospectus) 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 Rating Organization 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 13 months 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 a Rating
Organization ("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
13 months 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
-4-
<PAGE>
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 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.
The Portfolio may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Portfolio's
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
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,
among others, 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
-5-
<PAGE>
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 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, 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 are in
excess of 5% of the Portfolio's net assets. (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
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;
-6-
<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 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
(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
shareholder approval.
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.
-7-
<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.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Arnold M. Reichman - 49* Director Senior Managing Director,
466 Lexington Avenue Chief Operating Officer
New York, NY 10017 and Assistant Secretary,
Warburg Pincus Asset
Management, Inc.; Director
and Executive Officer of
Counsellors Securities
Inc.; Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
Robert Sablowsky - 58** Director Senior Vice President
110 Wall Street Fahnestock Co. Inc. (a
New York, NY 10005 registered broker-dealer);
Prior to October 1996,
Executive Vice President
of Gruntal & Co., Inc. (a
registered broker-dealer).
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).
-8-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME, AND ADDRESS AND AGE 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 Chairman
1234 Market Street since 1969, Comcast
16th Floor Corporation (cable tele-
Philadelphia, PA 19107-3723 vision and communications);
Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and Nextel
(wireless communications).
Donald van Roden - 72 Director and Self-employed
1200 Old Mill Lane Chairman of businessman. From
Wyomissing, PA 19610 the Board February 1980 to March
1987, Vice Chairman,
SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-Atlantic
(auto service); Director,
Keystone Insurance Co.
Edward J. Roach - 73 President and Certified Public
Suite 100 Treasurer Accountant; Vice
Bellevue Park Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee Emeritus,
Wilmington, DE 19809 Pennsylvania School for the
Deaf; Trustee Emeritus,
Immaculata College;
-9-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME, AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------- --------- ----------------------
President or Vice
President and Treasurer of
various investment
companies advised by PNC
Institutional Management
Corporation; Director, The
Bradford Funds, Inc.
Morgan R. Jones - 58 Secretary Chairman of the law firm of
Drinker Biddle & Reath LLP Drinker Biddle & Reath LLP
1345 Chestnut Street Director, Rocking Horse
Philadelphia, PA 19107-3496 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 positions 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 Fahnestock Co.,
Inc., a registered 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 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 the Distributor and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund
-10-
<PAGE>
and Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings
of the Board of Directors or any committee thereof. For the year ended August
31, 1997, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ESTIMATED FROM REGISTRANT
COMPENSATION ACCRUED AS ANNUAL AND FUND
FROM PART OF FUND BENEFITS UPON COMPLEX1 PAID
NAME OF PERSON/ POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
- ----------------------
<FN>
1 A FUND COMPLEX MEANS TWO OR MORE INVESTMENT COMPANIES THAT HOLD
THEMSELVES OUT TO INVESTORS AS RELATED COMPANIES FOR PURPOSES OF
INVESTMENT AND INVESTOR SERVICES, OR HAVE A COMMON INVESTMENT ADVISER
OR HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE
INVESTMENT ADVISER OF ANY OTHER INVESTMENT COMPANIES.
</FN>
</TABLE>
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 and one other
employee), pursuant to which the Fund will contribute on a quarterly basis
amounts equal to 10% of the quarterly compensation of each eligible employee. By
virtue of the services performed by PNC Institutional Management Corporation
("PIMC"), the Portfolio'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 two part-time employees. Drinker Biddle & Reath LLP,
of which Mr. Jones is a partner, receives legal fees as counsel to
-11-
<PAGE>
the Fund. 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, 1993, and PNC Bank renders sub-advisory services to
the Portfolio pursuant to a Sub-Advisory Agreement, dated August 16, 1988.
Pursuant to the Sub-Advisory Agreement, PNC Bank is entitled to receive from
PIMC an annual fee calculated at the rate of 75% of the fees paid to PIMC on
behalf of the Municipal Money Market Portfolio. The advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- -------------- ------- --------------
Municipal $201,095 $1,269,553 $14,921
Money Market
Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- -------------- ------- --------------
Municipal $190,687 $1,218,973 $17,576
Money Market
Portfolio
-12-
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- -------------- ------- --------------
Municipal Money Market $67,752 $1,041,321 $11,593
Portfolio
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) 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; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Fund to its directors and officers; (g)
organizational costs; (h) fees to the investment adviser, sub-adviser and PFPC;
(i) fees and expenses of officers and directors who are not affiliated with the
Portfolios' investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolios and their shares for distribution under federal and state
securities laws; (q) expenses of preparing prospectuses and statements of
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of shares of the Fund; (r) the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Bedford Class of the
Portfolio pays its own distribution fees, and may pay a different share than
other classes of other expenses (excluding advisory and custodial fees) if these
expenses are actually incurred in a different amount by the Bedford Class or if
it receives different services.
-13-
<PAGE>
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements 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 Agreement 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 Agreements may also be terminated by PIMC
or PNC Bank, respectively, on 60 days' written notice to the Fund. Each of the
Advisory Agreements 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. 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 Portfolio.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
Municipal Money Market Portfolio $99,071 $ 0 $ 0
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
Municipal Money Market Portfolio $67,204 $10,146 $ 0
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
Municipal Money Market Portfolio $8,960 $44,657 $ 0
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.
-14-
<PAGE>
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.
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 agreement, dated as of April 10, 1991, and supplement (the
"Distribution Agreement"), entered into by the Distributor and the Fund on
behalf of 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 appropriate efforts to distribute
the Shares. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreement, 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
-15-
<PAGE>
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 approved 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").
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 12b-1
Directors shall be committed to the discretion of the directors who are not
interested persons of the Fund.
During the year ended August 31, 1997, 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 $1,131,857,
of which amount $1,111,658 was paid to dealers with whom the Distributor had
entered into sales agreements and $20,199 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, had an indirect financial interest in the operation of the
Plan by virtue of his position with the Distributor. Mr. Sablowsky, a Director
of the Fund, had an indirect interest in the operation of the Plans by virtue of
his position with Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining
maturities of 13 months or less, and may purchase variable rate securities with
remaining maturities of 13 months or more so long as such securities comply with
conditions
-16-
<PAGE>
established by the SEC under which they may be considered to have remaining
maturities of 13 months or less. Because the Portfolio intends to purchase only
securities with remaining maturities of 13 months 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 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
-17-
<PAGE>
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.
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.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each class 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
adding the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets, deducting actual and accrued liabilities of
each class and dividing the result by the number of outstanding shares of the
class. The net asset value of each class of the Portfolio is determined
independently of the other classes and the other Portfolios. The Portfolio's
"net assets" equal the value of the Portfolio's investments and other
-18-
<PAGE>
securities less its liabilities. The Portfolio's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of the close of
the NYSE (generally 4:00 p.m. Eastern Time), on each Business Day. "Business
Day" means each weekday when both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and on
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed, on weekends and the same
holidays as the NYSE as well as 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.
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 13 months, will
limit portfolio investments to those
-19-
<PAGE>
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 annualized yield for the seven-day period ended August 31,
1997 for the Shares of the Class before waivers was as follows:
TAX-EQUIVALENT
YIELD (ASSUMES A
EFFECTIVE FEDERAL INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- ----- ----------------
Municipal Money Market Portfolio 2.36% 2.39% 3.28%
-20-
<PAGE>
The annualized yield for the seven-day period ended August 31,
1997 for the Shares of the Class after waivers was as follows:
TAX-EQUIVALENT
YIELD (ASSUMES A
EFFECTIVE FEDERAL INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- ----- ----------------
Municipal Money Market Portfolio 2.64% 2.67% 3.67%
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 accounts 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 MONEY FUND REPORT(R), 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.
-21-
<PAGE>
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 "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").
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.
-22-
<PAGE>
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.
-23-
<PAGE>
"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.
The Portfolio may acquire stand-by commitments with respect to
Municipal Obligations held in its portfolio and will treat any interest received
on Municipal Obligations subject to such stand-by 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
stand-by 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 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. 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
-24-
<PAGE>
to Portfolio shareholders as mid-term or other long-term capital gain,
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.
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 earnings 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
-25-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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
-26-
<PAGE>
Stock, 100 million shares are classified as Class EE Common Stock, 50 million
shares are classified as Class FF Common Stock (n/i Numeric Investors Micro
Cap), 50 million shares are classified as Class GG Common Stock (n/i Numeric
Investors Growth), 50 million shares are classified as Class HH Common Stock
(n/i Numeric Investors 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), 100 million shares are classified as Class TT Common Stock
(Boston Partners Investor Mid Cap), 100 million shares are classified as Class
UU Common Stock (Boston Partners Institutional Mid Cap), 100 million shares are
classified as Class VV Common Stock (Boston Partners Institutional Bond), 100
million shares are classified as Class WW Common Stock (Boston Partners Investor
Bond), 50 million shares are classified as Class XX Common Stock (n/i Numeric
Investors Larger Cap Value), 700 million shares are classified as Class Janney
Money Market Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Market Common Stock (Municipal Money), 500 million shares
are classified as Class Janney Government Obligations Money Market Common Stock
(U.S. Government Money), 100 million shares are classified as Class Janney 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
-27-
<PAGE>
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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the n/i Numeric Investors 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 BEA
Family represents interests in ten non-money market portfolios; the n/i Numeric
Investors Family represents interests in four non-money market portfolios; the
Boston Partners Family represents interests in three non-money market
portfolios; the Janney Montgomery Scott Money Funds Family and Beta, Gamma,
Delta, Epsilon, Zeta, Eta and Theta Families represents 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.
-28-
<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 voting 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 voting securities 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 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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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
-29-
<PAGE>
"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
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
-30-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
-31-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
-32-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
-33-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
-34-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-35-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
-36-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-37-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-38-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory
-39-
<PAGE>
agreement would normally be subject to shareholder approval. It is not
anticipated that any change in the Fund's method of operations as a result of
these occurrences would affect its net asset value per share or result in a
financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1997 Annual Report are incorporated by
reference herein. The financial statements included in the 1997 Annual Report
have been audited by the Fund's independent accountants, Coopers & Lybrand
L.L.P. The reports of Coopers & Lybrand L.L.P. are incorporated herein by
reference. Such financial statements have been incorporated herein in reliance
upon such reports given upon their authority as experts in accounting and
auditing. Copies of the 1997 Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
-40-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high
A-1
<PAGE>
internal cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<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 OBJECTIVE AND
POLICIES....................................................... 7
INVESTMENT LIMITATIONS......................................... 9
PURCHASE AND REDEMPTION OF
SHARES......................................................... 10
MANAGEMENT..................................................... 17
DISTRIBUTION OF SHARES......................................... 19
DIVIDENDS AND DISTRIBUTIONS.................................... 20
TAXES.......................................................... 21
DESCRIPTION OF SHARES.......................................... 22
OTHER INFORMATION.............................................. 23
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
- --------------------------------------------------------------------------------
BEDFORD
GOVERNMENT
OBLIGATIONS
MONEY MARKET
PORTFOLIO
Prospectus
December 1, 1997
<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 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 of common stock of The RBB Fund, Inc. (the "Fund"), an open-end
management investment company. Shares of the Class 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 NOT ASSET VALUE
OF $1.00 PER SHARE.
PNC Institutional Management Corporation serves as investment advisor
for the Portfolio, 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. 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 1, 1997, 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. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the Internet Website (http://www.sec.gov).
- --------------------------------------------------------------------------------
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 1, 1997
<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. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. The shares ("Shares") offered by this Prospectus are a
class ("Class") of the shares of common stock of the Fund and 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 among others: 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."
2
<PAGE>
FEE TABLE
The Fee Table below contains a summary of annual fund operating
expenses incurred by the Government Obligations Money Market Portfolio during
the fiscal year ended August 31, 1997, as a percentage of average daily net
assets. An example based on the summary is also provided.
ANNUAL FUND OPERATING EXPENSES (BEDFORD CLASS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
Management Fees (after waivers)(1) .30%
12b-1 Fees(1) .56%
Other Expenses(1) .115%
Total Fund Operating Expenses
(Bedford Class) (after waivers)(1) .975%
(1) Management Fees and 12b-1 Fees are based on average daily
net assets and are calculated daily and paid monthly.
Before waivers for the Government Obligations Money Market
Portfolio, Management Fees would be .41% and Total Fund
Operating Expenses would be 1.09%.
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
------ ------- ------- --------
Government Obligations
Money Market Portfolio*
(Bedford Class) $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 (Bedford Class)" 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. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sale charges
permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Bedford Class of the
Portfolio will bear directly or
3
<PAGE>
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 figures 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, 1993 through August 31, 1997 are
part of the Fund's financial statements for the Portfolio, which have been
incorporated by reference into the Statement of Additional Information and have
been audited by Coopers & Lybrand L.L.P.
4
<PAGE>
("Coopers"), the Fund's independent accountants. The financial data for the
Portfolio for the periods ended August 31, 1989, 1990, 1991 and 1992 are part of
previous financial statements audited by Coopers. The financial data should be
read in conjunction with the financial statements and notes thereto. Further
information about the performance of the Portfolio is available in the Annual
Reports to Shareholders. Both the Statement of Additional Information and the
Annual Reports to Shareholders may be obtained free of charge by calling the
telephone number on page 1 of this Prospectus.
5
<PAGE>
Bedford Class of the Government Obligations Money Market Portfolio
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 For the For the
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31, August 31, August 31,
1997 1996 1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <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
-------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income.. 0.0449 0.0458 0.0475 0.0270 0.0231 0.0375 0.0604
Net gains on securities
both realized
and unrealized....... -- -- -- -- -- 0.0009 --
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.0449 0.0458 0.0475 0.0270 0.0231 0.0384 0.0604
-------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income). (0.0449) (0.0458) (0.0475) (0.0270) (0.0231) (0.0375) (0.0604)
Distributions (from
capital gains)..... -- -- -- -- -- (0.0009) --
-------- -------- -------- -------- -------- -------- --------
Total distributions. (0.0449) (0.0458) (0.0475) (0.0270) (0.0231) (0.0384) (0.0604)
-------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return........... 4.59% 4.68% 4.86% 2.73% 2.33% 3.91% 6.21%
RATIOS SUPPLEMENTAL DATA
Net assets, end of
period (000).......... $209,715 $192,599 $163,398 $166,418 $213,741 $225,101 $368,899
Ratios of expenses to
average net assets.... .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .95%(a)
Ratios of net investment
income to average
net assets.............. 4.49% 4.58% 4.75% 2.70% 2.31% 3.75% 6.04%
</TABLE>
<TABLE>
<CAPTION>
For the For the Period
Year September 30, 1989
Ended (Commencement of
August 31, Operations) to
1990 August 31, 1989
---------- -----------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.. $ 1.00 $ 1.00
-------- -------
Income from investment
operations:
Net investment income.. 0.0748 0.0725
Net gains on securities
both realized
and unrealized....... -- --
-------- -------
Total from investment
operations.......... 0.0748 0.0725
-------- -------
Less distributions
Dividends (from net
investment income). (0.0748) (0.0725)
Distributions (from
capital gains)..... -- --
-------- -------
Total distributions. (0.0748) (0.0725)
-------- -------
Net asset value,
end of period........ $ 1.00 $ 1.00
======== =======
Total return........... 7.74% 8.64%(b)
RATIOS SUPPLEMENTAL DATA
Net assets, end of
period (000).......... $209,378 $66,281
Ratios of expenses to
average net assets.... .95%(a) .96%(a)(b)
Ratios of net investment
income to average
net assets.............. 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
1.09%, 1.10%, 1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17% for the years
ended August 31, 1997, 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.
</FN>
</TABLE>
6
<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. There is no assurance that
the investment objective of the Government Obligations Money Market Portfolio
will be achieved.
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
days if such securities provide for adjustments in their interest rates not less
frequently than every 397 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
7
<PAGE>
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 13 months, provided the repurchase
agreement itself matures in less than 13 months. 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. A reverse repurchase agreement involves a sale by
a portfolio of securities that it holds concurrently with an agreement by the
Portfolio to repurchase them at an agreed upon time and price. 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. The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. 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-related securities consist of
mortgage loans, which are assembled into pools, the interests on which are
issued and guaranteed by an agency or instrumentality of the U.S. Government,
though not necessarily by the U.S. Government itself.
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 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
8
<PAGE>
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.
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.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Portfolio's investment objective and policies described above may
be changed by the Fund's Board of Directors without shareholder approval. The
investment limitations summarized below may not be changed, however, without
shareholder approval. (A more detailed description of the following investment
limitations is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
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.
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
9
<PAGE>
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 are in excess of 5%
of the Portfolio's net assets. (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. 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 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 good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases
10
<PAGE>
where payment is made by check, Federal Funds will generally become available
two Business Days after the check is received. 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. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC 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 PFPC after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
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 the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE 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 the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
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 investment Account requirements. Even if 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 investors
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, and 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 and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
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
11
<PAGE>
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 available Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, 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" to Bedford Government Obligations Money
Market Portfolio, 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. The Fund does not currently charge for effecting wire transfers but
reserves the right to do so in the future. 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 your name, address,
telephone number, Social Security or Tax Identification Number, the amount being
wired, and by which bank or Dealer. PFPC will then provide an investor with a
Fund account number. (Investors with existing accounts should also notify PFPC
prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the custodian:
12
<PAGE>
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 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 initial purchases 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 through an Account 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
the close of regular trading of the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading of the NYSE 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,
13
<PAGE>
all accrued but unpaid dividends on those Shares will be paid with the
redemption proceeds.
An investor's brokerage firm may 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 may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Exchange, Inc. Medallion Signature Program (MSP). Signature guarantees
that are not part of these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone 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
redemption by calling (888) 261-4073. Neither the Fund, the Portfolio, the
Distributor, PFPC nor any other Fund agent will be liable for any loss,
liability, cost or expense for following the procedures described below or for
following instructions communicated by telephone that they reasonably believe 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 portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative
14
<PAGE>
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
broker-dealers (other than the Distributor), financial institutions, securities
dealers, financial planners or other industry professionals, 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.
Proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form 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 the close of regular
trading of the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. 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, although no fee is
currently contemplated.
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 may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), 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
15
<PAGE>
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. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
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 notice 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 class 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 the close of regular trading
on the NYSE 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, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day and the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays on which the NYSE is
closed, as well as Veterans' Day
16
<PAGE>
and Columbus Day. The net asset value per share of each class is calculated by
adding the value of the proportionate interest of the class in the securities,
cash and other assets of the Portfolio, subtracting the actual and accrued
liabilities of such class and dividing the result by the number of outstanding
shares of the class. 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 Portfolio are managed under
the direction of the Fund's Board of Directors. The Fund currently operates or
proposes to operate twenty-two investment portfolios. The Government Obligations
Money Market Portfolio is one of these portfolios.
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 $38.7 billion of assets, of which
approximately $35.2 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
17
<PAGE>
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
its financial accounts and records. PNC Bank, as sub-adviser, provides research
and credit analysis and provides PIMC with certain other services. In entering
into 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. 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, 1997, the Fund paid
investment advisory fees aggregating .30% of the average net assets of the
Portfolio. For that same year, PIMC waived approximately .11% of the advisory
fees payable with respect to 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 dealers who have entered into dealer agreements with
the Distributor for the provision of certain shareholder support services to
customers of such 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
18
<PAGE>
Additional Information under "Investment Advisory, Distribution and Servicing
Arrangements."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
address at 466 Lexington Avenue, New York, New York, acts as distributor of the
Shares pursuant to a distribution agreement and various supplements thereto (the
"Distribution Agreement") with the Fund on behalf of the Class.
EXPENSES
The expenses of the Portfolio are deducted from the total income of the
Portfolio before dividends are paid. 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. The expenses of each
Portfolio are deducted from the total income of such Portfolio before dividends
are paid. 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 on the relative net assets of
the investment portfolios. The Bedford Class of the Fund pays its own
distribution fees, and may pay a different share than other classes of the Fund
of other expenses (excluding advisory and custodial fees) if these expenses are
actually incurred in a different amount by the Bedford Class or if it received
different services.
The investment adviser may assume 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 lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1997, the Fund's total
expenses were 1.09% of average net assets with respect to the Bedford Class of
the Portfolio (not taking into account waivers and reimbursements of .115%).
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plan of Distribution for the Class (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act.
19
<PAGE>
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 Agreement, 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 Agreement and the Plan, the Distributor may
reallocate an amount up to the full fee that it receives to financial
institutions, including 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 Dealers for
other expenses incurred in the promotion of the sale of Fund shares. The
Distributor and/or 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 Agreement. Payments under the Plan are not based on expenses
actually incurred by the Distributor and the payments may exceed distribution
expenses actually incurred.
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 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
20
<PAGE>
determination of net asset value made as of the close of regular trading on the
NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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
21
<PAGE>
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 13.93 billion shares are currently
classified into 82 different classes of Common Stock ( see "Description of
Shares" in the Statement of Additional Information).
The Fund offers multiple classes of shares in the Portfolio to expand
its marketing alternatives and to broaden its range of services to different
investors. The expenses of the various classes within this Portfolio 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 Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 CLASS OF THE GOVERNMENT
OBLIGATIONS MONEY MARKET PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THIS
PORTFOLIO.
22
<PAGE>
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 15, 1997, 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).
23
<PAGE>
(This Page Intentionally Left Blank.)
24
<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 1, 1997 (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General .............................................. 2 3
Investment Objective and Policies...................... 2 11
Directors and Officers................................. 9 N/A
Investment Advisory, Distribution and Servicing
Arrangements.................................. 13 28
Portfolio Transactions................................. 18 N/A
Purchase and Redemption Information.................... 19 21
Valuation of Shares.................................... 19 27
Performance Information................................ 21 N/A
Taxes .............................................. 23 32
Additional Information Concerning Fund Shares.......... 26 34
Miscellaneous.......................................... 29 N/A
Financial Statements................................... 40 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 twenty-two
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 1, 1997. 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, as amended (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 or liquid 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, notes and 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-
-2-
<PAGE>
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 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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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 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
-3-
<PAGE>
less than the rate on the securities underlying the repurchase agreement). The
financial institutions with which the Portfolio may enter into repurchase
agreements will be banks 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,
if such banks and non-bank dealers are deemed creditworthy by the Portfolio's
adviser or sub-adviser. The Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price (including accrued
premium) provided in the repurchase agreement or the daily amortization of the
difference between the purchase price and the repurchase price specified in the
repurchase agreement. The Portfolio's adviser or sub-adviser will mark to market
daily the value of the securities. 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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United
-4-
<PAGE>
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by,
and multiple class pass-through securities represent direct ownership interests
in, a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMO interests. The Portfolios do not currently intend to purchase residual
interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential
-5-
<PAGE>
pay CMOs until all other classes having an earlier final distribution date have
been paid in full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income securities.
LENDING OF SECURITIES. With respect to loans by the Portfolio
of its portfolio securities as described in the Prospectus, the Portfolio would
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 loan by
the 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
that 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.
-6-
<PAGE>
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 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.
The Portfolio may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Portfolio's
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in the Portfolio during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
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,
among others, 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
-7-
<PAGE>
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% 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 are in excess of 5% of the Portfolio's net assets.
(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
shareholder approval.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
-8-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
*Arnold M. Reichman - 49 Director Senior Managing Director,
466 Lexington Avenue Chief Operating Officer and
New York, NY 10017 Assistant Secretary, Warburg
Pincus Asset Management,
Inc.; Director and
Executive Officer of
Counsellors Securities
Inc.; Director/Trustee
of various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky - 58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc. (a
New York, NY 10005 registered broker-dealer);
prior to October 1996,
Executive Vice President of
Gruntal & Co., Inc. (a
registered broker-dealer).
Francis J. McKay - 60 Director Since 1963, Executive Vice
7701 Burholme Avenue President, Fox Chase Cancer
Philadelphia, PA 19111 Center (biomedical research
and medical care).
Marvin E. Sternberg - 62 Director Since 1974, Chairman,
937 Mt. Pleasant Road Director and President, Moyco
Bryn Mawr, PA 19010 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).
-9-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Julian A. Brodsky - 63 Director Director and Vice Chairman
1234 Market Street since 1969, Comcast
16th Floor Corporation (cable television
Philadelphia, PA 19107- and communications);
3723 Director, Comcast Cablevision
of Philadelphia (cable
television and
communications) and Nextel
(wireless communications).
Donald van Roden - 72 Director and Self-employed businessman.
1200 Old Mill Lane Chairman of From February 1980 to March
Wyomissing, PA 19610 the Board 1987, Vice Chairman,
SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA
Mid-Atlantic (auto
service); Director,
Keystone Insurance Co.
Edward J. Roach - 73 President and Certified Public Accountant;
Suite 100 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;
President or Vice
President and Treasurer
of various investment
companies advised by PNC
Institutional Management
Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones - 58 Secretary Chairman, the law firm
Drinker Biddle & Reath LLP of Drinker Biddle &
1345 Chestnut Street Reath LLP; Director,
Philadelphia, PA 19107-3496 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 positions 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 Fahnestock Co., Inc., a
registered broker-dealer.
-10-
<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 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 the Distributor and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
-11-
<PAGE>
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------ ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
<FN>
- ----------------------
1 A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is an affiliated person of the investment adviser
of any other investment companies.
</FN>
</TABLE>
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 and one other
employee), pursuant to which the Fund will contribute on a quarterly basis
amounts equal to 10% of the quarterly compensation of each eligible employee. By
virtue of the services performed by PNC Institutional Management Corporation
("PIMC"), the Portfolio'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 two
part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to the Fund. No officer, director or
employee of PIMC, PNC Bank, PFPC or the Distributor currently receives any
compensation from the Fund.
-12-
<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 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. Pursuant to the Sub- Advisory Agreement, PNC
Bank is entitled to receive an annual fee from PIMC calculated at the annual
rate of 75% of the advisory fees received by PIMC on behalf of the Portfolio.
Such advisory and sub-advisory agreements are hereinafter collectively referred
to as the "Advisory Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Government
Obligations Money $1,774,123 $647,063 $404,193
Market Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Government
Obligations Money $1,638,622 $671,811 $406,954
Market Portfolio
-13-
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Government $780,122 $398,363 $0
Obligations Money
Market Portfolio
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) 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; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Fund to its directors and officers; (g)
organizational costs; (h) fees to the investment adviser, sub-adviser and PFPC;
(i) fees and expenses of officers and directors who are not affiliated with the
Portfolios' investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolios and their shares for distribution under federal and state
securities laws; (q) expenses of preparing prospectuses and statements of
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of shares of the Fund; (r) the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Bedford Class of the
Portfolio pays its own distribution fees, and may pay a different share than
other
-14-
<PAGE>
classes of other expenses (excluding advisory and custodial fees) if these
expenses are actually incurred in a different amount by the Bedford Class or if
it receives different services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved on
July 9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
were each approved by shareholders of the Portfolio at a special meeting held
December 22, 1989, as adjourned. Each Advisory Agreement 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 Agreements may
also be terminated by PIMC or PNC Bank, respectively, on 60 days' written notice
to the Fund. Each of the Advisory Agreements 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
-15-
<PAGE>
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 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 agreement, dated as of April 10, 1991, and supplement (the
"Distribution Agreement") entered into by the Distributor and the Fund on behalf
of 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 appropriate efforts to distribute the Shares.
As compensation for its distribution services, the Distributor receives,
pursuant to the terms of the
-16-
<PAGE>
Distribution Agreement, 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 approved 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").
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 12b-1 Directors shall be committed
to the discretion of the directors who are not interested persons of the Fund.
During the year ended August 31, 1997, the Fund paid
distribution fees to the Fund's Distributor under the Plan for the Bedford Class
of the Portfolio in the aggregate amount of $1,136,708 of which amount
$1,119,407 was paid to dealers with whom the Distributor had entered into sales
agreements and $17,301 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
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 positions with the Distributor. Mr. Sablowsky, a Director of the
Fund, had an indirect interest in the operation of the Plans by virtue of his
position with Fahnestock Co., Inc.
-17-
<PAGE>
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less).
Because the Portfolio intends to purchase only securities with remaining
maturities of 13 months 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 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.
-18-
<PAGE>
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.
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.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each class 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
adding the value of the proportionate interest of the class in the Portfolio's
cash, securities, and other assets, subtracting the actual and accrued
-19-
<PAGE>
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value of each class of the Fund is determined
independently of the other classes of the Fund. The Portfolio's "net assets"
equal the value of the Portfolio's investments and other securities less its
liabilities. The Portfolio's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and as of the close of the NYSE (generally
4:00 p.m. Eastern Time), on each Business Day. "Business Day" means each
weekday, 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,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE, as well as Columbus Day and Veterans' 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.
-20-
<PAGE>
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 13 months, 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 yield for the
Portfolio 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.
-21-
<PAGE>
The annualized yield for the seven-day period ended August 31,
1997 for the Bedford Class of the Portfolio before waivers was as follows:
TAX-EQUIVALENT
YIELD
(ASSUMES A
EFFECTIVE FEDERAL INCOME
YIELD YIELD TAX RATE OF 28%)
----- ----- ----------------
4.53% 4.63% N/A
The annualized yield for the seven-day period ended August 31,
1997 for the Bedford Class of the Portfolio after waivers was as follows:
TAX-EQUIVALENT
YIELD
(ASSUMES A
EFFECTIVE FEDERAL INCOME
YIELD YIELD TAX RATE OF 28%)
----- ----- ----------------
4.64% 4.75% N/A
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 accounts 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 (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
-22-
<PAGE>
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 MONEY FUND REPORT(R), 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 "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).
-23-
<PAGE>
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").
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
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.
-24-
<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, 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 mid-term or other long-term capital gain,
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.
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 earnings 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."
-25-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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
-26-
<PAGE>
(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 Numeric Investors Micro
Cap), 50 million shares are classified as Class GG Common Stock (n/i Numeric
Investors Growth), 50 million shares are classified as Class HH Common Stock
(n/i Numeric Investors 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), 100 million shares are classified as Class TT Common Stock
(Boston Partners Investor Mid Cap), 100 million shares are classified as Class
UU Common Stock (Boston Partners Institutional Mid Cap), 100 million shares are
classified as Class VV Common Stock (Boston Partners Institutional Bond), 100
million shares are classified as Class WW Common Stock (Boston Partners Investor
Bond), 50 million shares are classified as Class XX Common Stock (n/i Numeric
Investors Larger Cap Value), 700 million shares are classified as Class Janney
Money Market Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Market Common Stock (Municipal Money), 500 million shares
are classified as Class Janney Government Obligations Money Market Common Stock
(U.S. Government Money), 100 million shares are classified as Class Janney 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
-27-
<PAGE>
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 of the Government Obligations Money Market Portfolio. 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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the n/i Numeric Investors Family, the Boston
Partners Family, the Janney Montgomery Scott Money 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 BEA Family
represents interests in ten non-money market portfolios; the n/i Numeric
Investors family represents interests in four non-money market portfolios, the
Boston Partners Family represents interest in three 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
-28-
<PAGE>
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 voting 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 voting securities 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 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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
-29-
<PAGE>
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
-30-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
-31-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
-32-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
-33-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
-34-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
-35-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
-36-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
-37-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
-38-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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
-39-
<PAGE>
the shares of a registered, open-end investment company continuously engaged in
the issuance of its shares, and prohibit banks generally from underwriting
securities, but such banking laws and regulations do not prohibit such a holding
company or affiliate or banks generally from acting as investment adviser,
administrator, 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
customers. PIMC, PNC Bank and other institutions that are banks or bank
affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997
Annual Report") are incorporated by reference in this Statement of Additional
Information. No other
-40-
<PAGE>
parts of the 1997 Annual Report are incorporated by reference herein. The
financial statements included in the 1997 Annual Report have been audited by the
Fund's independent accountants, Coopers & Lybrand, L.L.P. The reports of Coopers
& Lybrand L.L.P. are incorporated herein by reference. Such financial statements
have been incorporated herein in reliance upon such reports given upon their
authority as experts in accounting and auditing. Copies of the 1997 Annual
Report may be obtained at no charge by telephoning the Distributor at the
telephone number appearing on the front page of this Statement of Additional
Information.
-41-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market
A-1
<PAGE>
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing
A-2
<PAGE>
requirements, access to capital markets is good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
A-3
<PAGE>
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
MONEY MARKET
PORTFOLIO
PROSPECTUS & APPLICATION
DECEMBER 1, 1997
BEAR
STEARNS
<PAGE>
MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
THE BEDFORD SHARES OF THE MONEY MARKET PORTFOLIO are a class of shares of common
stock of The RBB Fund, Inc. (the "Fund"), an open-end management investment
company. Shares of the Bedford Class offered by this Prospectus represent
interests in the Fund's Money Market Portfolio.
o The investment objective of the Money Market Portfolio is to
provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in
a diversified portfolio of U.S. dollar-denominated money
market instruments.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE
MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
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 the 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 1, 1997, 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. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the SEC Internet Website (http://www.sec.gov).
----------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
<PAGE>
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 1, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION................................................................ 1
FEE TABLE................................................................... 2
FINANCIAL HIGHLIGHTS........................................................ 4
INVESTMENT OBJECTIVES AND POLICIES.......................................... 6
INVESTMENT LIMITATIONS...................................................... 10
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES ................................ 12
NET ASSET VALUE............................................................. 22
MANAGEMENT.................................................................. 22
DISTRIBUTION OF SHARES...................................................... 25
DIVIDENDS AND DISTRIBUTIONS................................................. 25
TAXES....................................................................... 26
DESCRIPTION OF SHARES....................................................... 27
OTHER INFORMATION........................................................... 28
<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. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. The shares ("Shares") of the Bedford Class (the "Bedford
Class" or the "Class") of common stock of the Fund 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 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 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 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."
<PAGE>
FEE TABLE
The Fee Table below contains a summary of the annual operating
expenses incurred by the Bedford Class of the Portfolio after fee waivers and
expense reimbursements for the fiscal year ended August 31, 1997, as a
percentage of average daily net assets. An example based on the summary is also
shown.
ANNUAL FUND OPERATING EXPENSES (BRADFORD CLASS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
MONEY MARKET
PORTFOLIO
Management Fees (after waivers)(1)................................. .22%
12b-1 Fees(1)...................................................... .53%
Other Expenses..................................................... .22%
---
Total Operating Expenses (Bedford Class)
(after waivers)(1)............................................... .97%
====
- -------------------
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the
Money Market Portfolio, Management Fees would be .37% and Total Fund
Operating Expenses would be 1.12%.
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.......................................... $ 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"
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. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the various
costs and expenses that an investor in the Bedford 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," and
-2-
<PAGE>
"Distribution of Shares" below.) The expense figures are based on actual costs
and fees charged to the Class. The Fee Table reflects expense reimbursements and
a voluntary waiver of Management Fees for the Class. However, there can be no
assurance that any future expense reimbursements and waivers of Management Fees
will not vary from the figures reflected in the Fee Table. To the extent that
any service providers assume additional expenses of the Portfolio, such
assumption will have the effect of lowering such Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time the Portfolio advertises its "yield" and "effective yield."
BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "yield" of the Portfolio refers to the income
generated by an investment in the Portfolio over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in a Portfolio is assumed to
be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The yield of any investment is generally a function of portfolio quality and
maturity, type of investment and operating expenses. The yield on Shares will
fluctuate and is not necessarily representative of future results. Any fees
charged by broker/dealers directly to their customers in connection with
investments in Shares are not reflected in the yields of the Shares, and such
fees, if charged, will reduce the actual return received by shareholders on
their investments. The yield on Shares of the Class may differ from yields on
shares of other classes of the Fund that also represent interests in the same
Portfolio depending on the allocation of expenses to each class of the
Portfolio.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment results
of the Bedford 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, 1993 through 1997 are a part of the Fund's
financial statements for the Portfolio, which are incorporated by reference into
the Statement of Additional Information and have been audited by Coopers &
Lybrand L.L.P. ("Coopers"), the Fund's independent accountants. The financial
data for the periods ended August 31, 1989, 1990, 1991 and 1992 are a part of
previous financial statements audited by Coopers. The financial data included in
this table should be read in conjunction with the financial statements and
related notes. Further information about the performance of the Portfolio is
available in the Annual Report to Shareholders. Both the Statement of Additional
Information and the Annual Report to Shareholders may be obtained from the Fund
free of charge by calling the telephone number on Page 1 of the Prospectus.
-4-
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (c)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------
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, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<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.... 0.0462 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities
(both realized and
unrealized............. --- --- --- --- --- 0.0007
---------- ---------- -------- --------- -------- --------
Total from investment
operations............... 0.0462 0.0469 0.0486 0.0278 0.0243 0.0382
---------- ---------- -------- --------- -------- --------
Less distributions
Dividends (from net
investment income)...... (0.0462) (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from
capital gains).......... --- --- --- --- --- (0.0007)
---------- ---------- -------- --------- -------- --------
Total distributions...... (0.0462) (0.469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- ---------- -------- --------- -------- --------
Net asset value, end of
period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ========= ======== ========
Total return................ 4.72% 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios/Supplemental Data
Net assets,
end of period (000)..... $1,392,911 $1,109,334 $935,821 $ 710,737 $782,153 $736,842
Ratios of expenses to
average net assets...... .97%(a) .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment
income to average net
assets.................. 4.62% 4.69% 4.86% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30,
1988
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS)
AUGUST 31, AUGUST 31, AUGUST 31,
1991 1990 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 their reimbursement of
certain operating expenses, the ratios of expenses to average net
assets for the Money Market Portfolio would have been 1.12%, 1.14%,
1.17%, 1.16%, 1.19%, 1.20%, 1.17% and 1.16% for the years ended August
31, 1997, 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>
-5-
<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. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved. 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 in addition to those of domestic issuers, including higher
transaction costs, less complete financial information, less stringent
regulatory requirements and less market liquidity. 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 ("Rating Organizations"). 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.
-6-
<PAGE>
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 13
months, depending upon the note involved) to demand payment of the principal of
a note. The notes are not typically rated by credit rating agencies, but issuers
of variable rate demand notes must satisfy the same criteria as set forth above
for issuers of commercial paper. If an issuer of a variable rate demand note
defaulted on its payment obligation, the Portfolio might be unable to dispose of
the note because of the absence of an active secondary market. For this or other
reasons, the Portfolio might suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
REPURCHASE AGREEMENTS.
The Portfolio may agree to purchase securities from financial institutions
subject to the seller's agreement to repurchase them at an agreed-upon time and
price ("repurchase agreements"). The securities held subject to a repurchase
agreement may have stated maturities exceeding 13 months, provided the
repurchase agreement itself matures in less than 13 months. 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
-7-
<PAGE>
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 13 months or
less. Asset- backed securities are considered an industry for industry
concentration purposes. See "Investment Limitations." In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by a portfolio will generally be at lower
rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS.
The Portfolio may enter into reverse repurchase agreements with respect to
portfolio securities. A reverse repurchase agreement involves a sale by a
portfolio of securities that it holds concurrent with an agreement by the
Portfolio to repurchase them at an agreed upon time and price. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 ("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 description of Municipal Obligations,
see Statement of Additional Information under "Investment Objectives and
Policies."
-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 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 Rating
Organizations ("Rating Organizations") (e.g. commercial paper rated "A-1" or
"A-2" by Standard & Poor's Ratings Services ("S&P")), (3) securities that are
rated at the time of purchase
-9-
<PAGE>
by the only Rating Organization 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
Rating Organization ("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 and 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, GICs, 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.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Money Market Portfolio's investment objective and policies described above
may be changed by the Fund's Board of Directors without shareholder approval.
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 are in excess of 5% of
the Portfolio's net assets. (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
-11-
<PAGE>
securities that (i) if rated by more than one Rating Organization, are
rated (at the time of purchase) by two or more Rating Organizations in
the highest rating category for such securities, (ii) if rated by only
one Rating Organization, are rated by such Rating Organization 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 wire. The minimum initial investment
-12-
<PAGE>
THE BEAR STEARNS FUNDS
ACCOUNT INFORMATION FORM
Please Note: Do not use this form to open a retirement plan account. For
retirement plan forms call 1-800-766-4111.
For assistance in completing this form, contact PFPC at 1-800-447-1139.
1. ACCOUNT TYPE (Please print; indicate only one registration type)
[__] INDIVIDUAL [__] JOINT TENANT
---------------------------------------------------------------------------
NAME
---------------------------------------------------------------------------
JOINT REGISTRANT, IF ANY (SEE NOTES 1 AND 2)
--------------------------------------- ------------------------------
SOCIAL SECURITY NUMBER OF PRIMARY OWNER TAXPAYER IDENTIFICATION NUMBER
(1) Use only the Social Security number or Taxpayer Identification
Number of the first listed joint tenant.
(2) For joint registrations, the account registrants will be joint
tenants with right of survivorship and not tenants in common
unless tenants in common or community property registrations are
requested.
---------------------------------------------------------------------------
[__] UNIFORM GIFT TO MINORS, OR [__] UNIFORM TRANSFER TO MINORS
(WHERE ALLOWED BY LAW)
---------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
---------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
Under the ____________________________ Uniform Gift/Transfers to Minors Act
STATE RESIDENCE OF MINOR
- -
------/------/------ --------------------------
MINOR'S DATE OF BIRTH MINOR'S SOCIAL SECURITY NUMBER
(REQUIRED TO OPEN ACCOUNT)
---------------------------------------------------------------------------
[__] Corporation [__] Partnership [__] Trust* [__] Other
---------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER
---------------------------------------------------------------------------
NAME(S) OF TRUSTEE(S) DATE OF THE TRUST AGREEMENT
----------------------------------- ----------------------------------
SOCIAL SECURITY NUMBER TAXPAYER IDENTIFICATION NUMBER
(REQUIRED TO OPEN ACCOUNT) (REQUIRED TO OPEN ACCOUNT)
* If a Trust, include date of trust instrument and list of trustees if they
are to be named in the registration.
N O T P A R T O F T H E P R O S P E C T U S
<PAGE>
2. MAILING ADDRESS
---------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
---------------------------------------------------------------------------
CITY STATE ZIP CODE
( ) ( )
---------------------------------------------------------------------------
DAY TELEPHONE EVENING TELEPHONE
3. INVESTMENT INFORMATION
METHOD OF INVESTMENT
[__] I have enclosed a check for a minimum initial investment of
$1,000 per Fund.
[__] I have enclosed a check for a minimum subsequent investment of
$250 per Fund or completed the Systematic Investment Plan
information in Section 13.
[__] I purchased _____________ shares of __________________ through my
broker on __/__/__. Conform #___________.
PLEASE MAKE MY INVESTMENT IN THE FUNDS DESIGNATED BELOW:
---------------------------------------------------------------------------
CLASS A CLASS C CLASS Y BEAR STEARNS FUNDS INVESTMENT AMOUNT
---------------------------------------------------------------------------
_______ _______ _______ S&P STARS Portfolio $_______________
_______ _______ _______ Large Cap Value Portfolio $_______________
_______ _______ _______ Small Cap Value Portfolio $_______________
_______ _______ _______ Total Return Bond Portfolio $_______________
_______ _______ _______ The Insiders Select Fund $_______________
_______ _______ _______ Emerging Markets Debt Portfolio $_______________
_______ _______ _______ Money Market Portfolio $_______________
TOTAL INVESTMENT AMOUNT $===============
Note: All shares purchased will be held in a shareholder account for the
investor at the Transfer Agent. Checks drawn on foreign banks and checks
made payable to persons or entities other than the Fund will not be
accepted. Checks should be made payable to the Fund which you are investing
in. If no class is designated, your investment will be made in Class A
shares.
4. REDUCED SALES CHARGE (AVAILABLE FOR CLASS A SHARES ONLY)
Method of Investment
Are you a shareholder in another Bear Stearns Fund? [__] Yes [__] No
[__] I apply for Right of Accumulation reduced sales charges
based on the following Bear Stearns Fund Accounts
(excluding Class C Shares).
---------------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
---------------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
---------------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
LETTER OF INTENT
[__] I am already investing under an existing Letter of Intent.
[__] I agree to the Letter of Intent provisions in the Fund's
current prospectus. During a 13-month period, I plan to
invest a dollar amount of at least:
[__] $50,000 [__] $100,000 [__] $250,000 [__] $500,000
[__] $750,000 [__] $1,000,000
N O T P A R T O F T H E P R O S P E C T U S
<PAGE>
NET ASSET VALUE PURCHASE
[__] I qualify for an exemption from the sales charge by meeting the
conditions set forth in the prospectus. (Please attach
certification to this form.)
[__] I qualify to purchase shares at net asset value, with proceeds
received from a mutual fund or closed-end fund not distributed by
Bear Stearns. (Please attach proof of fund share redemption.)
5. DISTRIBUTION OPTIONS
DIVIDENDS AND CAPITAL GAINS MAY BE REINVESTED OR PAID BY CHECK. IF NO
OPTIONS ARE SELECTED BELOW, BOTH DIVIDENDS AND CAPITAL GAINS WILL BE
REINVESTED IN ADDITIONAL FUND SHARES.
Dividends [__] Pay by check. [__] Reinvest.
Capital Gains [__] Pay by check. [__] Reinvest.
The Redirected Distribution Option allows an investor to have dividends and
any other distributions from a Fund automatically used to purchase shares
of the same class of any other Fund. The receiving account must be in the
same name as your existing account.
[__] Please reinvest dividends and capital gains
from the __________________ to the _____________________.
(NAME OF FUND) (NAME OF FUND)
If you elect to have distributions paid by check, distributions will be
sent to the address of record. Distributions may also be sent to
another payee:
---------------------------------------------------------------------------
NAME
---------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
---------------------------------------------------------------------------
CITY STATE ZIP CODE
---------------------------------------------------------------------------
OPTIONAL FEATURES
6. AUTOMATIC WITHDRAWAL PLAN
[__] Fund Name _______________________________ [__] Amount ______________
[__] Startup month _______________________
Frequency option:
[__] Monthly [__] Every other month [__] Quarterly
[__] Semiannually [__] Annually
o A minimum account value of $5,000 in a single account is required to
establish an automatic withdrawal plan.
o Payments will be made on or near the 25th of the month.
o Shareholders holding share certificates are not eligible for the
Automatic Withdrawal Plan.
[__] Please mail checks to Address of Record (Named in Section 2)
[__] Please electronically credit my Bank of Record (Named in Section 9)
[__] Special payee as specified below:
---------------------------------------------------------------------------
NAME
---------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
---------------------------------------------------------------------------
CITY STATE ZIP CODE
N O T P A R T O F T H E P R O S P E C T U S
<PAGE>
7. TELEPHONE EXCHANGE PRIVILEGE
Unless indicated below, I authorize the Transfer Agent to accept
instructions from any persons to exchange shares in my account(s) by
telephone, in accordance with the procedures and conditions set forth
in the Fund's current prospectus.
[__] I DO NOT want the Telephone Exchange Privilege.
8. TELEPHONE REDEMPTION PRIVILEGE
[__] I authorize the Transfer Agent to accept instructions from any
person to redeem shares in my account(s) by telephone, in accordance
with the procedures and conditions set forth in the Fund's current
prospectus.
Checks for redemption of proceeds will be sent by check via U.S. Mail
to the address to record, unless the information in Section 9 is
completed for redemption by wire of $500 or more.
9. BANK OF RECORD (FOR TELEPHONE REDEMPTIONS AND/OR SYSTEMATIC INVESTMENT
PLANS) PLEASE ATTACH A VOIDED CHECK (FOR ELECTRONIC CREDIT TO YOUR CHECKING
ACCOUNT) IN THE SPACE PROVIDED IN SECTION 13.
---------------------------------------------------------------------------
BANK NAME
---------------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
---------------------------------------------------------------------------
CITY STATE ZIP CODE
---------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
---------------------------------------------------------------------------
ACCOUNT NAME
10. SIGNATURE AND TAXPAYER CERTIFICATION
The undersigned warrants that I(we) have full authority and, if a
natural person, I(we) am(are) of legal age to purchase shares pursuant
to this Account Information Form, and have received a current
prospectus for the Bear Stearns Fund(s) in which I(we) am(are)
investing. THE UNDERSIGNED ACKNOWLEDGES THAT THE TELEPHONE EXCHANGE
PRIVILEGE IS AUTOMATIC AND THAT I(WE) MAY BEAR THE RISK OF LOSS IN
EVENT OF FRAUDULENT USE OF THE PRIVILEGE. If I(we) do not want the
Telephone Exchange Privilege, I(we) have so indicated on this Account
Information Form.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is
required to have the following certification:
Under penalty of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from
backup withholding or (b) I have not been notified by the Internal
Revenue Service that I am subject to 31% backup withholding as a result
of a failure to report all interest or dividends or (c) the IRS has
notified me that I am no longer subject to backup withholding.
Certification Instructions - You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting of interest or dividends on your
tax return. MUTUAL FUND SHARES ARE NOT DEPOSITS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION, NOR ARE THEY INSURED BY THE FDIC.
INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
N O T P A R T O F T H E P R O S P E C T U S
<PAGE>
[__] Exempt from backup withholding
[__] Nonresident alien (Form W-8 attached) ______________________
COUNTRY OF CITIZENSHIP
---------------------------------------------------------------------------
AUTHORIZED SIGNATURE TITLE DATE
---------------------------------------------------------------------------
AUTHORIZED SIGNATURE TITLE DATE
11. FOR AUTHORIZED DEALER USE ONLY (Please Print)
We hereby authorize the Transfer Agent to act as our agent in
connection with the transactions authorized by the Account Information
Form and agree to notify the Transfer Agent of any purchases made under
a Letter of Intent or Right of Accumulation. If this Account
Information Form includes a Telephone Exchange Privilege authorization,
a Telephone Redemption Privilege authorization or an Automatic
Withdrawal Plan request, we guarantee the signature(s) above.
---------------------------------------------------------------------------
DEALER'S NAME DEALER NUMBER
---------------------------------------------------------------------------
MAIN OFFICE ADDRESS BRANCH NUMBER
---------------------------------------------------------------------------
REPRESENTATIVE'S NAME REP. NUMBER
( )
---------------------------------------------------------------------------
BRANCH ADDRESS TELEPHONE NUMBER
---------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF DEALER TITLE DATE
12. ADDITIONAL ACCOUNT STATEMENTS (Please Print)
In addition to myself and my representative, please send copies of my
account statements to:
----------------------------------------- --------------------------------
NAME NAME
----------------------------------------- --------------------------------
ADDRESS ADDRESS
----------------------------------------- --------------------------------
CITY, STATE, ZIP CODE CITY, STATE, ZIP CODE
13. SYSTEMATIC INVESTMENT PLAN
The Systematic Investment Plan, which is available to shareholders of
the Bear Stearns Funds, makes possible regularly scheduled purchases of
Fund shares to allow dollar-cost averaging. The Funds' Transfer Agent
can arrange for an amount of money selected by you ($100 minimum) to be
deducted from your checking account and used to purchase shares of a
specified Bear Stearns Fund. A $250 minimum initial investment is
required. This may not be used in conjunction with the Automatic Withdrawal
Plan.
Please debit $__________ from my checking account (named in Section 9)
on or about the 20th of the month. Depending on the Application receipt
date, the Plan may take 10 to 20 days to be in effect.
[__] Monthly [__] Every alternate month
[__] Quarterly [__] Other _______________
$____________ into the __________________ Fund ________________Start Month.
$100 MINIMUM
$____________ into the __________________ Fund ________________Start Month.
$100 MINIMUM
$____________ into the __________________ Fund ________________Start Month.
N O T P A R T O F T H E P R O S P E C T U S
<PAGE>
$100 MINIMUM
If you are applying for the Telephone Redemption Privilege or
Systematic Investment Plan, please tape your voided check on top of our
sample below.
[TAPE CHECK HERE]
SERVICE ASSISTANCE MAILING INSTRUCTIONS
Our knowledgeable Client Services Mail your completed Account
Representatives are available to Information Form and check to:
assist you between 8:30 a.m. and
5:00 p.m. Eastern Time THE BEAR STEARNS FUNDS
at: 1-800-447-1139 C/O PFPC INC.
P.O. BOX 8960
WILMINGTON, DE 19899-8960
N O T P A R T O F T H E P R O S P E C T U S
<PAGE>
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 good order 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. 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. On any business day, orders
which are accompanied by Federal Funds and received by PFPC after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
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 the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE 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 the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
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.
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
-13-
<PAGE>
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.
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.
Even if 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, and 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 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
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)," to Bedford
Money Market Portfolio, c/o 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
-14-
<PAGE>
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 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. Complete and sign the Application and mail it to the
address shown thereon. PFPC will not process initial purchases until it
receives a 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.
-15-
<PAGE>
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns Shares in
an Account 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
the close of regular trading on the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading on the NYSE 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 may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
Investors may redeem or exchange shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone 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
redemption by calling (888) 261-4073. Neither the Fund, the Portfolio, the
Distributor, PFPC nor any other Fund agent will be liable for any loss,
liability, cost or expense for following the procedures below or for following
-16-
<PAGE>
instructions communicated by telephone that they reasonably believe 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 Portfolio, 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 broker-dealers or other
industry professionals, 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 an attorney-in-fact under power of
attorney.
Redemption proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form that such proceeds are to be sent by wire transfer
to a specified checking or savings account. If redemption proceeds are to be
sent by wire transfer, a telephone redemption request received prior to the
close of regular trading on the NYSE will result in redemption proceeds being
wired to the investor's bank account on the next bank business day. 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, although no
fee is currently contemplated.
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 may establish a higher minimum. An investor wishing to use this check
writing redemption procedure should complete specimen signature cards (available
from PFPC), 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
-17-
<PAGE>
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. Pursuant to rules under the 1940 Act, checks may not be presented for
cash payment at the offices of PNC Bank. This limitation does not affect checks
used for the payment of bills or cash at other banks.
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 as described above
under "Redemption of Shares Owned Directly." 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
-18-
<PAGE>
additional shares concurrently with withdrawals generally are undesirable.
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. Although the Fund will redeem Shares purchased by check before
the check clears, payment of the redemption proceeds may be delayed for a period
of up to fifteen days after purchase, pending a determination that the check has
cleared. This procedure does not apply to Shares purchased by wire payment.
Investors should consider purchasing Shares using a certified or bank check or
money order if they anticipate an immediate need for redemption proceeds. 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, except as described below.
The Fund reserves the right to redeem any account in the Class involuntarily, on
30 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.
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.
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 than the Money
Market Portfolio. 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 investor's broker or the Transfer Agent
to determine if it is available and whether any conditions are imposed on its
use.
-19-
<PAGE>
Currently, exchanges may be made among the following portfolios (and such
additional portfolios which may be added in the future):
o Emerging Markets Debt Portfolio
o S&P STARS Portfolio
o Large Cap Value Portfolio
o Small Cap Value Portfolio
o Total Return Bond Portfolio
o The Insiders Select Fund
To effect an exchange of Shares, 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 PFPC, 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 otherwise on the
account application. 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 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. See
"Redemption Procedures--Redemption of Shares Owned Directly" for a description
of the Fund's telephone transaction procedures. 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 as
described 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.
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
-20-
<PAGE>
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. To
qualify for the exchange privilege, 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.
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.
-21-
<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class 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 the close of regular trading on the NYSE
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, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when one of these holiday falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays as the NYSE is closed as well
as Veterans' Day and Columbus Day. The net asset value for each class of the
Fund is calculated by adding the value of the proportionate interest of the
class in the securities, cash and other assets of the Portfolio, deducting the
actual and accrued liabilities of such class and dividing the result by the
number of outstanding shares of the class. The net asset value per share of each
class of a portfolio is determined independently of any of the Fund's other
classes.
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 twenty-two 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
-22-
<PAGE>
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 $38.7 billion of
assets, of which approximately $35.2 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolio, PIMC manages such Portfolio and is
responsible for all purchases and sales of portfolio securities. PIMC also
assists generally in supervising the operations of the Portfolio, and maintains
the 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
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, 1997, the Fund paid investment
advisory fees aggregating .22% of the average daily net assets of the Money
Market Portfolio. For that same year, PIMC waived approximately .15% of average
daily net assets of the Money Market Portfolio.
-23-
<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 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".
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned subsidiary of
Warburg Pincus Asset Management, Inc. with a principal business address at 466
Lexington Avenue, New York, New York, acts as distributor of the Fund pursuant
to a distribution agreement and various supplements thereto (the "Distribution
Agreement").
EXPENSES
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. 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 on
the relative net assets of the investment portfolios at the time such expenses
were accrued. The Bedford Class of the Fund pays its own distribution fees, and
may pay a different share than other classes of the Fund of other expenses
(excluding advisory and custodial fees) if these expenses are actually incurred
in a different amount by the Bedford Class or if it receives different services.
The investment adviser may assume 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
lowering a Portfolio's expense ratio and of increasing yield to investors.
For the Fund's fiscal year ended August 31, 1997, the Fund's total expenses were
1.12% of the average daily net assets with respect to the Class of the Money
Market Portfolio (not taking into account waivers and reimbursements of .15%).
-24-
<PAGE>
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the Distribution
Agreement 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 Agreement, 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 Agreement and the Plan, the Distributor may reallocate an
amount up to the full fee that it receives to financial institutions, including
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 Dealers for other expenses incurred in the
promotion of the sale of Fund shares. The Distributor and/or 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 Agreement. Payments under the Plan are not based on expenses
actually incurred by the Distributor, and the payments may exceed distribution
expenses actually incurred.
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.
-25-
<PAGE>
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 the close of regular trading on
the NYSE. 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, it 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, and out of the
portion of such net capital gain that constitutes mid-term capital gain, will be
taxed to shareholders as long-term capital gain or mid-term capital gain, as the
case may be, 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 current nominal maximum marginal rate on ordinary income
for individuals, trusts and estates is generally 39%, while the maximum rate
imposed on mid-term and other long-term capital gain of such taxpayers is 28%
and 20%, respectively. 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
-26-
<PAGE>
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 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.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund has authorized capital of thirty billion shares of Common Stock, $.001
par value per share, of which 13.93 billion shares are currently classified into
82 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 Agreements entered into with the Distributor and pursuant to
each of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 MONEY MARKET PORTFOLIO AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE BEDFORD SHARES OF THE MONEY MARKET PORTFOLIO.
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
-27-
<PAGE>
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 15, 1997, 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.
-28-
<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
Drinker Biddle & Reath LLP
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.
-29-
<PAGE>
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
"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 1, 1997 (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 1, 1997.
CONTENTS
Prospectus
Page Page
---- ----------
General.............................................. 2 1
Investment Objectives and Policies................... 2 6,10
Directors and Officers............................... 14 N/A
Investment Advisory, Distribution and
Servicing Arrangements............................. 18 22,25
Portfolio Transactions............................... 23 N/A
Purchase and Redemption Information.................. 25 12
Valuation of Shares.................................. 25 22
Performance Information.............................. 27 N/A
Taxes................................................ 29 26
Additional Information Concerning Fund
Shares............................................. 33 27
Miscellaneous........................................ 36 N/A
Financial Statements................................. 47 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 twenty-two
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 1, 1997. 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, as amended (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 or liquid 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
13 months, provided: (i) the Portfolio is entitled to the payment of principal
at any time, or during specified intervals not exceeding 13 months, 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 13 months. In determining the average weighted maturity of the Money
Market Portfolio and whether a variable rate demand instrument has a remaining
maturity of 13 months 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
-2-
<PAGE>
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.
The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for a
Portfolio to dispose of variable or floating rate notes if the issuer defaulted
on its payment obligations or during periods that the Portfolio is not entitled
to exercise its demand right, and the Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the
Portfolio has such commitments outstanding, the Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash
or other liquid 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
-3-
<PAGE>
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 in cash or by paying a higher price for portfolio
securities which are acquired subject to the commitment (thus reducing the yield
to maturity otherwise available for the same securities). The total amount paid
in either manner for outstanding stand-by commitments held by the Money Market
Portfolio will not exceed 1/2 of 1% of the value of the Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
The Money Market Portfolio intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the investment
adviser's opinion, present minimal credit risks. Either such Portfolio's
reliance upon the credit of these dealers, banks and 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. 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 13 months, depending upon the
instrument involved. The
-4-
<PAGE>
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.
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 that
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
-5-
<PAGE>
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.
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
registration which is afforded by Section 4(2) of the Securities Act of 1933, as
amended. 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
-6-
<PAGE>
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). The financial institutions with which the
Portfolio may enter into repurchase agreements will be banks 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, if such banks and non-bank dealers
are deemed creditworthy by the Portfolio's adviser or sub-adviser. The
Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price (including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference between the purchase price
and the repurchase price specified in the repurchase agreement. The Portfolio's
adviser or sub-adviser will mark-to-market daily the value of the securities.
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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are
-7-
<PAGE>
not backed by or entitled to the full faith and credit of the United States and
are supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Portfolio may invest in multiple class pass-through
securities, including collateralized mortgage obligations ("CMOs"). These
multiple class securities may be issued by U.S. Government agencies or
instrumentalities, including FNMA and FHLMC, or by trusts formed by private
originators of, or investors in, mortgage loans. In general, CMOs are debt
obligations of a legal entity that are collateralized by a pool of residential
or commercial mortgage loans or mortgage pass-through securities (the "Mortgage
Assets"), the payments on which are used to make payments on the CMOs. Investors
may purchase beneficial interests in CMOs, which are known as "regular"
interests or "residual" interests. The residual in a CMO structure generally
represents the interest in any excess cash flow remaining after making required
payments of principal of and interest on the CMOs, as well as the related
administrative expenses of the issuer. Residual interests generally are junior
to, and may be significantly more volatile than, "regular" CMO interests. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
-8-
<PAGE>
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs, payments of principal, including any
principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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 ("Rating Organizations")
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 Rating Organization 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 13 months 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
-9-
<PAGE>
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 a Rating
Organization ("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
13 months 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 Rating Organization 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
that have a maturity of longer than seven days), including securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. The Portfolio's investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors. With respect to the Money Market Portfolio,
repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to
-10-
<PAGE>
dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
The Portfolio may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Portfolio's
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
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,
among others, 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% 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 are in
excess of 5% of the Portfolio's net assets. (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.
-11-
<PAGE>
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 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:
-12-
<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
shareholder approval.
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
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"
-13-
<PAGE>
include eligible securities that (i) if rated by more than one Rating
Organization, are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii)
if rated by only one Rating Organization, are rated by such Rating
Organization 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 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.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE FUND DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
*Arnold M. Reichman - 49 Director Senior Managing Director,
466 Lexington Avenue Chief Operating Officer
New York, NY 10017 and Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Executive Officer of
Counsellors Securities
Inc.; Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
-14-
<PAGE>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE FUND DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
**Robert Sablowsky - 58 Director Senior Vice President of
110 Wall Street Fahnestock Co., Inc. (a
New York, NY 10005 registered broker-
dealer); Prior to October
1996, Executive Vice
President of Gruntal &
Co., Inc. (a registered
broker-dealer)
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 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,
Gellucap Mfg. Co., Inc.
(manufacturer of
disposable headwear).
Julian A. Brodsky - 63 Director Director and Vice
1234 Market Street Chairman, since 1969
16th Floor Comcast Corporation
Phila., PA 19107-3723 (cable television and
communications);
Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
-15-
<PAGE>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE FUND DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
Donald van Roden - 72 Director and Self-employed
1200 Old Mill Lane Chairman of the businessman. From
Wyomissing, PA 19610 Board February 1980 to March
1987, Vice Chairman,
SmithKline Beecham
Corporation
(pharmaceuticals);
Director AAA Mid-Atlantic
(auto service); Director,
Keystone Insurance Co.
Edward J. Roach - 73 President and Certified Public
Suite 100 Treasurer Accountant; Vice Chairman
Bellevue Park of the Board, Fox Chase
Corporate Center Cancer Center; Trustee
400 Bellevue Parkway Emeritus, Pennsylvania
Wilmington, DE 19809 School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and Treasurer
of various investment
companies advised by PNC
Bank Institutional
Management Corporation;
Director, The Bradford
Funds, Inc.
Morgan R. Jones - 58 Secretary Chairman, the law firm of
Drinker Biddle & Drinker Biddle & Reath
Reath LLP LLP; Director, Rocking
1345 Chestnut Street Horse Child Care Centers
Philadelphia, PA 19107- of America, Inc.
3496
* Mr. Reichman is an "interested person" of the Fund, as that term is
defined in the 1940 Act, by virtue of his positions 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 Fahnestock Co.,
Inc., a registered 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.
-16-
<PAGE>
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 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 the Distributor, and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
-17-
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT AND
COMPENSATION FROM AS PART OF FUND BENEFITS UPON FUND COMPLEX1 PAID
NAME OF PERSON/ POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- ------------------------ ----------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
- ----------------------
<FN>
1 A FUND COMPLEX MEANS TWO OR MORE INVESTMENT COMPANIES THAT HOLD
THEMSELVES OUT TO INVESTORS AS RELATED COMPANIES FOR PURPOSES OF
INVESTMENT AND INVESTOR SERVICES, OR HAVE A COMMON INVESTMENT ADVISER
OR HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE
INVESTMENT ADVISER OF ANY OTHER INVESTMENT COMPANIES.
</FN>
</TABLE>
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 and one other employee) pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by PNC Institutional Management Corporation ("PIMC"), the Portfolio'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 two
part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to the Fund. 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
-18-
<PAGE>
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 Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- --------------- ------- --------------
Money Market $5,366,431 $3,603,130 $469,986
Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- --------------- ------- --------------
Money Market $4,174,375 $3,527,715 $342,158
Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- --------------- ------- --------------
Money Market $2,274,697 $2,589,832 $12,047
Portfolio
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
-19-
<PAGE>
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) 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; (d) any extraordinary
expenses; (e) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; (f) the cost of
investment company literature and other publications provided by the Fund to its
directors and officers; (g) organizational costs; (h) fees to the investment
adviser, sub-adviser and PFPC; (i) fees and expenses of officers and directors
who are not affiliated with the Portfolios' investment adviser or Distributor;
(j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees;
(o) brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Bedford Class of the
Portfolio pays its own distribution fees and may pay a different share than
other classes of other expenses (excluding advisory and custodial fees) if these
expenses are actually incurred in a different amount by the Bedford Class or if
it receives different services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved on
July 9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
were each approved with respect to the Money Market Portfolio by shareholders of
the Portfolio at a special meeting held December 22, 1989, as adjourned. Each
Advisory Agreement is terminable by vote of the Fund's Board of Directors or by
the
-20-
<PAGE>
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 Agreements may also be terminated by PIMC or PNC Bank, respectively, on
60 days' written notice to the Fund. The Advisory Agreement 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 Bedford 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 Portfolio, (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 Shares. 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
-21-
<PAGE>
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 agreement, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of the Class (the "Distribution
Agreement"), 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 appropriate efforts to distribute shares of the Class.
As compensation for its distribution services, the Distributor receives,
pursuant to the terms of the Distribution Agreement, 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 approved 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").
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
-22-
<PAGE>
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 12b-1 Directors shall be
committed to the discretion of the directors who are not interested persons of
the Fund.
During the year ended August 31, 1997, 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 $6,570,720 of which
$6,447,204, was paid to dealers with whom the Distributor had entered into sales
agreements, and $123,516, 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, had an
indirect interest in the operation of the Plan by virtue of his position with
Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that the Money Market Portfolio may purchase variable rate securities
with remaining maturities of 13 months 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 13 months or less. Because the Portfolio intend to
purchase only securities with remaining maturities of 13 months 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
-23-
<PAGE>
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 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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most
-24-
<PAGE>
recent fiscal year. As of August 31, 1997, the following portfolios, held the
following securities:
PORTFOLIO SECURITY VALUE
--------- -------- -----
Money Market Portfolio Bear Stearns Companies, $105,000,000
Inc. Commercial Paper
Money Market Portfolio Bear Stearns Companies, $ 20,000,000
Inc. Corporate Obligation
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.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each class 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
adding the value of the proportionate interest of a class in the Portfolio's
cash, securities, and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value per share of each class of the Fund is
determined independently of each other class. The Portfolio's "net assets" equal
the value of the
-25-
<PAGE>
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 the close of the NYSE (generally 4:00 p.m. Eastern Time) on each
Business Day. "Business Day" means each weekday, when both the NYSE and the
Federal Reserve Bank of Philadelphia (the "FRB") are open. Currently, the NYSE
is closed weekends and on New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and the preceding Friday and subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays as the NYSE as well as
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.
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 13 months, will
limit portfolio investments,
-26-
<PAGE>
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 annualized yield for the seven-day period ended August 31,
1997 for the Bedford Class of the Money Market Portfolio, before waivers was as
follows:
TAX-EQUIVALENT
YIELD
EFFECTIVE (ASSUMES A
PORTFOLIO YIELD YIELD FEDERAL INCOME
- --------- ----- ----- TAX RATE OF 28%)
----------------
Money Market 4.60% 4.71% N/A
The annualized yield for the seven-day period ended August 31,
1997 for the Bedford Class of the Money Market Portfolio after waivers was as
follows:
TAX-EQUIVALENT
YIELD
EFFECTIVE (ASSUMES A
PORTFOLIO YIELD YIELD FEDERAL INCOME
- --------- ----- ----- TAX RATE OF 28%)
----------------
Money Market 4.75% 4.86% N/A
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 accounts or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of a portfolio's 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
-27-
<PAGE>
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 MONEY FUND
REPORT(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or their shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
The Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, the Portfolio
is exempt from federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the 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).
-28-
<PAGE>
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").
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
-29-
<PAGE>
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 stand-by commitments
with respect to Municipal Obligations held in its portfolio and will treat any
interest received on Municipal Obligations subject to such stand-by 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
stand-by 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 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. The Portfolio will not have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as mid-term or other long-term capital gain, 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.
-30-
<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 earnings 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
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 13.93 billion shares are
currently classified in 82 classes 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 Numeric Investors Micro
Cap), 50 million shares are classified as Class GG Common Stock (n/i Numeric
Investors Growth), 50 million shares are classified as Class HH Common Stock
(n/i Numeric Investors 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
-32-
<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), 100
million shares are classified as Class TT Common Stock (Boston Partners Investor
Mid Cap), 100 million shares are classified as Class UU Common Stock (Boston
Partners Institutional Mid Cap), 100 million shares are classified as Class VV
Common Stock (Boston Partners Institutional Bond), 100 million shares are
classified as Class WW Common Stock (Boston Partners Investor Bond), 50 million
shares are classified as Class XX Common Stock (n/i Numeric Investors Larger Cap
Value), 700 million shares are classified as Class Janney Money Market Common
Stock (Money), 200 million shares are classified as Class Janney Municipal Money
Market Common Stock (Municipal Money), 500 million shares are classified as
Class Janney Government Obligations Money Market Common Stock (U.S. Government
Money), 100 million shares are classified as Class Janney 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
-33-
<PAGE>
shares are classified as Theta 2 Common Stock (Municipal Money), 1 million
shares are classified as Theta 3 Common Stock (U.S. Government Money), and 1
million shares are classified as Theta 4 Common Stock (N.Y. Money). Shares of
Class L Common Stock constitute the Bedford Class. Under the Fund's charter, the
Board of Directors has the power to classify or reclassify any unissued shares
of Common Stock from time to time.
The classes of Common Stock have been grouped into fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the n/i Numeric Investors Family, the Boston
Partners Family, the Janney Montgomery Scott Money 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 BEA Family
represents interests in ten non-money market portfolios; the n/i Numeric
Investors Family represents interests in four non-money market portfolios; the
Boston Partners Family represents interests in three non-money market
portfolios; the Janney Montgomery Scott Money Funds Family and Beta, Gamma,
Delta, Epsilon, Zeta, Eta and Theta Families represents 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 voting securities of an investment company such as the Fund shall
not be deemed to have been effectively acted upon unless approved by the
-34-
<PAGE>
holders of a majority of the outstanding voting securities 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 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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
-36-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
-37-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
-38-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
-39-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
-40-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-41-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numerics Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
-42-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-43-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-44-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible
-45-
<PAGE>
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1997 Annual Report are incorporated by
reference herein. The financial statements included in the 1997 Annual Report
have been audited by the Fund's independent accountants, Coopers & Lybrand,
L.L.P. The reports of Coopers & Lybrand L.L.P. are incorporated herein by
reference. Such financial statements have been incorporated herein in reliance
upon such reports given upon their authority as experts in accounting and
auditing. Copies of the 1997 Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
-46-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
A-1
<PAGE>
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<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 HAS 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
FINANCIAL HIGHLIGHTS........................................... 6
INVESTMENT OBJECTIVES AND
POLICIES....................................................... 11
INVESTMENT LIMITATIONS......................................... 22
PURCHASE AND REDEMPTION OF
SHARES......................................................... 25
NET ASSET VALUE................................................ 29
MANAGEMENT..................................................... 29
DISTRIBUTION OF SHARES......................................... 32
DIVIDENDS AND DISTRIBUTIONS.................................... 33
TAXES.......................................................... 34
DESCRIPTION OF SHARES.......................................... 36
OTHER INFORMATION.............................................. 38
INVESTMENT ADVISER
PNC Institutional Management
Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
ESTABLISHED 1832
JMS, INC.
PROSPECTUS
THE JANNEY
MONTGOMERY SCOTT
MONEY FUNDS
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
DECEMBER 1, 1997
<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. The Fund is currently operating
or proposing to operate twenty-two separate investment portfolios. The shares of
the 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 (together, 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
<PAGE>
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. The New York Municipal Money Market Portfolio may invest a
significant percentage of its assets in a single issuer, and therefore
investment in this Portfolio may be riskier than an investment in other types of
money market funds.
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 Portfolios, 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 1, 1997, 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. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the SEC Internet Website (http://www.sec.gov).
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
-2-
<PAGE>
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 1, 1997
-3-
<PAGE>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (JANNEY SHARES)
The Fee Table below contains a summary of the annual operating expenses
of the Janney Classes of the Portfolios based on expenses incurred for the
fiscal year ended August 31, 1997, as a percentage of average daily net assets.
An example based on the summary is also shown.
MUNICIPAL GOVERNMENT NEW YORK
MONEY MONEY OBLIGATIONS MUNICIPAL
MARKET MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------ ------------
Management Fees (after
waivers)(1)................. .22% .04% .30% .02%
12b-1 Fees(1)............... .60 .60 .60 .60
Other Expenses (after
waivers)(1)............... .18 .21 .10 .18
--- ---- ---- ---
Total Fund Operating
Expenses (Janney
Classes) (after
waivers and
reimbursements)(1)........ 1.00% .85% 1.00% .80%
===== ==== ===== =====
(1) Management Fees and 12b-1 Fees are based on average daily net assets and
are calculated daily and paid monthly. Before 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%, .41% and .35%, respectively; Other Expenses would
be .25%, .20%, .22% and .18%, respectively; and Total Fund Operating
Expenses would be 1.22%, 1.13%, 1.23% and 1.13%, 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market*.......................... $10 $32 $55 $122
Municipal Money Market*................ $ 9 $27 $47 $105
Government Obligations Money Market*... $10 $32 $55 $122
New York Municipal Money Market*....... $ 8 $26 $44 $ 99
* 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 Classes)" 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. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end
-4-
<PAGE>
sales charges permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Janney 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 figures 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 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
-5-
<PAGE>
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 each of the periods ended August 31, 1997, 1996 and
1995 are part of the Fund's financial statements for each of the Portfolios,
which are incorporated by reference into the Statement of Additional Information
and have been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The financial data should be read in conjunction with such
financial statements and notes thereto. Further information about the
performance of the Portfolios is available in the Annual Report to Shareholders.
Both the Annual Report to Shareholders and the Statement of Additional
Information may be obtained free of charge by calling the telephone number on
page 1 of this Prospectus.
-6-
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 12, 1995
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of year..... $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Income from investment operations:
Net investment income................ 0.0459 0.0465 0.0112
------ ------ ------
Total from investment
operations.................. 0.0459 0.0465 0.0112
------ ------ ------
Less distributions
Dividends (from net investment
income)............................ (0.0459) (0.0465) (0.0112)
------ ------ ------
Total distributions........... (0.0459) (0.0465) (0.0112)
------ ------ ------
Net asset value, end of year........... $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total Return........................... 4.69% 4.76% 5.30%(b)
Ratios/Supplemental Data
Net assets, end of year (000)........ $736,855 $561,865 $443,645
Ratios of expenses to average
net assets......................... 1.00%(a) 1.00%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets................. 4.59% 4.65% 5.04%(b)
<FN>
(a) Without the waiver of advisory, administration 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 1.22%, 1.23% and 1.23% for the years ended August 31, 1997 and 1996
and the period ended August 31, 1995, respectively.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Class of shares within the
Money Market Portfolio.
</FN>
</TABLE>
-7-
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 12, 1995
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of year... $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Income from investment operations:
Net investment income.............. 0.0285 0.0278 0.0063
------ ------ ------
Total from investment
operations................ 0.0285 0.0278 0.0063
------ ------ ------
Less distributions
Dividends (from net investment
income).......................... (0.0285) (0.0278) (0.0063)
------ ------ ------
Total distributions......... (0.0285) (0.0278) (0.0063)
------ ------ ------
Net asset value, end of year......... $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total Return......................... 2.89% 2.81% 2.87%(b)
Ratios/Supplemental Data
Net assets, end of year (000)...... $108,826 $89,428 $113,256
Ratios of expenses to average
net assets....................... 0.85%(a) 0.94%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets............... 2.85% 2.78% 2.83%(b)
<FN>
(a) Without the waiver of advisory, administration and transfer agent 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 1.13%, 1.23% and 1.30% for the years ended August 31, 1997
and 1996 and the period ended August 31, 1995, respectively.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Class of shares within the
Municipal Money Market Portfolio.
</FN>
</TABLE>
-8-
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 12, 1995
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of year.......... $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Income from investment operations:
Net investment income..................... 0.0447 0.0456 0.0109
------ ------ ------
Total from investment
operations....................... 0.0447 0.0456 0.0109
------ ------ ------
Less distributions
Dividends (from net investment
income)................................. (0.0447) (0.0456) (0.0109)
------ ------ ------
Total distributions................ (0.0447) (0.0456) (0.0109)
------ ------ ------
Net asset value, end of year................ $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total Return................................ 4.56% 4.66% 5.03%(b)
Ratios/Supplemental Data
Net assets, end of year (000)............. $352,950 $306,757 $302,585
Ratios of expenses to average
net assets.............................. 1.00%(a) 1.00%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets...................... 4.47% 4.56% 4.91%(b)
<FN>
(a) Without the waiver of advisory, administration and transfer agent 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 1.23%, 1.25% and 1.28% for the years ended August
31, 1997 and 1996 and the period ended August 31, 1995, respectively.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Class of shares within the
Government Obligations Money Market Portfolio.
</FN>
</TABLE>
-9-
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 9, 1995
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of year.......... $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Income from investment operations:
Net investment income..................... 0.0276 0.0262 0.0062
------ ------ ------
Total from investment
operations....................... 0.0276 0.0262 0.0062
------ ------ ------
Less distributions
Dividends (from net investment
income)................................. (0.0276) (0.0262) (0.0062)
------ ------ ------
Total distributions................ (0.0276) (0.0262) (0.0062)
------ ------ ------
Net asset value, end of year................ $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total Return................................ 2.80% 2.65% 2.72%(b)
Ratios/Supplemental Data
Net assets, end of year (000)............. $30,442 $20,032 $14,671
Ratios of expenses to average
net assets.............................. .80%(a) .93%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets...................... 2.76% 2.62% 2.68%(b)
<FN>
(a) Without the waiver of advisory, administration and transfer agent 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 1.13%, 1.25% and 1.28% for the years ended August
31, 1997 and 1996 and the period ended August 31, 1995, respectively.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Class of shares within the
New York Municipal Money Market Portfolio.
</FN>
</TABLE>
-10-
<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 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." There is no
assurance that the Portfolio will achieve its investment objective. 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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
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 ("Rating Organization"). 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 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
-11-
<PAGE>
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 13 months, depending upon the note involved) to
demand payment of the principal of a note. The notes are not typically rated by
credit rating agencies, but issuers of variable rate demand notes must satisfy
the same criteria as set forth above for issuers of commercial paper. If an
issuer of a variable rate demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of an
active secondary market. For this or other reasons, the Portfolio might suffer a
loss to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
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
-12-
<PAGE>
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 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a Portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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
-13-
<PAGE>
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 Rating Organizations ("Rating Organizations") (e.g.,
commercial paper rated "A-1" or "A-2" by Standard & Poor's Ratings Services
("S&P"), (3) securities that are rated at the time of purchase by the only
Rating Organization 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 a Rating
Organization ("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
-14-
<PAGE>
the prices at which they are valued, GICs, 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"). There is
no assurance that the investment objective of the Portfolio will be achieved.
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.
-15-
<PAGE>
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.
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).
-16-
<PAGE>
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 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 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" and "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 as described under "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
-17-
<PAGE>
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. There is no assurance that the investment objective of the Portfolio
will be achieved.
Due to fluctuations in interest rates, the market values of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 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 more complete 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 and to meet redemptions. For a more complete description of
reverse repurchase agreements, see "Investment Objectives and Policies--Money
Market Portfolio-- Reverse Repurchase Agreements."
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. Mortgage- related
securities consist of mortgage loans which are often assembled into pools, the
interests in which are issued and
-18-
<PAGE>
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. The Fund may also acquire
asset-backed securities as described under "Investment Objectives and
Policies--Money Market Portfolio--Asset-Backed Securities."
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.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "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 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
-19-
<PAGE>
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 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 more complete 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 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.
-20-
<PAGE>
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 Investors
Service, Inc. ("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" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines. 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 than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio would be mitigated by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities.
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.
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
-21-
<PAGE>
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
S&P and 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 as described under "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 shareholder approval. The Portfolios may not, however,
change the following investment limitations (except as noted) 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
-22-
<PAGE>
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.
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.
-23-
<PAGE>
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 Rating Organization, are rated (at
the time of purchase) by two or more Rating Organizations in the
highest rating category for such securities, (ii) if rated by only one
Rating Organization, are rated by such Rating Organization 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.
The Municipal Money Market Portfolio 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 in issuers in the
same industry.
In addition, without shareholder approval, 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.
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
-24-
<PAGE>
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 New York Municipal Money Market Portfolio 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 shareholder approval, 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 good order from JMS and the Fund's custodian has Federal
-25-
<PAGE>
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. 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. On any Business Day, orders which are accompanied by Federal
Funds and received by PFPC 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 the close of regular trading on the NYSE (generally 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 the close of regular trading on the NYSE on any
Business Day of the Fund, will be executed as of the close of regular trading on
the NYSE 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 the close of regular trading on the NYSE or later,
and orders as to which payment has been converted to Federal Funds as of the
close of regular trading on the NYSE or later on a Business Day will be
processed as of 12:00 noon Eastern Time on the following Business Day.
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
investment 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, and this
Prospectus should be read in conjunction with any information received from JMS.
JMS may offer investors the ability to purchase Janney Shares under an
automatic purchase program (a "Purchase Program") established by it. An investor
who participates in a Purchase Program will have his "free-credit" cash balances
in his Account with JMS automatically invested in Shares of Janney Class
designated by the investor as the "Primary Janney Class" for his Purchase
Program. The frequency of investments and the minimum investment requirement may
be established by JMS and the Fund. In addition, JMS may require a minimum
amount of cash and/or securities to be deposited in an Account for participants
in its Purchase Program. The description of the particular JMS's Purchase
Program should be read for details, and any inquiries
-26-
<PAGE>
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 available Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, 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 through an Account 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 the close of regular trading on the NYSE on a
Business Day, the redemption will be effective as of the close of regular
trading on the NYSE 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.
-27-
<PAGE>
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 (available from PFPC), and
then forward such signature cards to JMS. JMS will then arrange for the checks
to be honored by PNC Bank. Investors who own Janney Shares through an Account
should contact JMS for signature cards. Investors of joint accounts may elect to
have checks honored with a single signature. Check redemptions will be subject
to PNC Bank's rules governing checks. An investor will be able to stop payment
on a check redemption. The Fund or PNC Bank may terminate this redemption
service at any time, and neither shall incur any liability for honoring checks,
for effecting redemptions to pay checks, or for returning checks which have not
been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
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. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in a Janney Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such thirty day notice
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.
-28-
<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class 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 the close of regular trading
on the NYSE 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, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the proportionate interest of each class in the
value of the securities, cash and other assets of the Portfolio, subtracting the
accrued and actual liabilities of the class and dividing the result by the
number of outstanding shares of the class. The net asset value per share of each
class of the Fund is determined independently of any of the Fund's other
classes.
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 twenty-two investment portfolios. Each of the
Janney Classes represents interests in one of the following portfolios: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio.
-29-
<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 $38.7 billion of
assets, of which approximately $35.2 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 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
-30-
<PAGE>
to receive from PIMC an amount equal to 75% of the advisory fees paid by the
Fund to PIMC with respect to the Portfolios 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, 1997, the Fund paid
investment advisory fees aggregating .22% of the average net assets of the Money
Market Portfolio, .04% 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 .02% of the average net assets of the New York Municipal
Money Market Portfolio. For that same year, PIMC waived approximately .15%,
.29%, .11% and .33% 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. PFPC's principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809.
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."
-31-
<PAGE>
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
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 a distribution
agreement and various supplements thereto (collectively, the "Distribution
Agreements").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. 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. The Janney Classes of
the Fund pay their own distribution fees and may pay a different share than
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Janney Classes or if they receive different services.
The investment adviser may assume 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 lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1997, the Fund's total
expenses were 1.22% of the average net assets with respect to the Janney Class
of the Money Market Portfolio (not taking into account waivers and
reimbursements of .22%), were 1.13% 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 .28%), were 1.23% 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 .23%)
and were 1.14% 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 .34%).
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the
Distribution Agreements and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule
-32-
<PAGE>
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 Agreements, 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 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 Agreements and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including 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 Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or 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 Agreement. Payments under the
Plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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
-33-
<PAGE>
payable to shareholders of record immediately prior to the determination of net
asset value made as of the close of regular trading on the NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain will be taxed to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term or other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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
-34-
<PAGE>
regular federal income tax, are subject to federal alternative minimum tax at a
rate of 28% 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.
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
-35-
<PAGE>
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 13.93 billion shares are currently
classified into 82 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,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios 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 Agreements entered
into with the Distributor and pursuant to each of the distribution plans, the
Distributor is entitled to receive from each class as compensation for
distribution services provided to that class a
-36-
<PAGE>
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 JANNEY CLASSES OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE JANNEY
CLASSES OF THESE PORTFOLIOS.
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.
-37-
<PAGE>
As of November 15, 1997, to the Fund's knowledge, no person held of
record 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 Janney
Montgomery Scott, 1801 Market Street, Philadelphia, PA 19103-1675; toll free
1-800-JANNEYS.
-38-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-39-
<PAGE>
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 1,
1997, (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General...................................... 2 1
Investment Objectives and Policies........... 2 11
Directors and Officers....................... 36 N/A
Investment Advisory, Distribution
and Servicing Arrangements................. 40 29,32
Portfolio Transactions....................... 47 N/A
Purchase and Redemption Information.......... 49 29
Valuation of Shares.......................... 49 25
Performance Information...................... 51 N/A
Taxes........................................ 53 34
Additional Information Concerning
Fund Shares................................ 58 36
Miscellaneous................................ 61 N/A
Financial Statements......................... 73 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 twenty-two
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 1, 1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
In determining the average weighted maturity of the Money Market, Municipal
Money Market or New York Municipal
-2-
<PAGE>
Money Market Portfolio and whether a variable rate demand instrument has a
remaining maturity of 13 months 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. The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of variable or floating rate notes if the issuer defaulted on its
payment obligations or during periods that the Portfolio is not entitled to
exercise its demand right and the Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios has
such commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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,
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 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. Because 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, it is expected that commitments to purchase "when issued"
securities will not exceed 25% of the value of a Portfolio's 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
-3-
<PAGE>
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 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. These Portfolios'
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.
-4-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short
-5-
<PAGE>
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) 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.
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 13 months, 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
-6-
<PAGE>
categories of qualified private activity bonds and meet the requirements
specified in those respective categories. In addition, interest on Alternative
Minimum Tax Securities that is received by taxpayers subject to alternative
minimum tax is taxable. The Act has generally not changed the tax treatment of
bonds issued to finance governmental operations. As used in this Prospectus, the
term "private activity bonds" also includes industrial development revenue bonds
issued prior to the effective date of the provisions of the Tax Reform Act of
1986. Investors should also be aware of the possibility of state and local
alternative minimum or minimum income tax liability on interest from Alternative
Minimum Tax Securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S.
Government obligations include U.S. Treasury Bills, Treasury Notes and Treasury
Bonds and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export- Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the 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, as
amended. 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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks 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, if such banks and non-bank dealers are deemed
creditworthy by the
-7-
<PAGE>
Portfolio's adviser or sub-adviser. A Portfolio's adviser or sub-adviser will
continue to monitor creditworthiness of the seller under a repurchase agreement,
and will require the seller to maintain during the term of the agreement the
value of the securities subject to the agreement to equal at least the
repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
(including accrued premium) provided in the repurchase agreement or the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark-to-market daily the value of the securities. 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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the
-8-
<PAGE>
FHLMC. FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
The Money Market and Government Obligations Money Market
Portfolios may invest in multiple class pass-through securities, including
collateralized mortgage obligations ("CMOs"). These multiple class securities
may be issued by U.S. Government agencies or instrumentalities, including FNMA
and FHLMC, or by trusts formed by private originators of, or investors in,
mortgage loans. In general, CMOs are debt obligations of a legal entity that are
collateralized by a pool of residential or commercial mortgage loans or mortgage
pass-through securities (the "Mortgage Assets"), the payments on which are used
to make payments on the CMOs. Investors may purchase beneficial interests in
CMOs, which are known as "regular" interests or "residual" interests. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making required payments of principal of and interest on
the CMOs, as well as the related administrative expenses of the issuer. Residual
interests generally are junior to, and may be significantly more volatile than,
"regular" CMO. The Portfolios do not currently intend to purchase residual
interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs, payments of principal, including any
principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a
-9-
<PAGE>
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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 ("Rating Organizations")
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 Rating Organization 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 13 months 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
-10-
<PAGE>
comparable obligations rated by a Rating Organization ("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 13 months 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 Rating Organization 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 that 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
-11-
<PAGE>
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
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,
among others, 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 Fund's investments in New
York Municipal Obligations are summarized below. This summary information is not
intended to be a complete description and is principally derived from official
statements relating to issues of New York Municipal Obligations that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in those official
statements have 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 very
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 a large portion of the State's
population and personal income.
-12-
<PAGE>
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 position.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and remained lower
until 1991; since then, it has been higher than the national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all monies 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 an explanation of any changes from the previous state
financial plan.
The State's budget for the 1997-98 fiscal year was adopted by
the Legislature on August 4, 1997, more than four 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 necessary appropriations for State- supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General
Fund disbursements of $1.7 billion or 5.2 percent over
-13-
<PAGE>
1996-97 levels. The General Fund's average annual growth rate over the last
three fiscal years was approximately 1.2 percent. State Funds disbursements
(excluding federal grants) are projected to increase by 5.4 percent from the
1996-97 fiscal year. All Governmental Funds projected disbursements increase by
7.0 percent over the 1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced
on a cash basis. The Financial Plan projections include a reserve for future
needs of $530 million. As compared to the Governor's Executive Budget as amended
in February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local assistance ($1.3
billion). Resources used to fund these additional expenditures include increased
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re- estimates of
social service, fringe benefit and other spending, and certain non-recurring
resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessments reductions have little or no impact on the 1997-98 State Financial
Plan, and do not begin to materially affect the outyear projections until the
State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the federal government,
that are not under the control of the State. In addition, the financial plan is
based upon forecasts of national and State economic activity. Economic forecasts
have frequently
-14-
<PAGE>
failed to predict accurately the timing and magnitude of changes in the national
and the State economies. Actual results, however, could differ materially and
adversely from the projections set forth in the 1997-98 State Financial Plan,
and those projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the Division of Budget believes it could take similar actions should
variances occur in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts
and disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors have created structural
budget gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution, the Governor is required to propose a balanced budget each
year. There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-
-15-
<PAGE>
2001 fiscal year, when the cost of tax cuts increases by $1.9 billion. The
report contained projections that, based on current economic conditions and
current law for taxes and spending, showed a gap in the 2000-2001 State fiscal
year of $5.6 billion and of $7.4 billion in the 2001-2002 State fiscal year. The
report noted that these gaps would be smaller if recurring spending reductions
produce savings in earlier years. The State Comptroller has also stated that if
Wall Street earnings moderate and the State experiences a moderate recession,
the gap for the 2001-2001 State fiscal year could grow to nearly $12 billion.
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 State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in
the 1997-98 fiscal year are projected to be $35.09 billion, an increase of over
$2 billion or approximately 6% from the $33.04 billion recorded in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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 general obligation 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 general obligation 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 from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general
-16-
<PAGE>
obligation and 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 and 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 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 public authority, municipality or other entity, the
State's obligation to make such 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation empowered LGAC to issue its bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of these long-term obligations,
which were to be amortized over no more than 30 years, was expected to eliminate
the need for continued
-17-
<PAGE>
short-term seasonal borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales 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 the need for additional
borrowing and provided a schedule for reducing it to the cap. If borrowing above
the cap was thus permitted in any fiscal year, it was 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.
On January 13, 1992, Standard & Poor's Ratings Services
("S&P") 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. See Appendix "A" for an
explanation of bond ratings. On August 28, 1997, S&P revised its ratings on the
State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. 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 the 1997-98
fiscal year. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding bond anticipation
notes) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of State borrowings for the 1997-98 fiscal year is subject to change as market
conditions, interest rates and other factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved
two new authorizations for lease-purchase and contractual obligation financings.
An aggregate $425 million was
-18-
<PAGE>
authorized for four public authorities for the Community Enhancement Facility
Program for economic development purposes. The Legislature also authorized the
issuance of up to $40 million to finance the expansion and improvement of
facilities at the Albany County airport.
Principal and interest payments on general obligation bonds
and interest payments on bond anticipation notes were $749.6 million for the
1996-97 fiscal year, and are estimated to be $720.9 million for the 1997-98
fiscal year. Principal and interest payments on fixed rate and variable rate
bonds issued by LGAC were $329.5 million for the 1996-97 fiscal year, and are
estimated to be $329.6 million for the 1997-98 fiscal year. State lease-purchase
and contractual-obligation payments were $1.74 billion in fiscal year 1996-97,
and are estimated to be $2.21 billion in fiscal year 1997-98.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
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 and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including 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 to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking reimbursement from the State for certain costs
arising out of the provision of pre-school services and programs for disabled
children; (11) an action seeking enforcement of certain sales and excise taxes
and tobacco products and motor fuel sold to non- Indian consumers on Indian
reservations; and (12) a challenge to the constitutionality of Clean Water/Clean
Air Bond Act.
-19-
<PAGE>
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 developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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 was required to make aggregate payments of $351.4 million.
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. Litigation challenging the
constitutionality of the treatment of certain monies held in a reserve fund was
settled in June 1996 and certain amounts in a Supplemental Reserve Fund
previously credited by the State against prior State and local pension
contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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
-20-
<PAGE>
a matter of law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is
related, in part, 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 is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by
the projects they finance or operate, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent years,
however, New York State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the
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 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 may also be impacted by 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
-21-
<PAGE>
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable GAAP. The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results.
There can be no assurance that the City will continue to maintain a balanced
budget as required by State law without additional tax or other revenue
increases or additional reductions in City services or entitlement programs,
which could adversely affect the City's economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing the City's chronic structural budget problems and weak
economic outlook. S&P 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 created the Municipal Assistance Corporation
("MAC") in 1975. Since its creation, MAC has provided, among other things,
financing assistance to the City by refunding maturing City short-term debt and
transferring to the City funds received from sales of MAC bonds and notes. MAC
is authorized to issue bonds and notes payable from certain stock transfer tax
revenues, from
-22-
<PAGE>
the City's portion of the State sales tax derived in the City and, subject to
certain prior claims, 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. 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, 1997, MAC had outstanding an aggregate of approximately $4.267
billion of its bonds. MAC is authorized to issue bonds and notes to refund its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to the Transit
Authority and the New York City School Construction Authority through the 1997
fiscal year 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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board
-23-
<PAGE>
of Education ("BOE") and the City University of New York and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
financial plan included increased tax revenue projections; reduced debt service
costs; the assumed restoration of Federal funding for programs assisting certain
legal aliens; additional expenditures for textbooks, computers, improved
education programs and welfare reform, law enforcement, immigrant
naturalization, initiatives proposed by the City Council and other initiatives;
and a proposed discretionary transfer to the 1998 fiscal year of $300 million of
debt service due in the 1999 fiscal year for budget stabilization purposes. In
addition, the financial plan reflected the discretionary transfer to the 1997
fiscal year of $1.3 billion of debt service due in the 1998 and 1999 fiscal
years, and included actions to eliminate a previously projected budget gap for
the 1998 fiscal year. These gap-closing actions included (i) additional agency
actions totaling $621 million; (ii) the proposed sale of various assets; (iii)
additional State aid of $294 million, including a proposal that the State
accelerate a $142 million revenue sharing payment to the City from March 1999;
and (iv) entitlement savings of $128 million which would result from certain of
the reductions in Medicaid spending proposed in the Governor's 1997-1998
Executive Budget and the State making available to the City $77 million of
additional Federal block grant aid, as proposed in the Governor's 1997-1998
Executive Budget. The 1998-2001 Financial Plan also set forth projections for
the 1999 through 2001 fiscal years and projected gaps of $1.8 billion, $2.8
billion and $2.6 billion for the 1999 through 2001 fiscal years, respectively.
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire
-24-
<PAGE>
on December 31, 1998 and the extension of which is projected to provide revenues
of $188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected
the increased costs which the City is prepared to incur as a result of welfare
legislation recently enacted by Congress. The 1998-2001 Financial Plan provided
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the
State has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of
its last sixteen fiscal years and is projected to achieve balanced operating
results for the 1997 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998- 2001 Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth,
-25-
<PAGE>
the ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general obligation bonds and $5.7 billion of bonds
to be issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing.
-26-
<PAGE>
The City issued $2.4 billion of short-term obligations in fiscal year 1997.
Seasonal financing requirements for the 1996 fiscal year increased to $2.4
billion from $2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years,
respectively. Seasonal financing requirements were $1.4 billion in the 1993
fiscal year. The delay in the adoption of the State's budget in certain past
fiscal years has required the City to issue short-term notes in amounts
exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment 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 State to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 State budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the total indebtedness
of all localities in New York State other than New York City was approximately
$19 billion. A small portion (approximately $102.3 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant
-27-
<PAGE>
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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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% 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 are in excess of 5% of
the Portfolio's net assets. (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.);
-28-
<PAGE>
(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, 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.
-29-
<PAGE>
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
shareholder approval.
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
-30-
<PAGE>
majority of the 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
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 Rating Organization, are rated (at the
time of purchase) by two or more Rating Organizations in the highest
rating category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization 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.
-31-
<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.
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.
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% 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 are in excess of 5% of the Portfolio's net
assets. (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
-32-
<PAGE>
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
shareholder approval.
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% 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 are in
excess of 5% of the Portfolio's net assets. (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
-33-
<PAGE>
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
(8) make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular federal income tax and does not
constitute an item of tax preference for purposes of the federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
-34-
<PAGE>
The foregoing investment limitations cannot be changed without
shareholder approval.
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.
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.
-35-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
*Arnold M. Reichman -49 Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer of Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); Prior to
October 1996,
Executive Vice
President of Gruntal &
Co., Inc. (a
registered broker-
dealer).
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).
-36-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
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, 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 since 1969,
16th Floor Comcast Corporation
Philadelphia, PA 19107-3723 (cable television and
communications);
Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden -72 Director Self-employed
1200 Old Mill Lane and businessman. From
Wyomissing, PA 19610 Chairman February 1980 to March
of the 1987, Vice Chairman,
Board SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto service);
Director, Keystone
Insurance Co.
-37-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice
Bellevue Park Treasurer Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and Treasurer
of various investment
companies advised by PNC
Institutional Management
Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones -58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker Biddle
1345 Chestnut Street & Reath LLP; Director,
Philadelphia, PA 19107-3496 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 positions 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 Fahnestock Co.,
Inc., a registered 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.
-38-
<PAGE>
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 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 the Distributor, and Mr. Sablowsky, who is considered to be an
affiliated person $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------ ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
<FN>
- ----------------------
1 A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is an affiliated person of the investment adviser
of any other investment companies.
</FN>
</TABLE>
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
-39-
<PAGE>
(currently Edward J. Roach and one other employee), pursuant to which the Fund
will contribute on a quarterly basis amounts equal to 10% of the quarterly
compensation of each eligible employee. By virtue of the services performed by
PNC Institutional Management Corporation ("PIMC"), the Portfolios' 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 two
part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to the Fund. 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. Pursuant to the Sub-Advisory Agreements, PNC Bank is entitled
to receive an annual fee from PIMC calculated at the annual rate of 75% of the
advisory fees received by PIMC on behalf of the Money Market, Government
Obligations Money Market and Municipal Money Market Portfolios. 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 Agreements."
-40-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market Portfolio $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Portfolio
Government Obligations
Money Market Portfolio $1,774,123 $ 647,063 $404,193
New York Municipal Money
Market Portfolio $21,831 $ 324,917 $ 0
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market Portfolio $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Portfolio
Government Obligations
Money Market Portfolio $1,638,662 $ 671,811 $406,954
New York Municipal Money
Market Portfolio $ 2,709 $ 268,017 $ 0
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market Portfolio $2,274,697 $2,589,832 $12,047
Municipal Money Market $ 67,752 $1,041,321 $11,593
Portfolio
Government Obligations $ 780,122 $ 398,363 $ 0
Money Market Portfolio
New York Municipal $ 0 $ 187,660 $12,656
Money Market Portfolio
-41-
<PAGE>
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) 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; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Fund to its directors and officers; (g)
organizational costs; (h) fees paid to the investment adviser, sub-adviser and
PFPC; (i) fees and expenses of officers and directors who are not affiliated
with the Portfolios' investment adviser or Distributor; (j) taxes; (k) interest;
(l) legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolios and their shares for distribution under federal and state
securities laws; (q) expenses of preparing prospectuses and statements of
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of shares of the Fund; (r) the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Janney Montgomery Scott
Classes of the Fund pay their own distribution fees, and may pay a different
share than other classes of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Janney Montgomery Scott Classes or if they receive different services.
Under the Advisory Agreements, 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
Agreements, 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.
-42-
<PAGE>
The Advisory Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
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 Agreement 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 Agreement 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 Agreements may also be terminated by PIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements 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.
-43-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
PORTFOLIO FEES PAID WAIVERS REIMBURSEMENTS
- --------- --------- ------- --------------
Municipal Money Market $448,548 $0 $0
Portfolio
New York Municipal $ 99,071 $0 $0
Money Market Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIO WAIVERS) WAIVERS REIMBURSEMENTS
- --------- --------- ------- --------------
Municipal Money Market $428,209 $ 0 $0
Portfolio
New York Municipal Money $ 67,204 $10,146 $0
Market Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIO WAIVERS) WAIVERS REIMBURSEMENTS
- --------- --------- ------- --------------
Municipal Money Market $321,790 $ 6,233 $0
Portfolio
New York Municipal Money $ 8,960 $44,657 $0
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
-44-
<PAGE>
Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Janney Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Janney Classes, (b) addresses and mails all communications
by each Portfolio to record owners of shares of each such Class, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic reports to the Fund's Board of
Directors concerning the operations of each Janney Class. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other 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
-45-
<PAGE>
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 agreement, 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 Agreements") 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 appropriate efforts to distribute shares of each of the
Janney Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, 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 was approved 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").
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 Plans and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are 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 Plans 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 Plans remain in effect, the
selection and nomination of the 12b-1 Directors 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, 1997, 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
-46-
<PAGE>
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio in the aggregate amounts of $3,911,049, $598,266, $2,020,104 and
$180,563, respectively. Of those amounts $3,845,765, $589,295, $1,986,436 and
$177,553, respectively, was paid to dealers with whom the Fund's Distributor had
entered into dealer agreements, and $65,284, $9,971, $33,668, and $3,010,
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. 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 positions with the Distributor. Mr.
Sablowsky, a Director of the Fund, had an indirect interest in the operation of
the Plans by virtue of his position with Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months 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
-47-
<PAGE>
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 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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolios, held the following securities:
-48-
<PAGE>
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Bear Stearns Companies, $105,000,000
Portfolio Inc. Commercial Paper
Money Market Bear Stearns Companies, $ 20,000,000
Portfolio Inc. Corporate Obligation
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 class 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
adding the value of the proportionate interest of a class in the Portfolio's
cash, securities, and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Fund is
determined independently of the other classes of the Fund. A Portfolio's "net
assets" equal the value of a Portfolio's investments and other securities less
its liabilities. Each Portfolio's net asset value per share is computed twice
each day, as of 12:00 noon (Eastern Time) and as
-49-
<PAGE>
of the close of the NYSE (generally 4:00 p.m. Eastern Time), on each Business
Day. "Business Day" means each weekday when both the NYSE and the Federal
Reserve Bank of Philadelphia (the "FRB") are open. Currently, the NYSE is closed
weekends and on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day and the preceding Friday and subsequent Monday when one of
these holidays falls on a Saturday or Sunday. The FRB is currently closed on
weekends and the same holidays as the NYSE as well as 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 13 months, 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
-50-
<PAGE>
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.
The annualized yield for the seven (7) day period ended August
31, 1997 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 before waivers was
as follows:
-51-
<PAGE>
TAX-EQUIVALENT
YIELD
(ASSUMES A
EFFECTIVE FEDERAL INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- ----- ----------------
Money Market 4.57% 4.67% N/A
Municipal Money Market 2.39% 2.42% 3.32%
Government Obligations 4.51% 4.61% N/A
Money Market
New York Municipal 2.34% 2.37% 3.25%
Money Market
The annualized yield for the seven-day period ended August 31,
1997 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 after waivers was as follows:
TAX-EQUIVALENT
YIELD
(ASSUMES A
EFFECTIVE FEDERAL INCOME
PORTFOLIO YIELD YIELD TAX RATE OF 28%)
- --------- ----- ----- ----------------
Money Market 4.72% 4.83% N/A%
Municipal Money Market 2.67% 2.70% 3.71%
Government Obligations 4.62% 4.72% N/A
Money Market
New York Municipal 2.67% 2.70% 3.71%
Money Market
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 accounts 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.
-52-
<PAGE>
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 MONEY FUND
REPORT(R), 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
-53-
<PAGE>
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").
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,
-54-
<PAGE>
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,
-55-
<PAGE>
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 stand-by
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such stand-by
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 stand-by 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 mid-term or other long-term capital gain, 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
-56-
<PAGE>
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.
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 earnings
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
-57-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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
-58-
<PAGE>
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 Numeric
Investors Micro Cap), 50 million shares are classified as Class GG Common Stock
(n/i Numeric Investors Growth), 50 million shares are classified as Class HH
Common Stock (n/i Numeric Investors 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) 100 million shares are classified as Class
TT Common Stock (Boston Partners Investor Mid Cap), 100 million shares are
classified as Class UU Common Stock (Boston Partners Institutional Mid Cap), 100
million shares are classified as Class VV Common Stock (Boston Partners
Institutional Bond), 100 million shares are classified as Class WW Common Stock
(Boston Partners Investor Bond), 50 million shares are classified as Class XX
Common Stock (n/i Numeric Investors Larger Cap Value), 700 million shares are
classified as Class Janney Money Market Common Stock (Money), 200 million shares
are classified as Class Janney Municipal Money Market Common Stock (Municipal
Money), 500 million shares are classified as Class Janney Government Obligations
Money Market Common Stock (U.S. Government Money), 100 million shares are
classified as Class Janney 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
-59-
<PAGE>
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 Money Market Common
Stock, Class Janney Municipal Money Market Common Stock, Class Janney Government
Obligations Money Market Common Stock and Class Janney New York Municipal Money
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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Family, the
n/i Numeric Investors 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 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 BEA Family represents interests in ten non-money market
portfolios; the n/i Numeric Investors Family represents interests in four
non-money market portfolios; the Boston Partners Family represents interests in
three non- money 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
-60-
<PAGE>
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 voting 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 voting securities 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 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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
-61-
<PAGE>
CONTROL PERSONS. As of November 15, 1997, 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
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
-62-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
-63-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
-64-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
-65-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
-66-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
-67-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
-68-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
-69-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
-70-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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
-71-
<PAGE>
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 underwriting securities, but such
banking laws and regulations do not prohibit such a holding company or affiliate
or banks generally from acting as investment adviser, administrator, 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 customers. PIMC, PNC Bank and
other institutions that are banks or bank affiliates are subject to such banking
laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
-72-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1997 (the "1997
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1997 Annual Report are incorporated by
reference herein. The financial statements included in the 1997 Annual Report
have been audited by the Fund's independent accountants, Coopers & Lybrand
L.L.P. The reports of Coopers & Lybrand L.L.P. are incorporated herein by
reference. Such financial statements have been incorporated herein in reliance
upon such reports given upon their authority as experts in accounting and
auditing. Copies of the 1997 Annual Report may be obtained at no charge by
telephoning the Distributor at the telephone number appearing on the front page
of this Statement of Additional Information.
-73-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market
A-1
<PAGE>
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing
A-2
<PAGE>
requirements, access to capital markets is good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
A-3
<PAGE>
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment,
and is dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
PROSPECTUS
THE BETA FAMILY
MONEY MARKET PORTFOLIO
- ----------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- ----------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- ----------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 1, 1997
<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................................................... 3
FINANCIAL HIGHLIGHTS........................................... 7
INVESTMENT OBJECTIVES AND POLICIES............................. 7
PURCHASE AND REDEMPTION OF SHARES.............................. 24
NET ASSET VALUE................................................ 30
MANAGEMENT..................................................... 30
DISTRIBUTION OF SHARES......................................... 33
DIVIDENDS AND DISTRIBUTIONS.................................... 34
TAXES.......................................................... 34
DESCRIPTION OF SHARES.......................................... 36
OTHER INFORMATION.............................................. 38
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
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 incorporated
under the laws of the State of Maryland on February 29, 1988. The Fund is
currently operating or proposing to operate twenty-two separate investment
portfolios. The shares of the 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 (together, 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.
The New York Municipal Money Market Portfolio may invest a
significant percentage of its assets in a single issuer, and
<PAGE>
therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
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. 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.
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."
PNC Institutional Management Corporation ("PIMC") serves as
investment adviser for the Portfolios, 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
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 1, 1997, 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. The Prospectus and
Statement of Additional Information are also available for reference, along with
other related materials, on the Internet Web Site (http://www.sec.gov).
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 1, 1997
-2-
<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 twenty-two 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 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
-3-
<PAGE>
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 Portfolios' 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. 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 ofthe 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."
-4-
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (BETA CLASSES)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating
expenses of the Beta Classes based on expenses expected to be incurred for the
current fiscal period, as a percentage of average daily net assets. An example
based on the summary is also shown.
<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)................................ .22% .04% .30% .02%
12b-1 Fees................................... .53 .56 .56 .52
Other Expenses............................... .22 .25 .115 .28
--- --- ---- ---
Total Fund Operating
Expenses
(after waivers)(1)......................... .97% .85% .975% .80%
==== ==== ===== ====
<FN>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before 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%, .41% and .35%,
respectively, and Total Fund Operating Expenses would be 1.12%, 1.14%,
1.09% and 1.13%, 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 $54 $119
Municipal Money Market*................... $ 9 $27 $47 $105
Government Obligations Money Market*...... $10 $31 $54 $120
New York Municipal Money Market*.......... $ 8 $25 $44 $ 99
* 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 (Beta Classes)" 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. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
-5-
<PAGE>
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.) 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 figures 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 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
-6-
<PAGE>
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. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved.
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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less liquidity. 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 ("Rating Organization").
These rating symbols are described in the Appendix to the Statement of
-7-
<PAGE>
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 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 13 months, depending upon the note
involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, provided the repurchase agreement itself matures in less
than 13 months. 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.
-8-
<PAGE>
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 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. A reverse
repurchase agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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
-9-
<PAGE>
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 (2)
highest rating categories by one or more Rating Organizations (e.g., commercial
paper rated "A-1" or "A-2" by Standard & Poor's Rating Services ("S&P")), (3)
securities that are rated at the time of purchase by the only Rating
Organization 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 a Rating Organization
("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, and
-10-
<PAGE>
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,
GICs, 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
shareholder approval. 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 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 are in excess of 5% of
the Portfolio's net assets. (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
-11-
<PAGE>
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 Rating Organization, are rated (at the
time of purchase) by two or more Rating Organizations in the highest
rating category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization 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.
-12-
<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.
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"). There is
no assurance that the investment objective of the Municipal Money Market
Portfolio will be achieved.
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
-13-
<PAGE>
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.
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
-14-
<PAGE>
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, 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 shareholder approval. 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 total
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
-15-
<PAGE>
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 are in excess of 5% of the Portfolio's net assets. (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 more than 25% of
the value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase 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
-16-
<PAGE>
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.
Due to fluctuations in interest rates, the market value of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities may vary. Certain government securities held by the Portfolio
may have remaining maturities exceeding 13 months if such securities provide for
adjustments in their interest rates not less frequently than every 13 months and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values. There is no assurance that
the investment objective of the Government Obligations Money Market Portfolio
will be achieved.
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."
-17-
<PAGE>
MORTGAGE-RELATED SECURITIES. Mortgage-related securities
consist of mortgage loans which are 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. The Portfolio
may also acquire asset-backed securities as described under "Investment
Objectives and Policies -- Money Market Portfolio -- Asset-Backed Securities."
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.
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 shareholder approval. The following investment limitations may
not be changed, however, 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 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
-18-
<PAGE>
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 are
in excess of 5% of the Portfolio's net assets. (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. 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 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
-19-
<PAGE>
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. The Portfolio may invest a significant percentage of its assets
in a single issuer, and therefore investment in this Portfolio may be riskier
than an investment in other types of money market funds.
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."
-20-
<PAGE>
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 Investor Service, Inc. ("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 than a
diversified portfolio. 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.
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.
-21-
<PAGE>
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 S&P and 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 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 order 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.
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 shareholder approval. 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
-22-
<PAGE>
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 are in excess of 5% of
the Portfolio's net assets. (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, 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
-23-
<PAGE>
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 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 good order 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. 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. On any Business
Day, orders which are accompanied by Federal Funds and received by PFPC 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 the close of regular trading on
the NYSE (generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE 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 the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
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
-24-
<PAGE>
in the Account statements provided by the broker to such investors. A broker may
impose minimum investment Account requirements. Even if 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, and 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 and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
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 available in Federal
Funds to the Fund's custodian prior to the close of regular trading on the NYSE,
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 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" to the Beta Family, c/o PFPC, P.O. Box 8950,
Wilmington, Delaware 19899. The check must specify the name of
-25-
<PAGE>
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. An investor's bank or
Dealer may impose a charge for this service. The Fund does not currently charge
for effecting wire transfers but reserves the right to do so in the future. 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 your name, address, telephone number, Social Security or Tax
Identification Number, the Beta Class selected, the amount being wired,
and by which bank or Dealer. PFPC will then provide an investor with a
Fund account number. (Investors with existing accounts should also
notify PFPC 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 initial
purchases until it receives a fully completed and signed Application.
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.
-26-
<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 Beta Shares in an Account 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 the close of regular trading on the
NYSE on a Business Day, the redemption will be effective as of the close of
regular trading on the NYSE 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 may 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, together with any
share certificates issued to the investor, to The Beta 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 may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion
-27-
<PAGE>
Signature Program (MSP). Signature guarantees that are not part of these
programs will not be accepted.
Direct investors may redeem Shares without charge by telephone
if they have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone 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 redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe 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 Portfolio, 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, financial institutions, securities dealers, financial
planners, trustee, custodian other than the Distributor 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.
Proceeds of a telephone redemption request 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 the close of
regular trading on the NYSE will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. 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
-28-
<PAGE>
any time or charge a service fee upon prior notice to shareholders, although no
fee is currently contemplated.
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 may establish a higher minimum. An investor wishing
to use this check writing redemption procedure should complete specimen
signature cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may
not be presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
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
notice 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.
-29-
<PAGE>
NET ASSET VALUE
The net asset value per share of each class 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 the close of regular
trading on the NYSE 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, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays on which the NYSE is closed as well as Veterans' Day and Columbus Day.
The net asset value per share of each class is calculated by adding the value of
the proportionate interest of each class in the securities, cash, and other
assets of the Portfolio, subtracting the accrued and actual liabilities of the
class and dividing the result by the number of its shares outstanding of the
class. The net asset value per share of each class is determined independently
of any of the Fund's other classes.
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 twenty-two separate investment
portfolios. Each of the Beta Classes represents interests in one of the
following 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.
-30-
<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 $38.7
billion of assets, of which approximately $35.2 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
-31-
<PAGE>
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.
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. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
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."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a
wholly-owned subsidiary of Warburg Pincus Asset Management, Inc. with a
principal business 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 a
distribution agreement and various supplements thereto (collectively, the
"Distribution Agreements") with the Fund on behalf of each of the Beta Classes.
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, fees paid to the investment adviser and administrator's fees
and 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 the 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, the expense of reports to shareholders, shareholders'
meetings and proxy solicitations, 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
-32-
<PAGE>
upon the relative net assets of the investment portfolios. 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 may assume 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
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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 Agreements, 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 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 Agreements and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including 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 Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or 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.
-33-
<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 Beta Class the
fee agreed to under the relevant Distribution Agreement. Payments under the
plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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 the close
of regular trading on the NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, regardless of the length of
-34-
<PAGE>
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 current nominal
maximum marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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
-35-
<PAGE>
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 13.93 billion shares are
currently classified into 82 different classes
-36-
<PAGE>
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 Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE BETA CLASSES
OF THESE PORTFOLIOS.
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
-37-
<PAGE>
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 15, 1997, 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 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) 533-7719 (in Delaware call
collect (302) 791-1196).
-38-
<PAGE>
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 1, 1997, (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General................................................... 3 3
Investment Objectives and Policies........................ 3 7
Directors and Officers.................................... 37 N/A
Investment Advisory, Distribution and
Servicing Arrangements.................................. 41 30,33
Portfolio Transactions.................................... 48 N/A
Purchase and Redemption Information....................... 49 24
Valuation of Shares....................................... 50 30
Performance Information................................... 52 N/A
Taxes..................................................... 53 34
Additional Information Concerning Fund
Shares.................................................. 58 36
Miscellaneous............................................. 61 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
<PAGE>
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.
-2-
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management
investment company currently operating or proposing to operate twenty-two
separate investment portfolios. This Statement of Additional Information
pertains to four classes of shares (the "Beta 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
Beta Classes are offered by the Prospectus dated December 1, 1997. 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, as amended (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, or liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
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
-3-
<PAGE>
instrument has a remaining maturity of 13 months 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.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Money Market Portfolios may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolios have such
commitments outstanding, such Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash, or liquid
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,
-4-
<PAGE>
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 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
-5-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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
-6-
<PAGE>
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.
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 13 months, 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
-7-
<PAGE>
effective date of the provisions of the Tax Reform Act of 1986. Investors should
also be aware of the possibility of state and local alternative minimum or
minimum income tax liability on interest from Alternative Minimum Tax
Securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S.
Government obligations include U.S. Treasury Bills, Treasury Notes and Treasury
Bonds and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export- Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the 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, as
amended. 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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed
-8-
<PAGE>
as to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMOs. The Portfolios do not currently intend to purchase residual interests.
-9-
<PAGE>
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
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 ("Rating Organizations")
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 Rating Organization 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 13 months or less, provided in
-10-
<PAGE>
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 a Rating Organization
("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 13 months 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 that 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
-11-
<PAGE>
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.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
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,
among others, 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 Fund's investments in New
York Municipal Obligations are summarized below. This summary information is not
intended to be a complete description and is principally derived from official
statements relating to issues of New York Municipal Obligations that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in those official
statements have 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 very
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
-12-
<PAGE>
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 a
large portion of 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 position.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and remained lower
until 1991; since then, it has been higher than the national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all monies 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 an explanation of any changes from the previous state
financial plan.
The State's budget for the 1997-98 fiscal year was adopted by
the Legislature on August 4, 1997, more than four 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 necessary appropriations for State- supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal
-13-
<PAGE>
year. There can be no assurance that State budgets in future fiscal years will
be adopted by the April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General
Fund disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The
General Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced
on a cash basis. The Financial Plan projections include a reserve for future
needs of $530 million. As compared to the Governor's Executive Budget as amended
in February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local assistance ($1.3
billion). Resources used to fund these additional expenditures include increased
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re- estimates of
social service, fringe benefit and other spending, and certain non-recurring
resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessments reductions have little or no impact on the 1997-98 State Financial
Plan, and do not begin to materially affect the outyear projections until the
State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions
-14-
<PAGE>
taken not only by the State and its agencies and instrumentalities, but also by
entities, such as the federal government, that are not under the control of the
State. In addition, the financial plan is based upon forecasts of national and
State economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Actual results, however, could differ materially and adversely from
the projections set forth in the 1997-98 State Financial Plan, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the Division of Budget believes it could take similar actions should
variances occur in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts
and disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors have created structural
budget gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution, the Governor is required to propose a balanced budget each
year. There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in
-15-
<PAGE>
costs when fully annualized in fiscal year 2001-02. These spending commitments
are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000- 2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2001 State fiscal year
could grow to nearly $12 billion.
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 State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in
the 1997-98 fiscal year are projected to be $35.09 billion, an increase of over
$2 billion or approximately 6% from the $33.04 billion recorded in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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 general obligation 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 general obligation 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
-16-
<PAGE>
(ii) in anticipation of the receipt of proceeds from the sale of duly authorized
but unissued general obligation bonds, by issuing bond anticipation notes. The
State may also, pursuant to specific constitutional authorization, directly
guarantee certain obligations of its authorities and public benefit corporations
("Authorities"). Payments of debt service on State general obligation and
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 and 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 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 public authority, municipality or other entity, the
State's obligation to make such 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded
-17-
<PAGE>
through the State's annual seasonal borrowing. The legislation empowered LGAC to
issue its bonds and notes in an amount to yield net proceeds not in excess of
$4.7 billion (exclusive of certain refunding bonds). Over a period of years, the
issuance of these long-term obligations, which were 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 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 the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap was
thus permitted in any fiscal year, it was 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.
On January 13, 1992, Standard & Poor's Ratings Services
("S&P") 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. See Appendix "A" for an
explanation of bond ratings. On August 28, 1997, S&P revised its ratings on the
State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. 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 the 1997-98
fiscal year. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding bond anticipation
notes) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of State borrowings for the 1997-98 fiscal year is subject to change as market
conditions, interest rates and other factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other
-18-
<PAGE>
costs, net of anticipated refundings and other adjustments for 1997-98 capital
projects.
In the 1997 legislative session, the Legislature also approved
two new authorizations for lease-purchase and contractual obligation financings.
An aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.
Principal and interest payments on general obligation bonds
and interest payments on bond anticipation notes were $749.6 million for the
1996-97 fiscal year, and are estimated to be $720.9 million for the 1997-98
fiscal year. Principal and interest payments on fixed rate and variable rate
bonds issued by LGAC were $329.5 million for the 1996-97 fiscal year, and are
estimated to be $329.6 million for the 1997-98 fiscal year. State lease-purchase
and contractual-obligation payments were $1.74 billion in fiscal year 1996-97,
and are estimated to be $2.21 billion in fiscal year 1997-98.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
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 and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including 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 to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking
-19-
<PAGE>
reimbursement from the State for certain costs arising out of the provision of
pre-school services and programs for disabled children; (11) an action seeking
enforcement of certain sales and excise taxes and tobacco products and motor
fuel sold to non- Indian consumers on Indian reservations; and (12) a challenge
to the constitutionality of Clean Water/Clean Air Bond Act.
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 developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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 was required to make aggregate payments of $351.4 million.
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. Litigation challenging the
constitutionality of the treatment of certain monies held in a reserve fund was
settled in June 1996 and certain amounts in a Supplemental Reserve Fund
previously credited by the State against prior State and local pension
contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be
-20-
<PAGE>
$364 million, of which $134 million is expected to be paid during the 1997-98
fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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.
AUTHORITIES. The fiscal stability of New York State is
related, in part, 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 is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by
the projects they finance or operate, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent years,
however, New York State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the
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 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 may also be impacted by the fiscal health of its localities,
particularly the City of New York,
-21-
<PAGE>
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. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected or that State budgets will be adopted by the April 1
statutory deadline or that any such reductions or delays will not have adverse
effects on the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable GAAP. The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results.
There can be no assurance that the City will continue to maintain a balanced
budget as required by State law without additional tax or other revenue
increases or additional reductions in City services or entitlement programs,
which could adversely affect the City's economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing the City's chronic structural budget problems and weak
economic outlook. S&P 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
-22-
<PAGE>
assistance will enable the City to make up its budget deficits. To help
alleviate the City's financial difficulties, the Legislature created the
Municipal Assistance Corporation ("MAC") in 1975. Since its creation, MAC has
provided, among other things, financing assistance to the City by refunding
maturing City short-term debt and transferring to the City funds received from
sales of MAC bonds and notes. 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, subject to certain prior claims, 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.
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, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year 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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997
-23-
<PAGE>
fiscal year, after taking into account an increase in projected tax revenues of
$1.2 billion during the 1997 fiscal year and a discretionary prepayment in the
1997 fiscal year of $1.3 billion of debt service due in the 1998 and 1999 fiscal
years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and the City
University of New York and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The financial plan included increased tax
revenue projections; reduced debt service costs; the assumed restoration of
Federal funding for programs assisting certain legal aliens; additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization, initiatives proposed by the
City Council and other initiatives; and a proposed discretionary transfer to the
1998 fiscal year of $300 million of debt service due in the 1999 fiscal year for
budget stabilization purposes. In addition, the financial plan reflected the
discretionary transfer to the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years, and included actions to eliminate a
previously projected budget gap for the 1998 fiscal year. These gap-closing
actions included (i) additional agency actions totaling $621 million; (ii) the
proposed sale of various assets; (iii) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City from March 1999; and (iv) entitlement savings of $128
million which would result from certain of the reductions in Medicaid spending
proposed in the Governor's 1997-1998 Executive Budget and the State making
available to the City $77 million of additional Federal block grant aid, as
proposed in the Governor's 1997-1998 Executive Budget. The 1998-2001 Financial
Plan also set forth projections for the 1999 through 2001 fiscal years and
projected gaps of $1.8 billion, $2.8 billion and $2.6 billion for the 1999
through 2001 fiscal years, respectively.
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
-24-
<PAGE>
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide revenues of
$188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected
the increased costs which the City is prepared to incur as a result of welfare
legislation recently enacted by Congress. The 1998-2001 Financial Plan provided
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the
State has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of
its last sixteen fiscal years and is projected to achieve balanced operating
results for the 1997 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998- 2001 Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major
-25-
<PAGE>
assumptions could significantly affect the City's ability to balance its budget
as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the condition of the
regional and local economies, the impact on real estate tax revenues of the real
estate market, wage increases for City employees consistent with those assumed
in the 1998-2001 Financial Plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives, the
ability of the Health and Hospitals Corporation and the BOE to take actions to
offset reduced revenues, the ability to complete revenue generating
transactions, provision of State and Federal aid and mandate relief and the
impact on City revenues and expenditures of Federal and State welfare reform and
any future legislation affecting Medicare or other entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general obligation bonds and $5.7 billion of bonds
to be issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
-26-
<PAGE>
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment 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 State to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 State budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
-27-
<PAGE>
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the total indebtedness
of all localities in New York State other than New York City was approximately
$19 billion. A small portion (approximately $102.3 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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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% 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 are in excess of 5% of
-28-
<PAGE>
the Portfolio's net assets. (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;
-29-
<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 co 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
shareholder approval.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market
-30-
<PAGE>
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
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 Rating Organization (as defined in the
Prospectus), are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii)
if rated by only one Rating Organization, are rated by such Rating
Organization (as defined in the Prospectus) 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.
-31-
<PAGE>
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 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 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% 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 are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio by enabling the
-32-
<PAGE>
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
shareholder approval.
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% 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 are in
excess of 5% of the Portfolio's net assets. (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);
-33-
<PAGE>
(2) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
(8) make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular federal income tax and does not
constitute an item of tax preference for purposes of the federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
-34-
<PAGE>
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
shareholder approval.
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 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
-35-
<PAGE>
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.
-36-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Arnold M. Reichman, 49* Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer
and Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer, Counsellors
Securities, Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
Robert Sablowsky, 58** Director Senior Vice
110 Wall Street President,
New York, NY 10005 Fahnestock & Co.,
Inc. (a registered
broker-dealer); 1985 to
1996, Executive Vice
President of Gruntal &
Co., Inc., Director,
Gruntal & Co., Inc. (a
registered
broker-dealer).
Francis J. McKay, 60 Director Since 1963,
7701 Burholme Avenue Executive Vice
Philadelphia, PA 19111 President, Fox
Chase Cancer Center
(biomedical research and
medical care.)
-37-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Marvin E. Sternberg, 62 Director Since 1974,
937 Mt. Pleasant Road Chairman, Director
Bryn Mawr, PA 19010 and 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, 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- Corporation;
3723 Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
-38-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Donald van Roden, 72 Director and Self-employed
1200 Old Mill Lane Chairman of the businessman. From
Wyomissing, PA 19610 Board February 1980 to
March 1987, Vice
Chairman, SmithKline
Beecham Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto service);
Director, Keystone
Insurance Co.
Edward J. Roach, 73 President and Certified Public
Suite 100 Treasurer Accountant; Vice
Bellevue Park Chairman of the
Corporate Center Board, Fox Chase
400 Bellevue Parkway Cancer Center;
Wilmington, DE 19808 Trustee Emeritus,
Pennsylvania School for
the Deaf; Trustee
Emeritus, Immaculata
College; President or
Vice President and
Treasurer of various
investment companies
advised by PNC
Institutional Management
Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones, 58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker
1345 Chestnut Street Biddle and Reath
Philadelphia, PA 19107- LLP; Director,
3496 Rocking Horse Child
Care Centers of
America, Inc.
-39-
<PAGE>
- ------------------------
* Mr. Reichman is an "interested person" of the Fund as that term is defined
in the 1940 Act by virtue of his positions 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 the Distributor and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
-40-
<PAGE>
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------ ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
<FN>
- ----------------------
1 A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is an affiliated person of the investment adviser
of any other investment companies.
</FN>
</TABLE>
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 and one other
employee), pursuant to which the Fund will contribute on a quarterly basis
amounts equal to 10% of the quarterly compensation of each eligible employee. By
virtue of the services performed by PNC Institutional Management Corporation
("PIMC"), the Portfolios' 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 two part-time employees. Drinker Biddle & Reath LLP,
of which Mr. Jones is a partner, receives legal fees as counsel to the Fund. No
officer, director or
-41-
<PAGE>
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. Under the Sub-Advisory Areements, PIMC pays PNC Bank an annual
fee equal to 75% of the investment advisory fees received by PIMC on behalf of
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios. 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
Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $5,366,431 $3,603,130 $469,986
Portfolio
Municipal Money $ 201,095 $1,269,553 $ 14,921
Market Portfolio
Government
Obligations Money $1,774,123 $ 647,063 $404,193
Market Portfolio
New York Municipal
Money Market $ 21,831 $ 324,917 $ 0
Portfolio
-42-
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market Portfolio $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Portfolio
Government Obligations
Money Market Portfolio $1,638,622 $ 671,811 $406,954
New York Municipal
Money Market Portfolio $ 2,709 $ 268,017 $ 0
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market Portfolio $2,274,697 $2,589,832 $12,047
Municipal Money Market $ 67,752 $1,041,321 $11,593
Portfolio
Government Obligations $ 780,122 $ 398,363 $ 0
Money Market Portfolio
New York Municipal $ 180,660 $ 187,660 $12,656
Money Market Portfolio
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) 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; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other
-43-
<PAGE>
expenses incurred in connection with membership in investment company
organizations; and (f) the cost of investment company literature and other
publications provided by the Fund to its directors and officers. The Beta
classes of the Fund pay their own distribution fees, and may pay a different
share than other classes of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the Beta
classes or if they receive different services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved July
9, 1997 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 Agreements
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 Agreement 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 Agreement 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 Agreements may also be terminated by PIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements 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
-44-
<PAGE>
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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money Market $ 448,548 $0 $0
Portfolio
New York Municipal
Money Market Portfolio $ 99,071 $0 $0
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money Market $ 428,209 $ 0 $0
Portfolio
New York Municipal $ 67,204 $ 10,146 $0
Money Market Portfolio
-45-
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money Market $ 321,790 $ 6,233 $0
Portfolio
New York Municipal $ 8,960 $44,657 $0
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 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
-46-
<PAGE>
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 agreement, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of each of the Beta Classes,
(collectively, the "Distribution Agreements") 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 appropriate efforts to distribute shares of each of the
Beta Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, 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 Beta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios were
-47-
<PAGE>
approved 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").
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 12b-1 Directors 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, has an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months 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
-48-
<PAGE>
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
-49-
<PAGE>
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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolios held the following securities:
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Portfolio Bear Stearns Companies,
Inc. Commercial paper $105,000,000
Money Market Portfolio Bear Stearns Companies, $ 20,000,000
Inc. Corporate Obligation
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.)
-50-
<PAGE>
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each class 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
adding the value of the proportionate interest of a class in the Portfolio's
cash, securities and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value of each class of the und is calculated
independently of the other classes of the Fund. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
liabilities. The net asset value per share of each class is computed twice each
day, as of 12:00 noon (Eastern Time) and as of the close of the NYSE (generally
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 weekends and on
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as 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
-51-
<PAGE>
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 13 months, 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
-52-
<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.
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 MONEY FUND
REPORT(R), 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.
-53-
<PAGE>
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").
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
-54-
<PAGE>
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
-55-
<PAGE>
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.
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
-56-
<PAGE>
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 mid-term or other long-term capital gain, 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.
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 earnings
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
-57-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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
-58-
<PAGE>
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 Numeric Investors
Micro Cap),50 million shares are classified as Class GG Common Stock (n/i
Numeric Investors Growth), 50 million shares are classified as Class HH Common
Stock (n/i Numeric Investors 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) 100 million shares are classified as Class TT Common Stock
(Boston Partners Investor Mid Cap), 100 million shares are classified as Class
UU Common Stock (Boston Partners Institutional Mid Cap), 100 million shares are
classified as Class VV Common Stock (Boston Partners Institutional Bond), 100
million shares are classified as Class WW Common Stock (Boston Partners Investor
Bond), 50 million shares are classified as Class XX Common Stock (n/i Numeric
Investors Larger Cap Value), 700 million shares are classified as Class Janney
Money Market Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Market Common Stock (Municipal Money), 500 million shares
are classified as Class Janney
-59-
<PAGE>
Government Obligations Money Market Common Stock (U.S. Government Money), 100
million shares are classified as Class Janney 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
Money Market Common Stock, Class Janney Municipal Money Market Common Stock,
Class Janney Government Obligations Money Market Common Stock and Class Janney
New York Municipal Money 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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Funds, the n/i
Numeric Investors 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 Cash Preservation Family represents interests in the
Money Market and Municipal Money Market
-60-
<PAGE>
Portfolios; the Sansom Street Family represents interests in the Money Market,
Municipal Money Market and Government Obligations Money Market Portfolios; the
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 BEA Family represents
interests in ten non-money market portfolios; the n/i Numeric Investors Family
represents interests in four non-money market portfolios; the Boston Partners
Family represents interests in three non-money 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 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.
-61-
<PAGE>
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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------------------------------------------------------------------------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
- --------------------------------------------------------------------------
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
-62-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
- --------------------------------------------------------------------------
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
- --------------------------------------------------------------------------
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
- --------------------------------------------------------------------------
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
- --------------------------------------------------------------------------
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
- --------------------------------------------------------------------------
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
- --------------------------------------------------------------------------
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- --------------------------------------------------------------------------
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
- --------------------------------------------------------------------------
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
-63-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
- --------------------------------------------------------------------------
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
- --------------------------------------------------------------------------
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
- --------------------------------------------------------------------------
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
- --------------------------------------------------------------------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
- --------------------------------------------------------------------------
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
- --------------------------------------------------------------------------
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
-64-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
- --------------------------------------------------------------------------
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
- --------------------------------------------------------------------------
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
- --------------------------------------------------------------------------
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
- --------------------------------------------------------------------------
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
- --------------------------------------------------------------------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
- --------------------------------------------------------------------------
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
- --------------------------------------------------------------------------
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
-65-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
- --------------------------------------------------------------------------
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
- --------------------------------------------------------------------------
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
- --------------------------------------------------------------------------
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
- --------------------------------------------------------------------------
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
- --------------------------------------------------------------------------
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
-66-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
- --------------------------------------------------------------------------
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
- --------------------------------------------------------------------------
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
- --------------------------------------------------------------------------
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
- --------------------------------------------------------------------------
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
- --------------------------------------------------------------------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
- --------------------------------------------------------------------------
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
- --------------------------------------------------------------------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
- --------------------------------------------------------------------------
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
-67-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
- --------------------------------------------------------------------------
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
- --------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
- --------------------------------------------------------------------------
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
- --------------------------------------------------------------------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
- --------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
-68-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
- --------------------------------------------------------------------------
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
- --------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
- --------------------------------------------------------------------------
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
- --------------------------------------------------------------------------
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
-69-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
- --------------------------------------------------------------------------
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
- --------------------------------------------------------------------------
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
- --------------------------------------------------------------------------
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
- --------------------------------------------------------------------------
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
- --------------------------------------------------------------------------
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
- --------------------------------------------------------------------------
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
- --------------------------------------------------------------------------
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-70-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
- --------------------------------------------------------------------------
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
- --------------------------------------------------------------------------
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
- --------------------------------------------------------------------------
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- --------------------------------------------------------------------------
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-71-
<PAGE>
================================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------------------------------------------------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
- --------------------------------------------------------------------------
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
==========================================================================
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible
-72-
<PAGE>
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
-73-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
A-1
<PAGE>
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
PROSPECTUS
THE DELTA FAMILY
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 1, 1997
<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................................................... 4
FINANCIAL HIGHLIGHTS........................................... 8
INVESTMENT OBJECTIVES AND POLICIES............................. 8
PURCHASE AND REDEMPTION OF SHARES.............................. 26
NET ASSET VALUE................................................ 32
MANAGEMENT..................................................... 33
DISTRIBUTION OF SHARES......................................... 35
DIVIDENDS AND DISTRIBUTIONS.................................... 36
TAXES.......................................................... 36
DESCRIPTION OF SHARES.......................................... 39
OTHER INFORMATION.............................................. 41
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
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
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. The shares of the 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 (together, 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
<PAGE>
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.
THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO may
invest a significant percentage of its assets in a single issuer, and
therefore investment in this Portfolio may be riskier than an
investment in other types of money market funds.
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. 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.
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."
PNC Institutional Management Corporation ("PIMC") serves as
investment adviser for the Portfolios, 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
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 1, 1997, 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. The Prospectus and
Statement of Additional Information are also available for reference, along with
other related materials, on the Internet Web Site (http://www.sec.gov).
-2-
<PAGE>
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 1, 1997
-3-
<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 twenty-two 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 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.
-4-
<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 Portfolios' 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. 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."
-5-
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (DELTA CLASSES)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating
expenses of the Delta Classes based on expenses expected to be incurred for the
current fiscal period, as a percentage of average daily net assets. An example
based on the summary is also shown.
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
Management Fees (after
waivers)(1).............. .22% .04% .30% .02%
12b-1 Fees................. .53 .56 .56 .52
Other Expenses............. .22 .25 .115 .28
--- --- ---- ---
Total Fund Operating
Expenses (after
waivers)(1)........... .97% .85% .975% .80%
==== ==== ===== ====
(1) Management Fees and 12b-1 Fees are based on average daily net assets and
are calculated daily and paid monthly. Before 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%, .41% and .35%, respectively, and Total Fund
Operating Expenses would be 1.12%, 1.14%, 1.09% and 1.13%, 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:
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
Money Market*............... $10 $31 $54 $119
Municipal Money
Market*................... $ 9 $27 $47 $105
Government Obligations
Money Market*............. $10 $31 $54 $120
New York Municipal
Money Market*............. $ 8 $25 $44 $ 99
* 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 (Delta Classes)" remain the same in the years shown. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY
-6-
<PAGE>
BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
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-Adviser" and "Distribution of Shares" below.) 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 figures 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 Delta Classes will fluctuate and is not
necessarily representative of future
-7-
<PAGE>
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. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved.
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 in addition to those of domestic
-8-
<PAGE>
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less liquidity. 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 ("Rating Organization").
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 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 13 months, depending upon the note
involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to
purchase securities from financial institutions subject to the
seller's agreement to repurchase them at an agreed-upon time and
price ("repurchase agreements"). The securities held subject to
-9-
<PAGE>
a repurchase agreement may have stated maturities exceeding 13 months, provided
the repurchase agreement itself matures in less than 13 months. 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 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. A reverse
repurchase agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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"),
-10-
<PAGE>
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
-11-
<PAGE>
(2) highest rating categories by one or more Rating Organizations (e.g.,
commercial paper rated "A-1" or "A-2" by Standard & Poor's Rating Services
("S&P")), (3) securities that are rated at the time of purchase by the only
Rating Organization 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 a Rating
Organization ("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, and 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, GICs, 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
shareholder approval. 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 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.
-12-
<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 are in excess of 5% of
the Portfolio's net assets. (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.
-13-
<PAGE>
"First Tier Securities" include eligible securities that (i) if rated
by more than one Rating Organization, are rated (at the time of
purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization 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 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"). There is
no assurance that the investment objective of the Municipal Money Market
Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short- term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks
-14-
<PAGE>
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.
-15-
<PAGE>
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, 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 See "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
-16-
<PAGE>
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. 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 total
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 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (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 more
than 25% of the value of the total assets of the Portfolio to be
invested in the obligations at the time of purchase 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.
-17-
<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 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
-18-
<PAGE>
instrumentalities only when the investment adviser believes that the credit risk
with respect thereto is minimal.
Due to fluctuations in interest rates, the market value of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities may vary. Certain government securities held by the Portfolio
may have remaining maturities exceeding 13 months if such securities provide for
adjustments in their interest rates not less frequently than every 13 months and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values. There is no assurance that
the investment objective of the Government Obligations Money Market Portfolio
will be achieved.
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-related securities
consist of mortgage loans which are 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. The Portfolio
may also acquire asset-backed securities as described under "Investment
Objectives and Policies--Money Market Portfolio-- Asset-Backed Securities."
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
-19-
<PAGE>
attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
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 shareholder approval. The following investment limitations may
not be changed, however, 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 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 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 are in excess of 5% of the Portfolio's net
assets. (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. 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
-20-
<PAGE>
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 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
-21-
<PAGE>
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. The Portfolio may invest a significant percentage of its assets
in a single issuer, and therefore investment in this Portfolio may be riskier
than an investment in other types of money market funds.
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 Investor Service, Inc. ("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
-22-
<PAGE>
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 than a
diversified portfolio. 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.
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 S&P and 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
-23-
<PAGE>
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 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.
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 shareholder approval. 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 are in excess of 5% of
the Portfolio's net assets. (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.)
-24-
<PAGE>
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, 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.
-25-
<PAGE>
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 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 good order 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. 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. On any Business
Day, orders which are accompanied by Federal Funds and received by PFPC 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 the close of regular trading on
the NYSE (generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE 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 the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
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 investment Account requirements. Even if
a broker does not impose a sales charge for purchases of Delta Shares, depending
on the terms of an
-26-
<PAGE>
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 and 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 and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
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 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 available in Federal
Funds to the Fund's custodian prior to the close of regular trading on the NYSE,
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" 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
-27-
<PAGE>
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. An investor's bank
or Dealer may impose a charge for this service. The Fund does not currently
charge for effecting wire transfers but reserves the right to do so in the
future. 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 your name, address, telephone number, Social Security or Tax
Identification Number, the Delta Class selected, the amount being
wired, and by which bank or Dealer. PFPC will then provide an investor
with a Fund account number. (Investors with existing accounts should
also notify PFPC 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 initial
purchases 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.
-28-
<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 Delta Shares in an Account 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 the close of regular trading on the
NYSE on a Business Day, the redemption will be effective as of the close of
regular trading on the NYSE 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 may 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. 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 may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion
-29-
<PAGE>
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(MSP). Signature guarantees that are not part of these programs will not be
accepted.
Direct investors may redeem Shares without charge by telephone
if they have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone 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 redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe 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 Portfolio, 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, financial
institutions, securities dealers, financial planners, trustee, custodian other
than the Distributor 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.
Proceeds of a telephone redemption request 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 the
-30-
<PAGE>
close of regular trading on the NYSE will result in redemption proceeds being
wired to the investor's bank account on the next bank business day. 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, although no
fee is currently contemplated.
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 may establish a higher minimum. An investor wishing
to use this check writing redemption procedure should complete specimen
signature cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may
not be presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
-31-
<PAGE>
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
notice 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 class 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 the close of regular
trading on the NYSE 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, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays on which the NYSE is closed as well as Veterans' Day and Columbus Day.
The net asset value per share of each class is calculated by adding the value of
the proportionate interest of each class in the securities, cash and other
assets of the Portfolio, subtracting the accrued and actual liabilities of the
class and dividing the result by the number of its shares outstanding of the
class. The net asset value per share of each class is determined independently
of any of the Fund's other classes.
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.
-32-
<PAGE>
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 twenty-two separate investment
portfolios. Each of the Delta Classes represents interests in one of the
following 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 $38.7
billion of assets, of which approximately $35.2 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
-33-
<PAGE>
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.
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. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
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
-34-
<PAGE>
Additional Information under "Investment Advisory, Distribution and Servicing
Arrangements."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a
wholly-owned subsidiary of Warburg Pincus Asset Management, Inc. with a
principal business address at 466 Lexington Avenue, New York, New York, acts as
distributor of the Shares of each of the Theta Classes of the Fund pursuant to a
distribution agreement and various supplements thereto (collectively, the
"Distribution Agreements") with the Fund on behalf of each of the Theta Classes.
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, fees paid to the investment adviser and administrator's fees
and 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 the 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, the expense of reports to shareholders, shareholders'
meetings and proxy solicitations, 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. 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 may assume 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
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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 Agreements 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
-35-
<PAGE>
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 Agreements and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including 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 Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or 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 Agreement. Payments under the
plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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 the close
of regular trading on the NYSE. 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
-36-
<PAGE>
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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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
-37-
<PAGE>
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.
-38-
<PAGE>
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 13.93 billion shares are
currently classified into 82 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 Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 DELTA CLASSES OF THE MONEY MARKET, MUNICIPAL MONEY
MARKET, GOVERNMENT OBLIGATIONS
-39-
<PAGE>
MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY
THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE DELTA CLASSES OF THESE PORTFOLIOS.
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 15, 1997, 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 Delta
Shares only upon the written request of a shareholder sent to PFPC.
-40-
<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) 533-7719 (in Delaware call
collect (302) 791-1196).
-41-
<PAGE>
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, 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 1, 1997, (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 1, 1997.
CONTENTS
Prospectus
PAGE PAGE
---- ----------
General.............................................. 3 4
Investment Objectives and Policies................... 3 8
Directors and Officers............................... 37 N/A
Investment Advisory, Distribution and
Servicing Arrangements............................. 42 33, 35
Portfolio Transactions............................... 48 N/A
Purchase and Redemption Information.................. 50 26
Valuation of Shares.................................. 51 32
Performance Information.............................. 52 N/A
Taxes................................................ 54 36
Additional Information Concerning
Fund Shares...................................... 58
Miscellaneous........................................ 62 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
<PAGE>
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.
-2-
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management
investment company currently operating or proposing to operate twenty-two
separate investment portfolios. This Statement of Additional Information
pertains to four classes of shares (the "Delta 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
Delta Classes are offered by the Prospectus dated December 1, 1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
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
-3-
<PAGE>
instrument has a remaining maturity of 13 months 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.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios has
such commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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,
-4-
<PAGE>
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 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
-5-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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
-6-
<PAGE>
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.
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 13 months, 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
-7-
<PAGE>
effective date of the provisions of the Tax Reform Act of 1986. Investors should
also be aware of the possibility of state and local alternative minimum or
minimum income tax liability on interest from Alternative Minimum Tax
Securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S.
Government obligations include U.S. Treasury Bills, Treasury Notes and Treasury
Bonds and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export- Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the 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, as
amended. 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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed
-8-
<PAGE>
as to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMO. The Portfolios do not currently intend to purchase residual interests.
-9-
<PAGE>
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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
-10-
<PAGE>
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 ("Rating Organizations")
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 Rating Organization 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 13 months 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 a Rating Organization ("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 13 months 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 Rating Organization 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 that 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
-11-
<PAGE>
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.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
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,
among others, 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).
-12-
<PAGE>
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the Fund's investments in New York Municipal Obligations are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have 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 very
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 a large portion of 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 position.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and remained lower
until 1991; since then, it has been higher than the national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all monies and revenues estimated to be available
therefor,
-13-
<PAGE>
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 an explanation of any changes from the previous state financial plan.
The State's budget for the 1997-98 fiscal year was adopted by
the Legislature on August 4, 1997, more than four 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 necessary appropriations for State- supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General
Fund disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The
General Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced
on a cash basis. The Financial Plan projections include a reserve for future
needs of $530 million. As compared to the Governor's Executive Budget as amended
in February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local assistance ($1.3
billion). Resources used to fund these additional expenditures include increased
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re- estimates of
social service, fringe benefit and other spending, and certain non-recurring
resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of
-14-
<PAGE>
State and local taxes in New York and to improve the State's competitive
position vis-a-vis other states. The various elements of the State and local tax
and assessments reductions have little or no impact on the 1997-98 State
Financial Plan, and do not begin to materially affect the outyear projections
until the State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the federal government,
that are not under the control of the State. In addition, the financial plan is
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. Actual results, however, could differ
materially and adversely from the projections set forth in the 1997-98 State
Financial Plan, and those projections may be changed materially and adversely
from time to time.
In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the Division of Budget believes it could take similar actions should
variances occur in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts
and disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors have created structural
budget gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution, the Governor is required to propose a balanced budget each
year. There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the
-15-
<PAGE>
State's actions will be sufficient to preserve budgetary balance in a given
fiscal year or to align recurring receipts and disbursements in future fiscal
years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000- 2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2001 State fiscal year
could grow to nearly $12 billion.
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 State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in
the 1997-98 fiscal year are projected to be $35.09 billion, an increase of over
$2 billion or approximately 6% from the $33.04 billion recorded in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
-16-
<PAGE>
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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 general obligation 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 general obligation 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 from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general obligation and 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 and 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 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 public authority, municipality or other entity, the
State's obligation to make such 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to
-17-
<PAGE>
restructure and improve JDA's capital structure. Due to concerns regarding the
economic viability of its programs, JDA's loan and loan guarantee activities had
been suspended since the Governor took office in 1995. As a result of the
structural imbalances in JDA's capital structure, and defaults in its loan
portfolio and loan guarantee program incurred between 1991 and 1996, JDA would
have experienced a debt service cash flow shortfall had it not completed its
recent refinancing. JDA anticipates that it will transact additional
refinancings in 1999, 2000 and 2003 to complete its long-term plan of finance
and further alleviate cash flow imbalances which are likely to occur in future
years. The State does not anticipate that it will be called upon to make any
payments pursuant to the State guarantee in the 1997-98 fiscal year. JDA
recently resumed its lending activities under a revised set of lending programs
and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation empowered LGAC to issue its bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of these long-term obligations,
which were 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 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
the need for additional borrowing and provided a schedule for reducing it to the
cap. If borrowing above the cap was thus permitted in any fiscal year, it was
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.
On January 13, 1992, Standard & Poor's Ratings Services
("S&P") 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. See Appendix "A" for an
explanation of bond ratings. On August 28, 1997, S&P revised its ratings on the
State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. 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,
-18-
<PAGE>
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 the 1997-98
fiscal year. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding bond anticipation
notes) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of State borrowings for the 1997-98 fiscal year is subject to change as market
conditions, interest rates and other factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved
two new authorizations for lease-purchase and contractual obligation financings.
An aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.
Principal and interest payments on general obligation bonds
and interest payments on bond anticipation notes were $749.6 million for the
1996-97 fiscal year, and are estimated to be $720.9 million for the 1997-98
fiscal year. Principal and interest payments on fixed rate and variable rate
bonds issued by LGAC were $329.5 million for the 1996-97 fiscal year, and are
estimated to be $329.6 million for the 1997-98 fiscal year. State lease-purchase
and contractual-obligation payments were $1.74 billion in fiscal year 1996-97,
and are estimated to be $2.21 billion in fiscal year 1997-98.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
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
-19-
<PAGE>
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 and upstate New York; (2) certain aspects
of New York State's Medicaid policies, including 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 to regulations promulgated by
the Superintendent of Insurance establishing certain excess medical malpractice
premium rates; (7) challenges to certain aspects of petroleum business taxes;
(8) an action alleging damages resulting from the failure by the State's
Department of Environmental Conservation to timely provide certain data; (9)
challenges to the constitutionality of Public Health Law 2807-d, which imposes a
gross receipts tax from certain patient care services; (10) an action seeking
reimbursement from the State for certain costs arising out of the provision of
pre-school services and programs for disabled children; (11) an action seeking
enforcement of certain sales and excise taxes and tobacco products and motor
fuel sold to non- Indian consumers on Indian reservations; and (12) a challenge
to the constitutionality of Clean Water/Clean Air Bond Act.
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 developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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 was required to make aggregate payments of $351.4 million.
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. Litigation challenging the
constitutionality of the treatment of certain monies held in a reserve fund was
settled in June 1996 and certain amounts in a Supplemental Reserve Fund
previously credited by the State
-20-
<PAGE>
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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.
AUTHORITIES. The fiscal stability of New York State is
related, in part, 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 is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by
the projects they finance or operate, such as fares,
-21-
<PAGE>
user fees on bridges, highway tolls and rentals for dormitory rooms and housing.
In recent years, however, New York State has provided financial assistance
through appropriations, in some cases of a recurring nature, to certain of the
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 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 may also be impacted by 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable GAAP. The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results.
There can be no assurance that the City will continue to maintain a balanced
budget as required by State law without additional tax or other revenue
increases or additional reductions in City services or entitlement programs,
which could adversely affect the City's economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
-22-
<PAGE>
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing the City's chronic structural budget problems and weak
economic outlook. S&P 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 created the Municipal Assistance Corporation
("MAC") in 1975. Since its creation, MAC has provided, among other things,
financing assistance to the City by refunding maturing City short-term debt and
transferring to the City funds received from sales of MAC bonds and notes. 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, subject to certain prior claims, 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. 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, 1997, MAC had
outstanding an aggregate of approximately $4.267 billion of its bonds. MAC is
authorized to issue bonds and notes to refund its outstanding bonds and notes
and to fund certain reserves, without limitation as to principal amount, and to
finance certain capital commitments to the Transit Authority and the New York
City School Construction Authority through the 1997 fiscal year in the event the
City fails to provide such financing.
-23-
<PAGE>
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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and the City
University of New York and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The financial plan included increased tax
revenue projections; reduced debt service costs; the assumed restoration of
Federal funding for programs assisting certain legal aliens; additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization, initiatives proposed by the
City Council and other initiatives; and a proposed discretionary transfer to the
1998 fiscal year of $300 million of debt service due in the 1999 fiscal year for
budget stabilization purposes. In addition, the financial plan reflected the
discretionary transfer to the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years, and included actions to eliminate a
previously projected budget gap for the 1998 fiscal year. These gap-closing
actions included (i) additional agency actions totaling $621 million; (ii) the
proposed sale of various assets; (iii) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City
-24-
<PAGE>
from March 1999; and (iv) entitlement savings of $128 million which would result
from certain of the reductions in Medicaid spending proposed in the Governor's
1997-1998 Executive Budget and the State making available to the City $77
million of additional Federal block grant aid, as proposed in the Governor's
1997-1998 Executive Budget. The 1998-2001 Financial Plan also set forth
projections for the 1999 through 2001 fiscal years and projected gaps of $1.8
billion, $2.8 billion and $2.6 billion for the 1999 through 2001 fiscal years,
respectively.
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide revenues of
$188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected
the increased costs which the City is prepared to incur as a result of welfare
legislation recently enacted by Congress. The 1998-2001 Financial Plan provided
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the
State has adopted its budget for the 1997-1998 fiscal year.
-25-
<PAGE>
The State budget (1) enacted a smaller sales tax reduction than the tax
reduction program assumed by the City in the Financial Plan, which will increase
projected City sales tax revenues; (2) provided for State aid to the City which
was less than assumed in the Financial Plan; and enacted a State-funded tax
relief program which begins a year later than reflected in the financial plan.
In addition, the net effect of tax law changes made in the Federal Balanced
Budget Act of 1997 are expected to increase tax revenues in the 1998 fiscal
year.
Although the City has maintained balanced budgets in each of
its last sixteen fiscal years and is projected to achieve balanced operating
results for the 1997 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998- 2001 Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general obligation bonds and $5.7 billion of bonds
to be issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City
-26-
<PAGE>
fiscal year 1999-2000. Indebtedness subject to the constitutional debt limit
includes liability on capital contracts that are expected to be funded with
general obligation bonds, as well as general obligation bonds. On June 2, 1997,
an action was commenced seeking a declaratory judgment declaring the legislation
establishing the Transitional Finance Authority to be unconstitutional. If such
legislation were voided, projected contracts for the City capital projects would
exceed the City's debt limit during fiscal year 1997-98. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment 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
-27-
<PAGE>
oversight of the fiscal affairs of Yonkers. Future actions taken by the State to
assist Yonkers could result in increased State expenditures for extraordinary
local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 State budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the total indebtedness
of all localities in New York State other than New York City was approximately
$19 billion. A small portion (approximately $102.3 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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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
-28-
<PAGE>
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% 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 are in excess of 5% of
the Portfolio's net assets. (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
-29-
<PAGE>
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:
-30-
<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
shareholder approval.
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 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
-31-
<PAGE>
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 Rating Organization, are rated (at the time of
purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization 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.
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 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.
-32-
<PAGE>
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% 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 are in excess of 5% of the Portfolio's net
assets. (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
shareholder approval.
-33-
<PAGE>
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% 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 are in
excess of 5% of the Portfolio's net assets. (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;
-34-
<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
shareholder approval.
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
-35-
<PAGE>
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.
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.
-36-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
*Arnold M. Reichman -49 Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer of Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); Prior to
October 1996,
Executive Vice
President of Gruntal &
Co., Inc. (a
registered broker-
dealer).
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).
-37-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
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, 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 since 1969
16th Floor Comcast Corporation
Philadelphia, PA 19107-3723 (cable television and
communications);
Director Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden -73 Director Self-employed
1200 Old Mill Lane and businessman. From
Wyomissing, PA 19610 Chairman February 1980 to March
of the 1987, Vice Chairman,
Board SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto
service); Director,
Keystone Insurance Co.
-38-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice
Bellevue Park Treasurer Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and Treasurer
of various investment
companies advised by
PNC Institutional
Management Corporation;
Director, The Bradford
Funds, Inc.
Morgan R. Jones -58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker Biddle
1345 Chestnut Street & Reath LLP; Director,
Philadelphia, PA 19107-3496 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 positions 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 Fahnestock Co.,
Inc., a registered 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.
-39-
<PAGE>
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 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 the Distributer and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM REGISTRANT
AGGREGATE ACCRUED AS PART ESTIMATED ANNUAL AND FUND
COMPENSATION OF FUND BENEFITS UPON COMPLEX1 PAID
NAME OF PERSON/ POSITION FROM REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- ------------------------ --------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
- ----------------------
<FN>
1 A FUND COMPLEX MEANS TWO OR MORE INVESTMENT COMPANIES THAT HOLD
THEMSELVES OUT TO INVESTORS AS RELATED COMPANIES FOR PURPOSES OF
INVESTMENT AND INVESTOR SERVICES, OR HAVE A COMMON INVESTMENT ADVISER
OR HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE
INVESTMENT ADVISER OF ANY OTHER INVESTMENT COMPANIES.
</FN>
</TABLE>
-40-
<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 AND ONE OTHER
EMPLOYEE), PURSUANT TO WHICH THE FUND WILL CONTRIBUTE ON A QUARTERLY BASIS
AMOUNTS EQUAL TO 10% OF THE QUARTERLY COMPENSATION OF EACH ELIGIBLE EMPLOYEE. BY
VIRTUE OF THE SERVICES PERFORMED BY PNC INSTITUTIONAL MANAGEMENT CORPORATION
("PIMC"), THE PORTFOLIOS' 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 TWO PART-TIME EMPLOYEES. DRINKER BIDDLE & REATH LLP,
OF WHICH MR. JONES IS A PARTNER, RECEIVES LEGAL FEES AS COUNSEL TO THE FUND. 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. Under the Sub-Advisory Agreements, PIMC pays PNC Bank an annual
fee equal to 75% of the investment advisory fees incurred by PIMC on behalf of
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios. 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
Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Portfolio $5,366,431 $3,603,130 $469,986
- ---------------------------------------------------------------------------------------------------------------------------
Municipal Money Market $201,095 $1,269,553 $14,921
Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
Government Obligations
Money Market Portfolio $1,774,123 $647,063 $404,193
- ---------------------------------------------------------------------------------------------------------------------------
New York Municipal
Money Market Portfolio $21,831 $324,917 ----
===========================================================================================================================
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Portfolio $4,174,375 $3,522,715 $342,158
- ---------------------------------------------------------------------------------------------------------------------------
Municipal Money Market $190,687 $1,218,973 $17,576
Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
Government Obligations
Money Market Portfolio $1,638,622 $671,811 $406,954
- ---------------------------------------------------------------------------------------------------------------------------
New York Municipal
Money Market Portfolio $2,709 $268,017 $0
===========================================================================================================================
</TABLE>
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Portfolio $2,274,697 $2,589,832 $12,047
- ---------------------------------------------------------------------------------------------------------------------------
Municipal Money Market $67,752 $1,041,321 $11,593
Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
Government Obligations $780,122 $398,363 $0
Money Market Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
New York Municipal $187,660 $187,660 $12,656
Money Market Portfolio
===========================================================================================================================
</TABLE>
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
-41-
<PAGE>
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; (1) 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. The Delta Classes pay their
own distribution fees, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if these expenses are actually
incurred in a different amount by the Delta Classes or if they receive different
services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements 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 Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
were each approved with respect to the Money Market
-42-
<PAGE>
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 Agreement 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 Agreement 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 Agreements may also be terminated by PIMC or PNC
Bank, respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements 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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
=============================================================================================================================
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
New York Municipal $99,071 $0 $0
Money Market Portfolio
=============================================================================================================================
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
=============================================================================================================================
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------
New York Municipal $67,204 $10,146 $0
Money Market Portfolio
=============================================================================================================================
</TABLE>
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
=============================================================================================================================
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Money Market $321,790 $6,233 $0
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
New York Municipal $8,960 $44,657 $0
Money Market Portfolio
=============================================================================================================================
</TABLE>
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
-43-
<PAGE>
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 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.
-44-
<PAGE>
DISTRIBUTION 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 each of the Delta Classes,
(collectively, the "Distribution Agreements"), 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 appropriate efforts to distribute shares of
each of the Delta Classes. As compensation for its distribution services, the
Distributor receives, pursuant to the terms of the Distribution Agreements, 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 Delta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios were approved 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").
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 12b-1 Directors 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, had an
indirect interest in the operation of the Plans by virtue of his positions with
Fahnestock Co., Inc.
-45-
<PAGE>
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months 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
-46-
<PAGE>
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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolio held the following securities:
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Bear Stearns Companies, Inc. $105,000,000
Portfolio Commercial Paper
Money Market Bear Stearns Companies, Inc.
Portfolio Corporate Obligation $20,000,000
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
-47-
<PAGE>
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 class 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
adding the value of the proportionate interest of each class in a Portfolio's
cash, securities and other assets, subtracting the actual and accrued
liabilities of the class, and dividing the result by the number of outstanding
shares of the class. The net asset value per share of each class of the Fund is
calculated independently from other classes of the Fund. A Portfolio's "net
assets" equal the value of a Portfolio's investments and other securities less
its liabilities. The net asset value per share of each class of the Portfolios
is computed twice each day, as of 12:00 noon (Eastern Time) and as of the close
of the NYSE (generally 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
weekends and on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day and the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday. The FRB is currently closed on
weekends and the same holidays as the NYSE as well as 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
-48-
<PAGE>
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 13 months, 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
-49-
<PAGE>
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
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
-50-
<PAGE>
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/MONEY FUND
REPORT(R), 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
-51-
<PAGE>
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").
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
-52-
<PAGE>
pay exempt interest dividends during any taxable year, at the close of each
fiscal quarter at least 50% of the value of each such Portfolio must consist of
exempt interest obligations.
All shareholders required to file a federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such standby
commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the
Internal Revenue Service held that a mutual fund acquired ownership of municipal
obligations for federal income
-53-
<PAGE>
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 mid-term or other long-term capital gain, 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.
-54-
<PAGE>
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 earnings
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
-55-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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 Numeric Investors
Micro Cap),50 million shares are classified as Class GG Common Stock (n/i
Numeric Investors Growth), 50 million shares are classified as Class HH Common
Stock (n/i Numeric Investors 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
-56-
<PAGE>
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) 100 million shares are classified as Class
TT Common Stock (Boston Partners Investor Mid Cap), 100 million shares are
classified as Class UU Common Stock (Boston Partners Institutional Mid Cap), 100
million shares are classified as Class VV Common Stock (Boston Partners
Institutional Bond), 100 million shares are classified as Class WW Common Stock
(Boston Partners Investor Bond), 50 million shares are classified as Class XX
Common Stock (n/i Numeric Investors Larger Cap Value), 700 million shares are
classified as Class Janney Money Market Common Stock (Money), 200 million shares
are classified as Class Janney Municipal Money Market Common Stock (Municipal
Money), 500 million shares are classified as Class Janney Government Obligations
Money Market Common Stock (U.S. Government Money), 100 million shares are
classified as Class Janney 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
-57-
<PAGE>
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 Money Market Common Stock, Class Janney Municipal
Money Market Common Stock, Class Janney Government Obligations Money Market
Common Stock and Class Janney New York Municipal Money 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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Funds, the n/i
Numeric Investors 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 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 n/i Numeric Investors Family represents interests in four
non-money market portfolios; the Boston Partners Family represents interests in
three non-money 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
-58-
<PAGE>
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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand, L.L.P., 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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.
-59-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- -------------------------------------------------------------------------------
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
- -------------------------------------------------------------------------------
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
- -------------------------------------------------------------------------------
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
- -------------------------------------------------------------------------------
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
- -------------------------------------------------------------------------------
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
- -------------------------------------------------------------------------------
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
- -------------------------------------------------------------------------------
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
- -------------------------------------------------------------------------------
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
-60-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
- -------------------------------------------------------------------------------
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- -------------------------------------------------------------------------------
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
- -------------------------------------------------------------------------------
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
- -------------------------------------------------------------------------------
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
- -------------------------------------------------------------------------------
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
- -------------------------------------------------------------------------------
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
- -------------------------------------------------------------------------------
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
- -------------------------------------------------------------------------------
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
-61-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
- -------------------------------------------------------------------------------
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
- -------------------------------------------------------------------------------
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
- -------------------------------------------------------------------------------
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
- -------------------------------------------------------------------------------
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- -------------------------------------------------------------------------------
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
- -------------------------------------------------------------------------------
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
- -------------------------------------------------------------------------------
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
- -------------------------------------------------------------------------------
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
-62-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
- -------------------------------------------------------------------------------
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
- -------------------------------------------------------------------------------
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
- -------------------------------------------------------------------------------
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
- -------------------------------------------------------------------------------
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
- -------------------------------------------------------------------------------
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
- -------------------------------------------------------------------------------
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
- -------------------------------------------------------------------------------
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
- -------------------------------------------------------------------------------
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
-63-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
- -------------------------------------------------------------------------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
- -------------------------------------------------------------------------------
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
- -------------------------------------------------------------------------------
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
- -------------------------------------------------------------------------------
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
- -------------------------------------------------------------------------------
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
- -------------------------------------------------------------------------------
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
- -------------------------------------------------------------------------------
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
- -------------------------------------------------------------------------------
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
-64-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
- -------------------------------------------------------------------------------
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
- -------------------------------------------------------------------------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
- -------------------------------------------------------------------------------
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
- -------------------------------------------------------------------------------
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
- -------------------------------------------------------------------------------
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
- -------------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- -------------------------------------------------------------------------------
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
- -------------------------------------------------------------------------------
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
-65-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
- -------------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- -------------------------------------------------------------------------------
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
- -------------------------------------------------------------------------------
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
- -------------------------------------------------------------------------------
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
- -------------------------------------------------------------------------------
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-66-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
Chase Manhattan Bank 6.0%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
- -------------------------------------------------------------------------------
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
- -------------------------------------------------------------------------------
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
- -------------------------------------------------------------------------------
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
- -------------------------------------------------------------------------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
- -------------------------------------------------------------------------------
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
- -------------------------------------------------------------------------------
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
- -------------------------------------------------------------------------------
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
-67-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
- -------------------------------------------------------------------------------
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
- -------------------------------------------------------------------------------
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
- -------------------------------------------------------------------------------
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- -------------------------------------------------------------------------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- -------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- -------------------------------------------------------------------------------
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
- -------------------------------------------------------------------------------
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
-68-
<PAGE>
===============================================================================
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- -------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- -------------------------------------------------------------------------------
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
- -------------------------------------------------------------------------------
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
- -------------------------------------------------------------------------------
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
- -------------------------------------------------------------------------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
- -------------------------------------------------------------------------------
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
===============================================================================
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or
-69-
<PAGE>
affiliate or banks generally from acting as investment adviser, administrator,
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 customers. PIMC, PNC
Bank and other institutions that are banks or bank affiliates are subject to
such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
-70-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
A-1
<PAGE>
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
PROSPECTUS
THE GAMMA FAMILY
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 1, 1997
<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........................................................ 4
FINANCIAL HIGHLIGHTS................................................ 8
INVESTMENT OBJECTIVES AND POLICIES.................................. 8
PURCHASE AND REDEMPTION OF SHARES................................... 25
NET ASSET VALUE..................................................... 31
MANAGEMENT.......................................................... 32
DISTRIBUTION OF SHARES.............................................. 35
DIVIDENDS AND DISTRIBUTIONS......................................... 36
TAXES............................................................... 36
DESCRIPTION OF SHARES............................................... 39
OTHER INFORMATION................................................... 40
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
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
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. The shares of the 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 (together, 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
<PAGE>
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.
The New York Municipal Money Market Portfolio may
invest a significant percentage of its assets in a single issuer, and therefore
investment in this Portfolio may be riskier than an investment in other types of
money market funds.
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. 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.
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."
PNC Institutional Management Corporation ("PIMC") serves as
investment adviser for the Portfolios, 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
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 1, 1997, 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. The Prospectus and
Statement of Additional Information are also available for reference, along with
other related materials, on the Internet Web Site (http://www.sec.gov).
-2-
<PAGE>
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 1, 1997
-3-
<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 twenty-two 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 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
-4-
<PAGE>
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 Portfolios' 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. 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 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."
-5-
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (GAMMA CLASSES)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating
expenses of the Gamma Classes based on expenses expected to be incurred for the
current fiscal period, as a percentage of average daily net assets. An example
based on the summary is also shown.
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
Management Fees (after
waivers) (1).......... .22% .04% .30% .02%
12b-1 Fees.............. .53 .56 .56 .52
Other Expenses ......... .22 .25 .115 .28
---- ---- ---- ----
Total Fund Operating
Expenses
(after waivers)(1).... .97% .85% .975% .80%
==== ==== ==== ====
(1) Management Fees and 12b-1 Fees are based on average daily net assets and
are calculated daily and paid monthly. Before 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%, .41% and .35%, respectively, and Total Fund
Operating Expenses would be 1.12%, 1.14%, 1.09% and 1.13%, 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:
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
Money Market*................. $10 $31 $54 $119
Municipal Money Market*....... $ 9 $27 $47 $105
Government Obligations
Money Market*............... $10 $31 $54 $120
New York Municipal
Money Market*............... $ 8 $25 $44 $ 99
* 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 (Gamma Classes)" 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. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
-6-
<PAGE>
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.) 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 figures 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 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
-7-
<PAGE>
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. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved.
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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less liquidity. 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.
-8-
<PAGE>
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 ("Rating Organization").
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 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 13 months, depending upon the note
involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, provided the repurchase agreement itself matures in less
than 13 months. 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.
-9-
<PAGE>
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 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. A reverse
repurchase agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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.
-10-
<PAGE>
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 (2)
highest rating categories by one or more Rating Organizations (e.g., commercial
paper rated "A-1" or "A-2" by Standard & Poor's Rating Services ("S&P")), (3)
securities that are rated at the time of purchase by the only Rating
Organization 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 a
-11-
<PAGE>
Rating Organization ("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, and 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, GICs, 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
shareholder approval. 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 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
-12-
<PAGE>
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 are in excess of 5% of
the Portfolio's net assets. (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 Rating Organization, are rated (at the
time of purchase) by two or more Rating Organizations in the highest
rating category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization in its highest
rating category for such securities, (iii) have no short-term rating
and are
-13-
<PAGE>
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 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"). There is
no assurance that the investment objective of the Municipal Money Market
Portfolio will be achieved.
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.
-14-
<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.
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
-15-
<PAGE>
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, 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 shareholder approval. 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
-16-
<PAGE>
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 total
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 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (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 more
than 25% of the value of the total assets of the Portfolio to be
invested in the obligations at the time of purchase 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.
-17-
<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.
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.
Due to fluctuations in interest rates, the market value of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities may vary. Certain government securities held by the Portfolio
may have remaining maturities exceeding 13 months if such securities provide for
adjustments in
-18-
<PAGE>
their interest rates not less frequently than every 13 months and the
adjustments are sufficient to cause the securities to have market values, after
adjustment, which approximate their par values. There is no assurance that the
investment objective of the Government Obligations Money Market Portfolio will
be achieved.
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-related securities
consist of mortgage loans which are 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. The Portfolio
may also acquire asset-backed securities as described under "Investment
Objectives and Policies--Money Market Portfolio-- Asset-Backed Securities."
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.
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
-19-
<PAGE>
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 shareholder approval. The following investment limitations may
not be changed, however, 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 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 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 are in excess of 5% of the Portfolio's net
assets. (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. 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
-20-
<PAGE>
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 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
-21-
<PAGE>
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. The Portfolio may invest a significant percentage of its assets
in a single issuer, and therefore investment in this Portfolio may be riskier
than an investment in other types of money market funds.
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 Investor Service, Inc. ("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
-22-
<PAGE>
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 than a
diversified portfolio. 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.
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 S&P and 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 market values and marketability of all New
York Municipal Obligations and,
-23-
<PAGE>
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.
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 shareholder approval. 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 are in excess of 5% of
the Portfolio's net assets. (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
-24-
<PAGE>
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. 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 wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is
-25-
<PAGE>
$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 good order 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. 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. On any Business
Day, orders which are accompanied by Federal Funds and received by PFPC 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 the close of regular trading on
the NYSE (generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE 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 the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
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 investment Account requirements. Even if
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, and 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 and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
-26-
<PAGE>
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 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 available in Federal
Funds to the Fund's custodian prior to the close of regular trading of the NYSE,
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" 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. An investor's bank
or Dealer may impose a charge for this service. The Fund does not currently
charge for effecting wire transfers but reserves the right to do so in the
future. In order to ensure prompt receipt of an investor's
-27-
<PAGE>
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 your name, address, telephone number, Social Security or Tax
Identification Number, the Gamma Class selected, the amount being
wired, and by which bank or Dealer. PFPC will then provide an investor
with a Fund account number. (Investors with existing accounts should
also notify PFPC 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 initial
purchases 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 in an Account may redeem Gamma Shares in his
Account in accordance with instructions and limitations pertaining to his
Account by contacting his broker.
-28-
<PAGE>
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
the close of regular trading on the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading on the NYSE 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 may 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. 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 may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone
if they have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone 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 redemption by calling (888) 261-4073.
-29-
<PAGE>
Neither the Fund, the Distributor, the Portfolios, the Administrator nor any
other Fund agent will be liable for any loss, liability, cost or expense for
following the procedures below or for following instructions communicated by
telephone that they reasonably believe 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 Portfolio, 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, financial institutions, securities dealers, financial
planners, trustee, custodian other than the Distributor 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.
Proceeds of a telephone redemption request 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 the close of
regular trading on the NYSE will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. 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, although no
fee is currently contemplated.
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 may establish a higher minimum. An
-30-
<PAGE>
investor wishing to use this check writing redemption procedure should complete
specimen signature cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may
not be presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
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
notice 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 class of the Portfolios
for the purpose of pricing purchase and redemption orders is determined twice
each day, once as of 12:00 noon
-31-
<PAGE>
Eastern Time and once as of the close of regular trading on the NYSE 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, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday. The FRB is currently
closed on weekends and the same holidays on which the NYSE is closed as well as
Veterans' Day and Columbus Day. The net asset value per share of each class is
calculated by adding the value of the proportionate interest of each class in
the securities, cash and other assets of the Portfolio, subtracting the accrued
and actual liabilities of the class and dividing the result by the number of its
shares outstanding of the class. The net asset value per share of each class is
determined independently of any of the Fund's other classes.
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 twenty-two separate investment
portfolios. Each of the Gamma Classes represents interests in one of the
following 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.
-32-
<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 $38.7
billion of assets, of which approximately $35.2 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
-33-
<PAGE>
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.
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. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
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."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a
wholly-owned subsidiary of Warburg Pincus Asset Management, Inc. with a
principal business 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 a
distribution agreement and various supplements thereto (collectively, the
"Distribution Agreements") with the Fund on behalf of each of the Gamma Classes.
-34-
<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, fees paid to the investment adviser and administrator's
fees and 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 the 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, the expense of reports to shareholders, shareholders'
meetings and proxy solicitations, 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. 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 may assume 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
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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 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 Agreements 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 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 Agreements and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including Dealers, based upon the aggregate
investment amounts maintained by and services provided to shareholders of any
relevant Class
-35-
<PAGE>
serviced by such financial institutions. The Distributor may also reimburse
Dealers for other expenses incurred in the promotion of the sale of Fund shares.
The Distributor and/or 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 Agreement. Payments under the
plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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 the close
of regular trading on the NYSE. 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, it 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
-36-
<PAGE>
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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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
-37-
<PAGE>
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.
-38-
<PAGE>
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 13.93 billion shares are
currently classified into 82 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 Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE GAMMA CLASSES
OF THESE PORTFOLIOS.
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
-39-
<PAGE>
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 15, 1997, 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 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) 533-7719 (in Delaware call
collect (302) 791-1196).
-40-
<PAGE>
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"), each representing interests in one of 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 1, 1997, (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General.................................................. 3 4
Investment Objectives And Policies....................... 3 8
Directors And Officers................................... 37 N/A
Investment Advisory, Distribution and Servicing
Arrangements........................................... 42 32
Portfolio Transactions................................... 49 N/A
Purchase and Redemption Information...................... 51 29
Valuation of Shares...................................... 51 31
Performance Information.................................. 53 N/A
Taxes.................................................... 54 36
Additional Information Concerning
Fund Shares............................................ 59 39
Miscellaneous............................................ 62 N/A
Financial Statements..................................... N/A N/A
Appendix A............................................... 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
<PAGE>
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.
-2-
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management
investment company currently operating or proposing to operate twenty-two
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 1,
1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
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
-3-
<PAGE>
instrument has a remaining maturity of 13 months 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.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios
have such commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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,
-4-
<PAGE>
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 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
-5-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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
-6-
<PAGE>
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.
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 13 months, 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
-7-
<PAGE>
industrial development revenue bonds issued prior to the effective date of the
provisions of the Tax Reform Act of 1986. Investors should also be aware of the
possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S.
Government obligations include U.S. Treasury Bills, Treasury Notes and Treasury
Bonds and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export- Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the 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, as
amended. 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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks 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, if such banks and non-bank dealers are deemed
creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to equal at
least the repurchase price (including accrued interest). In addition, the
Portfolio's adviser or sub-adviser will require that the value of
-8-
<PAGE>
this collateral, after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to or greater than the repurchase
price (including accrued premium) provided in the repurchase agreement or the
daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-adviser will mark-to-market daily the value of the securities. 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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
-9-
<PAGE>
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMO. The Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt
-10-
<PAGE>
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise, the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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 ("Rating Organizations")
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 Rating Organization 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 13 months 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 a Rating Organization ("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 13 months 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
-11-
<PAGE>
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 Rating
Organization 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 that 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.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the
-12-
<PAGE>
Portfolios' adviser that an adequate trading market exists for the securities.
This investment practice could have the effect of increasing the level of
illiquidity in a Portfolio during any period that qualified institutional buyers
become uninterested in purchasing restricted securities.
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,
among others, 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 Fund's investments in New York Municipal Obligations are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have 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 very
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 a large portion of 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 position.
State per capita personal income has historically been
significantly higher than the national average, although the
-13-
<PAGE>
ratio has varied substantially. According to data published by the U.S. Bureau
of Economic Analysis, total personal income in the State has risen more slowly
than the national average since 1988. The total employment growth rate in the
State has been below the national average since 1987. The unemployment rate in
the State dipped below the national rate in the second half of 1981 and remained
lower until 1991; since then, it has been higher than the national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all monies 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 an explanation of any changes from the previous state
financial plan.
The State's budget for the 1997-98 fiscal year was adopted by
the Legislature on August 4, 1997, more than four 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 necessary appropriations for State- supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General
Fund disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The
General Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
-14-
<PAGE>
The 1997-98 State Financial Plan is projected to be balanced
on a cash basis. The Financial Plan projections include a reserve for future
needs of $530 million. As compared to the Governor's Executive Budget as amended
in February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local assistance ($1.3
billion). Resources used to fund these additional expenditures include increased
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re- estimates of
social service, fringe benefit and other spending, and certain non-recurring
resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessments reductions have little or no impact on the 1997-98 State Financial
Plan, and do not begin to materially affect the outyear projections until the
State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the federal government,
that are not under the control of the State. In addition, the financial plan is
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. Actual results, however, could differ
materially and adversely from the projections set forth in the 1997-98 State
Financial Plan, and those projections may be changed materially and adversely
from time to time.
-15-
<PAGE>
In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the Division of Budget believes it could take similar actions should
variances occur in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts
and disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors have created structural
budget gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution, the Governor is required to propose a balanced budget each
year. There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000- 2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
-16-
<PAGE>
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2001 State fiscal year
could grow to nearly $12 billion.
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 State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in
the 1997-98 fiscal year are projected to be $35.09 billion, an increase of over
$2 billion or approximately 6% from the $33.04 billion recorded in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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 general obligation 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 general obligation 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 from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general obligation and 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 and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the
-17-
<PAGE>
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 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
public authority, municipality or other entity, the State's obligation to make
such 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") to
restructure the way the State makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation empowered LGAC to issue its bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of these long-term obligations,
which were 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 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
the need
-18-
<PAGE>
for additional borrowing and provided a schedule for reducing it to the cap. If
borrowing above the cap was thus permitted in any fiscal year, it was 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.
On January 13, 1992, Standard & Poor's Ratings Services
("S&P") 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. See Appendix "A" for an
explanation of bond ratings. On August 28, 1997, S&P revised its ratings on the
State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. 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 the 1997-98
fiscal year. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding bond anticipation
notes) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of State borrowings for the 1997-98 fiscal year is subject to change as market
conditions, interest rates and other factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved
two new authorizations for lease-purchase and contractual obligation financings.
An aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.
-19-
<PAGE>
Principal and interest payments on general obligation bonds
and interest payments on bond anticipation notes were $749.6 million for the
1996-97 fiscal year, and are estimated to be $720.9 million for the 1997-98
fiscal year. Principal and interest payments on fixed rate and variable rate
bonds issued by LGAC were $329.5 million for the 1996-97 fiscal year, and are
estimated to be $329.6 million for the 1997-98 fiscal year. State lease-purchase
and contractual-obligation payments were $1.74 billion in fiscal year 1996-97,
and are estimated to be $2.21 billion in fiscal year 1997-98.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
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 and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including 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 to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking reimbursement from the State for certain costs
arising out of the provision of pre-school services and programs for disabled
children; (11) an action seeking enforcement of certain sales and excise taxes
and tobacco products and motor fuel sold to non- Indian consumers on Indian
reservations; and (12) a challenge to the constitutionality of Clean Water/Clean
Air Bond Act.
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
-20-
<PAGE>
developed a plan to restore the State's retirement systems to prior funding
levels. Such funding is expected to exceed prior levels by $116 million in
fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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 was required to make aggregate payments of $351.4 million.
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. Litigation challenging the
constitutionality of the treatment of certain monies held in a reserve fund was
settled in June 1996 and certain amounts in a Supplemental Reserve Fund
previously credited by the State against prior State and local pension
contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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.
AUTHORITIES. The fiscal stability of New York State is
related, in part, to the fiscal stability of its Authorities,
-21-
<PAGE>
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
is State-supported or State-related. As of September 30, 1996, date of the
latest data available, there were 17 Authorities that had outstanding debt of
$100 million or more. The aggregate outstanding debt, including refunding bonds,
of these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by
the projects they finance or operate, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent years,
however, New York State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the
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 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 may also be impacted by 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
-22-
<PAGE>
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable GAAP. The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results.
There can be no assurance that the City will continue to maintain a balanced
budget as required by State law without additional tax or other revenue
increases or additional reductions in City services or entitlement programs,
which could adversely affect the City's economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing the City's chronic structural budget problems and weak
economic outlook. S&P 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 created the Municipal Assistance Corporation
("MAC") in 1975. Since its creation, MAC has provided, among other things,
financing assistance to the City by refunding maturing City short-term debt and
transferring to the City funds received from sales of MAC bonds and notes. 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, subject to certain prior claims, 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,
-23-
<PAGE>
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. 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, 1997, MAC had outstanding an aggregate of approximately $4.267
billion of its bonds. MAC is authorized to issue bonds and notes to refund its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to the Transit
Authority and the New York City School Construction Authority through the 1997
fiscal year 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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and the City
University of New York and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The financial
-24-
<PAGE>
plan included increased tax revenue projections; reduced debt service costs; the
assumed restoration of Federal funding for programs assisting certain legal
aliens; additional expenditures for textbooks, computers, improved education
programs and welfare reform, law enforcement, immigrant naturalization,
initiatives proposed by the City Council and other initiatives; and a proposed
discretionary transfer to the 1998 fiscal year of $300 million of debt service
due in the 1999 fiscal year for budget stabilization purposes. In addition, the
financial plan reflected the discretionary transfer to the 1997 fiscal year of
$1.3 billion of debt service due in the 1998 and 1999 fiscal years, and included
actions to eliminate a previously projected budget gap for the 1998 fiscal year.
These gap-closing actions included (i) additional agency actions totaling $621
million; (ii) the proposed sale of various assets; (iii) additional State aid of
$294 million, including a proposal that the State accelerate a $142 million
revenue sharing payment to the City from March 1999; and (iv) entitlement
savings of $128 million which would result from certain of the reductions in
Medicaid spending proposed in the Governor's 1997-1998 Executive Budget and the
State making available to the City $77 million of additional Federal block grant
aid, as proposed in the Governor's 1997-1998 Executive Budget. The 1998-2001
Financial Plan also set forth projections for the 1999 through 2001 fiscal years
and projected gaps of $1.8 billion, $2.8 billion and $2.6 billion for the 1999
through 2001 fiscal years, respectively.
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide revenues of
$188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million
-25-
<PAGE>
in the 1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected
the increased costs which the City is prepared to incur as a result of welfare
legislation recently enacted by Congress. The 1998-2001 Financial Plan provided
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the
State has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of
its last sixteen fiscal years and is projected to achieve balanced operating
results for the 1997 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998- 2001 Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
-26-
<PAGE>
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general obligation bonds and $5.7 billion of bonds
to be issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993
-27-
<PAGE>
fiscal year. The delay in the adoption of the State's budget in certain past
fiscal years has required the City to issue short-term notes in amounts
exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment 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 State to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 State budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the total indebtedness
of all localities in New York State other than New York City was approximately
$19 billion. A small portion (approximately $102.3 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.
-28-
<PAGE>
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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% 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
are in excess of 5% of the Portfolio's net assets. (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
-29-
<PAGE>
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) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the
-30-
<PAGE>
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
shareholder approval.
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.
-31-
<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 Rating Organization, 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.
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 Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamnetal investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
-32-
<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.
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 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% 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 are in excess of 5% of the
-33-
<PAGE>
Portfolio's net assets. (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
shareholder approval.
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% 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 are in
excess of 5% of the Portfolio's net assets. (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);
-34-
<PAGE>
(2) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
(8) make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular federal income tax and does not
constitute an item of tax preference for purposes of the federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
-35-
<PAGE>
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
shareholder approval.
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 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
-36-
<PAGE>
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.
DIRECTORS AND OFFICERS
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Arnold M. Reichman, 49* Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer, Counsellors
Securities, Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
Robert Sablowsky, 58** Director Senior Vice
110 Wall Street President, Fahnestock
New York, NY 10005 & Co., Inc. (a
registered broker-
dealer); 1985 to
1996, Executive Vice
President of Gruntal
& Co., Inc.,
Director, Gruntal &
Co., Inc. (a
registered broker-
dealer)
Francis J. McKay, 60 Director Since 1963, Executive
7701 Burholme Avenue Vice President, Fox
Philadelphia, PA Chase Cancer Center
19111 (biomedical research
and medical care.)
-37-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
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, 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;
19107-3723 Director, Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
-38-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Donald van Roden, 73 Director Self-employed
1200 Old Mill Lane businessman. From
Wyomissing, PA 19610 February 1980 to
March 1987, Vice
Chairman, SmithKline
Beecham Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto service);
Director, Keystone
Insurance Co.
Edward J. Roach, 73 President and Certified Public
Suite 100 Treasurer Accountant; Vice
Bellevue Park Chairman of the Board
Corporate Center of Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19808 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and Treasurer
of various investment
companies advised by PNC
Institutional Management
Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones, 58 Secretary Chairman, the law
Drinker Biddle & firm of Drinker
Reath LLP Biddle and Reath LLP;
1345 Chestnut Street Director, Rocking
Philadelphia, PA Horse Child Care
19107-3496 Centers of America,
Inc.
-39-
<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 Fahnestock & 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:
-40-
<PAGE>
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------ ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
<FN>
- ----------------------
1 A FUND COMPLEX MEANS TWO OR MORE INVESTMENT COMPANIES THAT HOLD THEMSELVES
OUT TO INVESTORS AS RELATED COMPANIES FOR PURPOSES OF INVESTMENT AND
INVESTOR SERVICES, OR HAVE A COMMON INVESTMENT ADVISER OR HAVE AN
INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE INVESTMENT ADVISER
OF ANY OTHER INVESTMENT COMPANIES.
</FN>
</TABLE>
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 and one other employee)
pursuant to which the Fund will contribute on a quarterly basis amounts equal to
10% of the quarterly compensation of each eligible employee. By virtue of the
services performed by PNC Institutional Management Corporation ("PIMC"), the
Portfolio'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 two part-time employees. Drinker Biddle & Reath LLP,
of which Mr. Jones is a Partner, receives compensation as counsel to the Fund.
No officer, director or employee of PIMC, PNC Bank, PFPC or the Distributor
currently receives any compensation from the Fund.
-41-
<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. Under the sub-advisory agreements, PIMC pays PNC Bank an annual
fee equal to 75% of the investment advisory fees received by PIMC on behalf of
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios. 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
Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $5,366,431 $3,603,130 $469,986
Portfolio
Municipal $ 201,095 $1,269,553 $ 14,921
Money Market
Portfolio
Government
Obligations $1,774,123 $ 647,063 $404,193
Money Market
Portfolio
New York
Municipal $ 21,831 $ 324,917 $ 0
Money Market
Portfolio
-42-
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $4,174,375 $3,522,715 $342,158
Portfolio
Municipal $ 190,687 $1,218,973 $ 17,576
Money Market
Portfolio
Government
Obligations $1,638,622 $ 671,811 $406,954
Money Market
Portfolio
New York
Municipal $ 2,709 $ 268,017 $ 0
Money Market
Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market $2,274,697 $2,589,832 $12,047
Portfolio
Municipal Money $ 67,752 $1,041,321 $11,593
Market Portfolio
Government $ 780,122 $ 398,363 $ 0
Obligations
Money Market
Portfolio
New York $ 187,660 $ 187,660 $12,656
Municipal Money
Market Portfolio
The Gamma Classes of the Fund pay their own distribution fees,
and may pay a different share than other classes of other expenses (excluding
advisory and custodial fees) if those expenses are actually incurred in a
different amount by the Gamma Classes or if they receives different services.
-43-
<PAGE>
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
qualification; (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. The Gamma Classes of the Fund pay their own distribution
fees, and may pay a different share than other classes of the Funds of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Gamma Classes or if they receive different
services.
Under the Advisory Agreements, 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
Agreements, except a loss
-44-
<PAGE>
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 Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
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 Agreement 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 Agreement 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 Agreements may also be terminated by PIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements 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
-45-
<PAGE>
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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money $448,548 $0 $0
Market Portfolio
New York Municipal 99,071 $0 $0
Money Market
Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money $428,209 $ 0 $0
Market
New York Municipal $ 67,204 $10,146 $0
Money Market
Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Municipal Money $321,790 $ 6,233 $0
Market Portfolio
New York Municipal $ 8,960 $44,657 $0
Money Market
Portfolio
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement
-46-
<PAGE>
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 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, 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.
-47-
<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 entered into
by the Distributor and the Fund on behalf of each of the Gamma Classes,
(collectively, the "Distribution Agreements") 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 appropriate efforts to distribute shares of each of the
Gamma Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, 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 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").
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 Gamma Class under the Plan shall not be materially increased
-48-
<PAGE>
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 12b-1 Directors 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, had an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months 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
-49-
<PAGE>
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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolios held the following securities:
-50-
<PAGE>
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Portfolio Bear Stearns Companies, $105,000,000
Inc. Commercial Paper
Money Market Portfolio Bear Stearns Companies, $ 20,000,000
Inc. Corporate Obligation
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 class 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
adding the value of the proportionate interest of each class in a Portfolio's
cash, securities and other assets, subtracting actual and accrued liabilities of
the class and dividing the result by the number of outstanding shares of the
class. The net asset value of each class will be determined independently of
each other class of the Fund. 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
-51-
<PAGE>
twice each day, as of 12:00 noon (Eastern Time) and as of the close of the NYSE
(generally 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 weekends and
on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and the preceding Friday and subsequent Monday when one of these
holidays falls on a Saturday or Sunday. The FRB is currently closed on weekends
and the same holidays as the NYSE as well as 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 13 months, will
limit portfolio investments, including repurchase agreements (where permitted),
to those
-52-
<PAGE>
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 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
-53-
<PAGE>
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 MONEY FUND
REPORT(R), 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
-54-
<PAGE>
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").
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
-55-
<PAGE>
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)
-56-
<PAGE>
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
-57-
<PAGE>
be taxable to Portfolio shareholders as mid-term or other long-term capital
gain, 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.
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 earnings
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
-58-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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
-59-
<PAGE>
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
Numeric Investors Micro Cap),50 million shares are classified as Class GG Common
Stock (n/i Numeric Investors Growth), 50 million shares are classified as Class
HH Common Stock (n/i Numeric Investors 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) 100 million shares are classified as Class
TT Common Stock (Boston Partners Investor Mid Cap), 100 million shares are
classified as Class UU Common Stock (Boston Partners Institutional Mid Cap), 100
million shares are classified as Class VV Common Stock (Boston Partners
Institutional Bond), 100 million shares are classified as Class WW Common Stock
(Boston Partners Investor Bond), 50 million shares are classified as Class XX
Common Stock (n/i Numeric Investors Larger Cap Value), 700 million shares are
classified as Class Janney Money Market Common Stock (Money), 200 million shares
are classified as Class Janney Municipal Money Market Common Stock (Municipal
Money), 500 million shares are classified as Class Janney Government Obligations
Money Market Common Stock (U.S. Government Money), 100 million shares are
classified as Class Janney 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
-60-
<PAGE>
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 Money Market Common
Stock, Class Janney Municipal Money Market Common Stock, Class Janney Government
Obligations Money Market Common Stock and Class Janney New York Municipal Money
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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Funds, the n/i
Numeric Investors 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 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 n/i Numeric Investors Family represents interests in four
non-money market portfolios; the Boston Partners Family represents interests in
three non-money 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
-61-
<PAGE>
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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
-62-
<PAGE>
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
-63-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
-64-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
-65-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
-66-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
-67-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
-68-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
-69-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
-70-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
-71-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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
-72-
<PAGE>
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 underwriting securities, but such
banking laws and regulations do not prohibit such a holding company or affiliate
or banks generally from acting as investment adviser, administrator, 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 customers. PIMC, PNC Bank and
other institutions that are banks or bank affiliates are subject to such banking
laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
-73-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
A-1
<PAGE>
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
PROSPECTUS
THE ETA FAMILY
MONEY MARKET PORTFOLIO
- ----------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- ----------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- ----------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 1, 1997
<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................................................................ 4
FINANCIAL HIGHLIGHTS........................................................ 8
INVESTMENT OBJECTIVES AND POLICIES.......................................... 8
PURCHASE AND REDEMPTION OF SHARES........................................... 25
NET ASSET VALUE............................................................. 32
MANAGEMENT.................................................................. 32
DISTRIBUTION OF SHARES...................................................... 35
DIVIDENDS AND DISTRIBUTIONS................................................. 36
TAXES....................................................................... 36
DESCRIPTION OF SHARES....................................................... 39
OTHER INFORMATION........................................................... 40
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
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
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. The shares of the 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 (together, 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
<PAGE>
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.
The New York Municipal Money Market Portfolio may invest a
significant percentage of its assets in a single issuer, and therefore
investment in this Portfolio may be riskier than an investment in other types of
money market funds.
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. 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.
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."
PNC Institutional Management Corporation ("PIMC") serves as
investment adviser for the Portfolios, 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
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 1, 1997, 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. The Prospectus and
Statement of Additional Information are also available for a reference, along
with other related materials, on the Internet Web Site (http://www.sec.gov).
-2-
<PAGE>
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 1, 1997
-3-
<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 twenty-two 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 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.
-4-
<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 Portfolios' 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. 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."
-5-
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (ETA CLASSES)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating
expenses of the Eta Classes based on expenses expected to be incurred for the
current fiscal period, as a percentage of average daily net assets. An example
based on the summary is also shown.
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
Management Fees (after
waivers)(1)............ .22% .04% .30% .02%
12b-1 Fees .............. .53 .56 .56 .52
Other Expenses .......... .22 .25 .115 .28
--- --- ---- ---
Total Fund Operating
Expenses (after
waivers)(1)............ .97% .85% .975% .80%
=== === ==== ===
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before 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%, .41% and .35%,
respectively, and Total Fund Operating Expenses would be 1.12%, 1.14%,
1.09% and 1.13%, 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:
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
Money Market*...................... $10 $31 $54 $119
Municipal Money Market*............ $9 $27 $47 $105
Government Obligations
Money Market*.................... $10 $31 $54 $120
New York Municipal
Money Market*.................... $8 $25 $44 $99
* 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)" 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. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
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-Adviser" and "Distribution of Shares" below.) Expense figures are based
-6-
<PAGE>
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 figures 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."
-7-
<PAGE>
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. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved.
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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less liquidity. 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 ("Rating Organization").
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
-8-
<PAGE>
comparable quality by the Portfolio's investment adviser in accordance with
guidelines approved by the Fund's Board of Directors.
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 13 months, depending upon the note
involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, provided the repurchase agreement itself matures in less
than 13 months. 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.
-9-
<PAGE>
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 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. A reverse
repurchase agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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
-10-
<PAGE>
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 (2)
highest rating categories by one or more Rating Organizations (e.g., commercial
paper rated "A-1" or "A-2" by Standard & Poor's Rating Services ("S&P")), (3)
securities that are rated at the time of purchase by the only Rating
Organization 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 a Rating Organization
("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.
-11-
<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, time deposits with maturities
in excess of seven days, and 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, GICs, 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
shareholder approval. 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 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 are in excess of 5% of
the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the
Portfolio's
-12-
<PAGE>
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 Rating Organization, are rated (at the
time of purchase) by two or more Rating Organizations in the highest
rating category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization 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
-13-
<PAGE>
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"). There is
no assurance that the investment objective of the Municipal Money Market
Portfolio will be achieved.
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
-14-
<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.
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, 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 shareholder approval. 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:
-16-
<PAGE>
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 total
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 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (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 more
than 25% of the value of the total assets of the Portfolio to be
invested in the obligations at the time of purchase 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
-17-
<PAGE>
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.
Due to fluctuations in interest rates, the market value of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities may vary. Certain government securities held by the Portfolio
may have remaining maturities exceeding 13 months if such securities provide for
adjustments in their interest rates not less frequently than every 13 months and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values. There is no assurance that
the investment objective of the Government Obligations Money Market Portfolio
will be achieved.
-18-
<PAGE>
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-related securities
consist of mortgage loans which are 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.
The Portfolio may also acquire asset-backed securities as
described under "Investment Objectives and Policies -- Money Market
Portfolio--Asset-Backed Securities."
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.
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 shareholder approval. The following investment limitations may
not be changed, however,
-19-
<PAGE>
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 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 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 are in excess of 5% of the Portfolio's net
assets. (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. 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.
-20-
<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 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
-21-
<PAGE>
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
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 Investor Service, Inc. ("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.
-22-
<PAGE>
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 than a
diversified portfolio. 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.
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 S&P and 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 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
-23-
<PAGE>
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.
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 shareholder approval. 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 are in excess of 5% of
the Portfolio's net assets. (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.
-24-
<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.
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 5-6 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 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.
-25-
<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 good order 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. 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. On any Business
Day, orders which are accompanied by Federal Funds and received by PFPC 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 the close of regular trading on
the NYSE (generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE 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 the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
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 investment Account requirements. Even if
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, and 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 and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability
to purchase Eta Shares under an automatic purchase
-26-
<PAGE>
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 available in Federal Funds
to the Fund's custodian prior to the close of regular trading on the NYSE, 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
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Eta Family" 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. An investor's bank or
Dealer may impose a charge for this service. The Fund does not currently charge
for effecting wire transfers but reserves the right to do so in the future. 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:
-27-
<PAGE>
A. Telephone the Fund's transfer agent, PFPC,
toll-free (800) 447-1139 (in Delaware call collect (302) 791-1149), and
provide your name, address, telephone number, Social Security or Tax
Identification Number, the Eta Class selected, the amount being wired,
and by which bank or Dealer. PFPC will then provide an investor with a
Fund account number. (Investors with existing accounts should also
notify PFPC 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 initial
purchases 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 in an Account 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
-28-
<PAGE>
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 the close of regular
trading on the NYSE on a Business Day, the redemption will be effective as of
the close of regular trading on the NYSE 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 may 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 Eta 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 may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone
if they have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone 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 redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures
-29-
<PAGE>
below or for following instructions communicated by telephone that they
reasonably believe 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 Portfolio, 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, financial
institutions, securities dealers, financial planners, trustee, custodian other
than the Distributor 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.
Proceeds of a telephone redemption request 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 the close of
regular trading on the NYSE will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. 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, although no
fee is currently contemplated.
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 may establish a higher minimum. An investor wishing
to use this check writing redemption procedure
-30-
<PAGE>
should complete specimen signature cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may
not be presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
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
notice 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 class 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 the close of regular
trading on the
-31-
<PAGE>
NYSE 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, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the value of the proportionate interest of each
class in the securities, cash, and other assets of the Portfolio, subtracting
the accrued and actual liabilities of the class and dividing the result by the
number of its shares outstanding of the class. The net asset value per share of
each class is determined independently of any of the Fund's other classes.
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 twenty-two separate investment
portfolios. Each of the Eta Classes represents interests in one of the following
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
-32-
<PAGE>
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 $38.7 billion of assets, of which approximately $35.2 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-adviser. Such sub-advisory fees have no
-33-
<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.
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. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
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."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a
wholly-owned subsidiary of Warburg Pincus Asset Management, Inc. with a
principal business address at 466 Lexington Avenue, New York, New York, acts as
distributor of the Shares of each of the Theta Classes of the Fund pursuant to a
distribution agreement and various supplements thereto (collectively, the
"Distribution Agreements") with the Fund on behalf of each of the Theta Classes.
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, fees paid to the investment adviser and administrator's fees
and 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 the 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, the expense of reports to shareholders, shareholders'
meetings and proxy solicitations, 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
-34-
<PAGE>
be allocated among all investment portfolios of the Fund based upon the relative
net assets of the investment portfolios. 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 may assume 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
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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 Agreements 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 Agreements and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including 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 Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or Dealers pay for the cost of printing
(excluding typesetting) and mailing to prospective investors prospectuses and
other materials
-35-
<PAGE>
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 Agreement. Payments under the
plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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 the close
of regular trading on the NYSE. 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, it 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.
-36-
<PAGE>
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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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.
-37-
<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
-38-
<PAGE>
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 13.93 billion shares are
currently classified into 82 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 Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE ETA CLASSES OF
THESE PORTFOLIOS.
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.
-39-
<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 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 15, 1997, 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) 533-7719 (in Delaware call
collect (302) 791-1196).
-40-
<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 1, 1997, (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 1, 1997.
CONTENTS
Prospectus
PAGE PAGE
---- ----------
General........................................... 3 4
Investment Objectives and Policies................ 3 8
Directors and Officers............................ 36 N/A
Investment Advisory, Distribution and
Servicing Arrangements.......................... 41 32, 35
Portfolio Transactions............................ 47 N/A
Purchase and Redemption Information............... 49 25
Valuation of Shares............................... 50 31
Performance Information........................... 51 N/A
Taxes............................................. 53 36
Additional Information Concerning Fund
Shares.......................................... 57 39
Miscellaneous..................................... 61 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
<PAGE>
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.
-2-
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management
investment company currently operating or proposing to operate twenty-two
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 1,
1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
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
-3-
<PAGE>
demand instrument has a remaining maturity of 13 months 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.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios has
such commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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,
-4-
<PAGE>
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 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
-5-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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
-6-
<PAGE>
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.
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 13 months, 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.
-7-
<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, the 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, as
amended. 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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks 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, if such banks and non-bank dealers are deemed
creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to equal at
least the repurchase price (including accrued interest). In addition, the
Portfolio's adviser or sub-adviser will require that the value of this
collateral, after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to or greater than the repurchase
price (including accrued premium) provided in the repurchase agreement or the
daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The
-8-
<PAGE>
Portfolio's adviser or sub-adviser will mark-to-market daily the value of the
securities. 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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed
-9-
<PAGE>
by private originators of, or investors in, mortgage loans. In general, CMOs are
debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
(the "Mortgage Assets"), the payments on which are used to make payments on the
CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMO. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
-10-
<PAGE>
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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 portfolios 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 ("Rating Organizations")
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 Rating Organization 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 13 months 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 a Rating Organization ("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 13 months 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
-11-
<PAGE>
Money Market Portfolios of securities that are rated by only one Rating
Organization 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 that 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.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
-12-
<PAGE>
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,
among others, 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 Fund's investments in New York Municipal Obligations are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have 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 very
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 a large portion of 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 position.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of
-13-
<PAGE>
1981 and remained lower until 1991; since then, it has been higher than the
national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all monies 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 an explanation of any changes from the previous state
financial plan.
The State's budget for the 1997-98 fiscal year was adopted by
the Legislature on August 4, 1997, more than four 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 necessary appropriations for State- supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General
Fund disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The
General Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced
on a cash basis. The Financial Plan projections include a reserve for future
needs of $530 million. As compared to the Governor's Executive Budget as amended
in February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local
-14-
<PAGE>
assistance ($1.3 billion). Resources used to fund these additional expenditures
include increased revenues projected for the 1997-98 fiscal year, increased
resources produced in the 1996-97 fiscal year that will be utilized in 1997-98,
re- estimates of social service, fringe benefit and other spending, and certain
non-recurring resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessments reductions have little or no impact on the 1997-98 State Financial
Plan, and do not begin to materially affect the outyear projections until the
State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the federal government,
that are not under the control of the State. In addition, the financial plan is
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. Actual results, however, could differ
materially and adversely from the projections set forth in the 1997-98 State
Financial Plan, and those projections may be changed materially and adversely
from time to time.
In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the Division of Budget believes it could take similar actions should
variances occur in its projections for the current fiscal year.
-15-
<PAGE>
In recent years, State actions affecting the level of receipts
and disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors have created structural
budget gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution, the Governor is required to propose a balanced budget each
year. There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000- 2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2001 State fiscal year
could grow to nearly $12 billion.
RECENT FINANCIAL RESULTS. The General Fund is the principal
operating fund of the State and is used to account for
-16-
<PAGE>
all financial transactions, except those required to be accounted for in another
fund. It is the State's largest fund and receives almost all State taxes and
other resources not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in
the 1997-98 fiscal year are projected to be $35.09 billion, an increase of over
$2 billion or approximately 6% from the $33.04 billion recorded in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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 general obligation 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 general obligation 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 from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general obligation and 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 and 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 equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these
-17-
<PAGE>
financing arrangements involve a contractual agreement by the State to make
payments to a public authority, municipality or other entity, the State's
obligation to make such 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation empowered LGAC to issue its bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of these long-term obligations,
which were 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 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
the need for additional borrowing and provided a schedule for reducing it to the
cap. If borrowing above the cap was thus permitted in any fiscal year, it was
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.
-18-
<PAGE>
On January 13, 1992, Standard & Poor's Ratings Services
("S&P") 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. See Appendix "A" for an
explanation of bond ratings. On August 28, 1997, S&P revised its ratings on the
State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. 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 the 1997-98
fiscal year. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding bond anticipation
notes) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of State borrowings for the 1997-98 fiscal year is subject to change as market
conditions, interest rates and other factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved
two new authorizations for lease-purchase and contractual obligation financings.
An aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.
Principal and interest payments on general obligation bonds
and interest payments on bond anticipation notes were $749.6 million for the
1996-97 fiscal year, and are estimated to be $720.9 million for the 1997-98
fiscal year. Principal and interest payments on fixed rate and variable rate
bonds issued by LGAC were $329.5 million for the 1996-97 fiscal year, and are
estimated to be $329.6 million for the 1997-98 fiscal year. State lease-purchase
and contractual-obligation payments were
-19-
<PAGE>
$1.74 billion in fiscal year 1996-97, and are estimated to be $2.21 billion in
fiscal year 1997-98.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
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 and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including 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 to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking reimbursement from the State for certain costs
arising out of the provision of pre-school services and programs for disabled
children; (11) an action seeking enforcement of certain sales and excise taxes
and tobacco products and motor fuel sold to non- Indian consumers on Indian
reservations; and (12) a challenge to the constitutionality of Clean Water/Clean
Air Bond Act.
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 developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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
-20-
<PAGE>
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 was required to make aggregate payments
of $351.4 million. 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. Litigation
challenging the constitutionality of the treatment of certain monies held in a
reserve fund was settled in June 1996 and certain amounts in a Supplemental
Reserve Fund previously credited by the State against prior State and local
pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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.
AUTHORITIES. The fiscal stability of New York State is
related, in part, 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
-21-
<PAGE>
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by
the projects they finance or operate, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent years,
however, New York State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the
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 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 may also be impacted by 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable GAAP. The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results.
There can be no assurance that the City will continue to maintain a balanced
budget as required by State law without
-22-
<PAGE>
additional tax or other revenue increases or additional reductions in City
services or entitlement programs, which could adversely affect the City's
economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing the City's chronic structural budget problems and weak
economic outlook. S&P 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 created the Municipal Assistance Corporation
("MAC") in 1975. Since its creation, MAC has provided, among other things,
financing assistance to the City by refunding maturing City short-term debt and
transferring to the City funds received from sales of MAC bonds and notes. 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, subject to certain prior claims, 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. 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
-23-
<PAGE>
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year 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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and the City
University of New York and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The financial plan included increased tax
revenue projections; reduced debt service costs; the assumed restoration of
Federal funding for programs assisting certain legal aliens; additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization, initiatives proposed by the
City Council and other initiatives; and a proposed discretionary transfer to the
1998 fiscal year of $300 million of debt service due in the 1999 fiscal year for
budget
-24-
<PAGE>
stabilization purposes. In addition, the financial plan reflected the
discretionary transfer to the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years, and included actions to eliminate a
previously projected budget gap for the 1998 fiscal year. These gap-closing
actions included (i) additional agency actions totaling $621 million; (ii) the
proposed sale of various assets; (iii) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City from March 1999; and (iv) entitlement savings of $128
million which would result from certain of the reductions in Medicaid spending
proposed in the Governor's 1997-1998 Executive Budget and the State making
available to the City $77 million of additional Federal block grant aid, as
proposed in the Governor's 1997-1998 Executive Budget. The 1998-2001 Financial
Plan also set forth projections for the 1999 through 2001 fiscal years and
projected gaps of $1.8 billion, $2.8 billion and $2.6 billion for the 1999
through 2001 fiscal years, respectively.
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide revenues of
$188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive
-25-
<PAGE>
Budget. The 1998-2001 Financial Plan reflected the increased costs which the
City is prepared to incur as a result of welfare legislation recently enacted by
Congress. The 1998-2001 Financial Plan provided no additional wage increases for
City employees after their contracts expire in fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the
State has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of
its last sixteen fiscal years and is projected to achieve balanced operating
results for the 1997 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998- 2001 Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general
-26-
<PAGE>
obligation bonds and $5.7 billion of bonds to be issued by the proposed New York
City Transitional Finance Authority (the "Finance Authority") to finance City
capital projects. The Finance Authority was created as part of the City's effort
to assist in keeping the City's indebtedness within the forecast level of the
constitutional restrictions on the amount of debt the City is authorized to
incur. Despite this additional financing mechanism, the City currently projects
that, if no further action is taken, it will reach its debt limit in City fiscal
year 1999-2000. Indebtedness subject to the constitutional debt limit includes
liability on capital contracts that are expected to be funded with general
obligation bonds, as well as general obligation bonds. On June 2, 1997, an
action was commenced seeking a declaratory judgment declaring the legislation
establishing the Transitional Finance Authority to be unconstitutional. If such
legislation were voided, projected contracts for the City capital projects would
exceed the City's debt limit during fiscal year 1997-98. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several
-27-
<PAGE>
State fiscal years. The potential impact on the State of any future requests by
localities for additional assistance is not included in the State's projections
of its receipts and disbursements for the 1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment 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 State to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 State budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the total indebtedness
of all localities in New York State other than New York City was approximately
$19 billion. A small portion (approximately $102.3 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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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
-28-
<PAGE>
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% 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
are in excess of 5% of the Portfolio's net assets. (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;
-29-
<PAGE>
(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)
-30-
<PAGE>
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
shareholder approval.
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
-31-
<PAGE>
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 Rating Organization (as defined in the
Prospectus), are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii)
if rated by only one Rating Organization, are rated by such Rating
Organization 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.
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 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
-32-
<PAGE>
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% 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 are in excess of 5% of the Portfolio's net assets. (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
-33-
<PAGE>
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
shareholder approval.
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% 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 are in
excess of 5% of the Portfolio's net assets. (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;
-34-
<PAGE>
(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
shareholder approval.
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.
-35-
<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 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.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
-36-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
*Arnold M. Reichman -49 Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer of Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); Prior to
October 1996,
Executive Vice
President of Gruntal &
Co., Inc. (a
registered broker-
dealer).
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).
-37-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
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, 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 since 1969
16th Floor Comcast Corporation
Philadelphia, PA 19107-3723 (cable television and
communications);
Director Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden -73 Director Self-employed
1200 Old Mill Lane and businessman. From
Wyomissing, PA 19610 Chairman February 1980 to March
of the 1987, Vice Chairman,
Board SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto service);
Director, Keystone
Insurance Co.
-38-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice
Bellevue Park Treasurer Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and Treasurer
of various investment
companies advised by PNC
Institutional Management
Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones -58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker Biddle
1345 Chestnut Street & Reath LLP; Director,
Philadelphia, PA 19107-3496 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 positions 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 Fahnestock Co.,
Inc., a registered 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.
-39-
<PAGE>
The Nominating Committee recommends to the Board 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 the Distributer and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM
AGGREGATE BENEFITS ANNUAL REGISTRANT AND
COMPENSATION ACCRUED AS BENEFITS FUND COMPLEX1
FROM PART OF FUND UPON PAID
NAME OF PERSON/ POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- ------------------------ ---------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
- ----------------------
<FN>
1 A FUND COMPLEX MEANS TWO OR MORE INVESTMENT COMPANIES THAT HOLD
THEMSELVES OUT TO INVESTORS AS RELATED COMPANIES FOR PURPOSES OF
INVESTMENT AND INVESTOR SERVICES, OR HAVE A COMMON INVESTMENT ADVISER
OR HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE
INVESTMENT ADVISER OF ANY OTHER INVESTMENT COMPANIES.
</FN>
</TABLE>
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 and one other
employee), pursuant to which the Fund will contribute on a quarterly basis
amounts equal
-40-
<PAGE>
to 10% of the quarterly compensation of each eligible employee. By virtue of the
services performed by PNC Institutional Management Corporation ("PIMC"), the
Portfolios' 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 two part-time employees. Drinker Biddle & Reath LLP,
of which Mr. Jones is a partner, receives legal fees as counsel to the Fund. 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. Under the sub-advisory agreements, PIMC pays PNC Bank an annual
fee equal to 75% of the investment advisory fees incurred by PIMC on behalf of
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios. 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
Agreements."
-41-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market Portfolio $5,366,431 $3,603,130 $469,986
Municipal Money Market $201,095 $1,269,553 $14,921
Portfolio
Government Obligations
Money Market Portfolio $1,774,123 $647,063 $404,193
New York Municipal
Money Market Portfolio $21,831 $324,917 ----
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market Portfolio $4,174,375 $3,522,715 $342,158
Municipal Money Market $190,687 $1,218,973 $17,576
Portfolio
Government Obligations
Money Market Portfolio $1,638,622 $671,811 $406,954
New York Municipal
Money Market Portfolio $2,709 $268,017 $0
</TABLE>
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market Portfolio $2,274,697 $2,589,832 $12,047
Municipal Money Market $67,752 $1,041,321 $11,593
Portfolio
Government Obligations $780,122 $398,363 $0
Money Market Portfolio
New York Municipal $187,660 $187,660 $12,656
Money Market Portfolio
</TABLE>
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
-42-
<PAGE>
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) 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; (d) any extraordinary
expenses; (e) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; and (f) the cost
of investment company literature and other publications provided by the Fund to
its directors and officers. The Eta Classes of the Fund pay their own
distribution fees, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Eta classes or if they receive different
services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements 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 Agreement 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 Agreement 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 Agreements may also be terminated by PIMC or PNC Bank,
-43-
<PAGE>
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements 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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
Portfolio
New York Municipal $99,071 $0 $0
Money Market Portfolio
</TABLE>
-44-
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
New York Municipal $67,204 $10,146 $0
Money Market Portfolio
</TABLE>
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $321,790 $6,233 $0
Portfolio
New York Municipal $8,960 $44,657 $0
Money Market Portfolio
</TABLE>
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.
-45-
<PAGE>
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 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 agreement, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of each of the Eta Classes,
(collectively, the "Distribution Agreements"), 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 appropriate efforts to distribute shares of
each of the Eta Classes. As compensation for its distribution services, the
Distributor receives, pursuant to the terms of the Distribution Agreements, a
-46-
<PAGE>
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 were approved 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").
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 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 12b-1 Directors 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, had an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13
-47-
<PAGE>
months 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 13
months or less. Because all Portfolios intend to purchase only securities with
remaining maturities of 13 months 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
-48-
<PAGE>
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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolios held the following securities:
PORTFOLIO SECURITY VALUE
--------- -------- -----
Money Market Portfolio Bear Stearns Companies, Inc. $105,000,000
Commercial Paper
Money Market Portfolio Bear Stearns Companies, Inc. $ 20,000,000
Corporate Obligation
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
-49-
<PAGE>
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 class 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
adding the value of the proportionate interest of each class in a Portfolio's
cash, securities and other assets, subtracting actual and accrued liabilities of
the class and dividing the result by the number of outstanding shares of the
class. The net asset value of each class is calculated independently of the net
asset value of each of the other classes of the Fund. 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 the close of the NYSE (generally 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 weekends and on New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as 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
-50-
<PAGE>
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 13 months, 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
-51-
<PAGE>
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
-52-
<PAGE>
Fund Average, which is an average compiled by IBC/MONEY FUND REPORT(R), 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
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").
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to
-53-
<PAGE>
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
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
-54-
<PAGE>
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
-55-
<PAGE>
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 mid-term or other long-term capital gain, 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.
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 earnings
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
-56-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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
-57-
<PAGE>
(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 Numeric Investors Micro
Cap),50 million shares are classified as Class GG Common Stock (n/i Numeric
Investors Growth), 50 million shares are classified as Class HH Common Stock
(n/i Numeric Investors 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) 100 million shares are classified as Class TT Common Stock
(Boston Partners Investor Mid Cap), 100 million shares are classified as Class
UU Common Stock (Boston Partners Institutional Mid Cap), 100 million shares are
-58-
<PAGE>
classified as Class VV Common Stock (Boston Partners Institutional Bond), 100
million shares are classified as Class WW Common Stock (Boston Partners Investor
Bond), 50 million shares are classified as Class XX Common Stock (n/i Numeric
Investors Larger Cap Value), 700 million shares are classified as Class Janney
Money Market Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Market Common Stock (Municipal Money), 500 million shares
are classified as Class Janney Government Obligations Money Market Common Stock
(U.S. Government Money), 100 million shares are classified as Class Janney 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 Money Market Common Stock, Class Janney Municipal Money Market
Common Stock, Class Janney Government Obligations Money Market Common Stock and
Class Janney New York Municipal Money 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.
-59-
<PAGE>
The classes of Common Stock have been grouped into fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Funds, the n/i
Numeric Investors 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 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 n/i Numeric Investors Family represents interests in four
non-money market portfolios; the Boston Partners Family represents interests in
three non-money 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 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
-60-
<PAGE>
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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, PA 19107-3496, serves as counsel to the Fund and
the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand, L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
-61-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
-62-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
-63-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
-64-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
-65-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
-66-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
-67-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
-68-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
-69-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
-70-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same 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; and as of the same date, directors and officers as a group
owned less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered
-71-
<PAGE>
bank holding company may perform services comparable to those that are to be
performed by these companies, and future changes in either federal or state
statutes and regulations relating to permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
-72-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high
A-1
<PAGE>
internal cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
PROSPECTUS
THE EPSILON FAMILY
MONEY MARKET PORTFOLIO
- ----------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- ----------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- ----------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 1, 1997
<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.......................................... 24
NET ASSET VALUE............................................................ 30
MANAGEMENT................................................................. 31
DISTRIBUTION OF SHARES..................................................... 33
DIVIDENDS AND DISTRIBUTIONS................................................ 34
TAXES...................................................................... 35
DESCRIPTION OF SHARES...................................................... 37
OTHER INFORMATION.......................................................... 39
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
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
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. The shares of the 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 (together, 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
<PAGE>
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.
The New York Municipal Money Market Portfolio may invest a
significant percentage of its assets in a single issuer, and therefore
investment in this Portfolio may be riskier than an investment in other types of
money market funds.
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. 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.
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."
PNC Institutional Management Corporation ("PIMC") serves as
investment adviser for the Portfolios, 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
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 1, 1997, 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. The Prospectus and
Statement of Additional Information are also available for reference, along with
other related materials, on the Internet Web Site (http://www.sec.gov).
<PAGE>
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 1, 1997
<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 twenty-two 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 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 Portfolios' 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. 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."
-3-
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (EPSILON CLASSES)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating
expenses of the Epsilon Classes based on expenses expected to be incurred for
the current fiscal period, as a percentage of average daily net assets. An
example based on the summary is also shown.
<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)..................... .22% .04% .30% .02%
12b-1 Fees ..................... .53 .56 .56 .52
Other Expenses.................. .22 .25 .115 .28
---- ---- ----- ---
Total Fund Operating
Expenses (after waivers)(1).... .97% .85% .975% .80%
==== ==== ===== ====
<FN>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before 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%, .41% and .35%,
respectively, and Total Fund Operating Expenses would be 1.12%, 1.14%,
1.09% and 1.13%, 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 $54 $119
Municipal Money
Market*...................... $ 9 $27 $47 $105
Government Obligations
Money Market*................ $10 $31 $54 $120
New York Municipal
Money Market*................ $ 8 $25 $44 $ 99
* 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)" 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. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
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-Adviser" and "Distribution of Shares" below.) 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 figures 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. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved.
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
-6-
<PAGE>
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 in addition to
those of domestic issuers, including higher transaction costs, less complete
financial information, less stringent regulatory requirements and less
liquidity. 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 ("Rating Organization").
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 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 13 months, 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.
-7-
<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 13 months, provided the repurchase agreement itself matures in less
than 13 months. 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 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. A reverse
repurchase agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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").
-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.
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
-9-
<PAGE>
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 Rating
Organizations (e.g., commercial paper rated "A-1" or "A-2" by Standard & Poor's
Rating Services ("S&P")), (3) securities that are rated at the time of purchase
by the only Rating Organization 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 a
Rating Organization ("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, and 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, GICs, 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
shareholder approval. 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 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
-10-
<PAGE>
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 are in excess of 5% of
the Portfolio's net assets. (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
-11-
<PAGE>
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 Rating Organization, are
rated (at the time of purchase) by two or more Rating Organizations in
the highest rating category for such securities, (ii) if rated by only
one Rating Organization, are rated by such Rating Organization 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 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"). There is
no assurance that the investment objective of the Municipal Money Market
Portfolio will be achieved.
-12-
<PAGE>
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
-13-
<PAGE>
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, 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 "Invest-
-14-
<PAGE>
ment 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 shareholder approval. 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 total
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 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (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 more
than 25% of the value of the total assets of the Portfolio to be
invested in the obligations at the time of purchase 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
-15-
<PAGE>
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
-16-
<PAGE>
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.
Due to fluctuations in interest rates, the market value of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities may vary. Certain government securities held by the Portfolio
may have remaining maturities exceeding 13 months if such securities provide for
adjustments in their interest rates not less frequently than every 13 months and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values. There is no assurance that
the investment objective of the Government Obligations Money Market Portfolio
will be achieved.
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-related securities
consist of mortgage loans which are 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.
The Portfolio may also acquire asset-backed securities as
described under "Investment Objectives and Policies -- Money Market Portfolio --
Asset-Backed Securities."
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
-17-
<PAGE>
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.
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 shareholder approval. The following investment limitations may
not be changed, however, 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 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 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 are in excess of 5% of the Portfolio's net
assets. (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. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its
-18-
<PAGE>
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 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."
-19-
<PAGE>
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. The Portfolio may invest a significant percentage of its assets
in a single issuer, and therefore investment in this Portfolio may be riskier
than an investment in other types of money market funds.
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 Investor Service, Inc. ("Moody's") or S&P; commercial paper
rated in the highest grade by Moody's or S&P; and certificates of deposit
-20-
<PAGE>
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 than a
diversified portfolio. 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.
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 S&P and 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
-21-
<PAGE>
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 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.
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 shareholder approval. 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 are in excess of 5% of
the Portfolio's net assets. (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
-22-
<PAGE>
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, 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.
-23-
<PAGE>
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 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 good order 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. 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. On any Business
Day, orders which are accompanied by Federal Funds and received by PFPC 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 the close of regular trading on
the NYSE (generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE 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 the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
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 investment Account requirements.
Even if a broker does not impose a sales charge
-24-
<PAGE>
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, and 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 and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
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 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 available in Federal
Funds to the Fund's custodian prior to the close of regular trading of the NYSE,
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" 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
-25-
<PAGE>
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. An investor's bank
or Dealer may impose a charge for this service. The Fund does not currently
charge for effecting wire transfers but reserves the right to do so in the
future. 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 your name, address, telephone number, Social Security or Tax
Identification Number, the Epsilon Class selected, the amount being
wired, and by which bank or Dealer. PFPC will then provide an investor
with a Fund account number. (Investors with existing accounts should
also notify PFPC 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 initial
purchases 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.
-26-
<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 Epsilon Shares in an Account 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 made on the next bank business day. If the redemption
request is received between 12:00 noon and the close of regular trading on the
NYSE on a Business Day, the redemption will be effective as of the close of
regular trading on the NYSE 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 may 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. 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 may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer
-27-
<PAGE>
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone
if they have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone 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 redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe 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 Portfolio, 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,
financial institutions, securities dealers, financial planners, trustee,
custodian other than the Distributor 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.
Proceeds of a telephone redemption request 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 the close of
regular trading on the NYSE will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. The minimum
redemption for proceeds sent by
-28-
<PAGE>
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, although no fee is currently contemplated.
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 may establish a higher minimum. An investor wishing
to use this check writing redemption procedure should complete specimen
signature cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may
not be presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
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
notice period the amount
-29-
<PAGE>
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 class 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 the close of regular
trading on the NYSE 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, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays on which the NYSE is closed as well as Veterans' Day and Columbus Day.
The net asset value per share of each class is calculated by adding the value of
the proportionate interest of each class in the securities, cash, and other
assets of the Portfolio, subtracting the accrued and actual liabilities of the
class and dividing the result by the number of its shares outstanding of the
class. The net asset value per share of each class is determined independently
of any of the Fund's other classes.
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.
-30-
<PAGE>
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 twenty-two 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.
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 $38.7
billion of assets, of which approximately $35.2 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
-31-
<PAGE>
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.
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. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
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
-32-
<PAGE>
Additional Information under "Investment Advisory, Distribution and Servicing
Arrangements."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a
wholly-owned subsidiary of Warburg Pincus Asset Management, Inc. with a
principal business 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
a distribution agreement and various supplements thereto (collectively, the
"Distribution Agreements") with the Fund on behalf of each of the Epsilon
Classes.
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, fees paid to the investment adviser and administrator's fees
and 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 the 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, the expense of reports to shareholders, shareholders'
meetings and proxy solicitations, 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. 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 may assume 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
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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 Agreements 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
-33-
<PAGE>
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 Agreements and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including 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 Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or 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 Agreement. Payments under the
plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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 the close
of regular trading on the NYSE. Net short-term capital gains, if any, will be
distributed at least annually.
-34-
<PAGE>
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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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
-35-
<PAGE>
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
-36-
<PAGE>
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 13.93 billion shares are
currently classified into 82 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 Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class a
distribution fee based on average daily net assets. A salesperson or any other
person entitled to
-37-
<PAGE>
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 EPSILON CLASSES OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE EPSILON
CLASSES OF THESE PORTFOLIOS.
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 15, 1997, 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.
-38-
<PAGE>
The Fund will issue share certificates for any of the Epsilon
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) 533-7719 (in Delaware call
collect (302) 791-1196).
-39-
<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 1, 1997 (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 1, 1997.
CONTENTS
PROSPECTUS
PAGE PAGE
---- ----------
General............................................ 2 2
Investment Objectives and Policies................. 2 6
Directors and Officers............................. 36 N/A
Investment Advisory, Distribution and
Servicing Arrangements........................... 40
Portfolio Transactions............................. 46 N/A
Purchase and Redemption Information................ 48 29
Valuation of Shares................................ 49 41
Performance Information............................ 50
Taxes.............................................. 51 41
Additional Information Concerning Fund Shares...... 56 --
Miscellaneous...................................... 60 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 twenty-two
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 1,
1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, 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 13 months.
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
-2-
<PAGE>
instrument has a remaining maturity of 13 months 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.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios
have firm commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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,
-3-
<PAGE>
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 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
-4-
<PAGE>
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. 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
-5-
<PAGE>
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.
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 the exceeding 13 months, 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 are 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.
-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, the 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, as
amended. 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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks 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, if such banks and non-bank dealers are deemed
creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to equal at
least the repurchase price (including accrued interest). In addition, the
Portfolio's adviser or sub-adviser will require that the value of this
collateral, after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to or greater than the repurchase
price (including accrued premium) provided in the repurchase agreement or the
daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The
-7-
<PAGE>
Portfolio's adviser or sub-adviser will mark-to-market daily the value of the
securities. 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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed
-8-
<PAGE>
by private originators of, or investors in, mortgage loans. In general, CMOs are
debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
(the "Mortgage Assets"), the payments on which are used to make payments on the
CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMO. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
-9-
<PAGE>
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income 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 ("Ratings Organizations")
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 Ratings Organization 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 13 months 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 Ratings Organization ("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 13 months 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
-10-
<PAGE>
Money Market Portfolios of securities that are rated by only one Ratings
Organization 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 that 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.
The Portfolio may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Portfolios'
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
-11-
<PAGE>
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,
among others, 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 Fund's investments in New York Municipal Obligations are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have 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 very
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 a large portion of 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 position.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of
-12-
<PAGE>
1981 and remained lower until 1991; since then, it has been higher than the
national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all monies 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 an explanation of any changes from the previous state
financial plan.
The State's budget for the 1997-98 fiscal year was adopted by
the Legislature on August 4, 1997, more than four 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 necessary appropriations for State- supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General
Fund disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The
General Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced
on a cash basis. The Financial Plan projections include a reserve for future
needs of $530 million. As compared to the Governor's Executive Budget as amended
in February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local
-13-
<PAGE>
assistance ($1.3 billion). Resources used to fund these additional expenditures
include increased revenues projected for the 1997-98 fiscal year, increased
resources produced in the 1996-97 fiscal year that will be utilized in 1997-98,
re- estimates of social service, fringe benefit and other spending, and certain
non-recurring resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessments reductions have little or no impact on the 1997-98 State Financial
Plan, and do not begin to materially affect the outyear projections until the
State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the federal government,
that are not under the control of the State. In addition, the financial plan is
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. Actual results, however, could differ
materially and adversely from the projections set forth in the 1997-98 State
Financial Plan, and those projections may be changed materially and adversely
from time to time.
In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the Division of Budget believes it could take similar actions should
variances occur in its projections for the current fiscal year.
-14-
<PAGE>
In recent years, State actions affecting the level of receipts
and disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors have created structural
budget gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution, the Governor is required to propose a balanced budget each
year. There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000- 2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2001 State fiscal year
could grow to nearly $12 billion.
RECENT FINANCIAL RESULTS. The General Fund is the principal
operating fund of the State and is used to account for
-15-
<PAGE>
all financial transactions, except those required to be accounted for in another
fund. It is the State's largest fund and receives almost all State taxes and
other resources not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in
the 1997-98 fiscal year are projected to be $35.09 billion, an increase of over
$2 billion or approximately 6% from the $33.04 billion recorded in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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 general obligation 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 general obligation 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 from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general obligation and 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 and 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 equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these
-16-
<PAGE>
financing arrangements involve a contractual agreement by the State to make
payments to a public authority, municipality or other entity, the State's
obligation to make such 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation empowered LGAC to issue its bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of these long-term obligations,
which were 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 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
the need for additional borrowing and provided a schedule for reducing it to the
cap. If borrowing above the cap was thus permitted in any fiscal year, it was
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.
-17-
<PAGE>
On January 13, 1992, Standard & Poor's Ratings Services
("S&P") 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. See Appendix "A" for an
explanation of bond ratings. On August 28, 1997, S&P revised its ratings on the
State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. 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 the 1997-98
fiscal year. The State expects to issue $605 million in general obligation bonds
(including $140 million for purposes of redeeming outstanding bond anticipation
notes) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of State borrowings for the 1997-98 fiscal year is subject to change as market
conditions, interest rates and other factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved
two new authorizations for lease-purchase and contractual obligation financings.
An aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.
Principal and interest payments on general obligation bonds
and interest payments on bond anticipation notes were $749.6 million for the
1996-97 fiscal year, and are estimated to be $720.9 million for the 1997-98
fiscal year. Principal and interest payments on fixed rate and variable rate
bonds issued by LGAC were $329.5 million for the 1996-97 fiscal year, and are
estimated to be $329.6 million for the 1997-98 fiscal year. State lease-purchase
and contractual-obligation payments were
-18-
<PAGE>
$1.74 billion in fiscal year 1996-97, and are estimated to be $2.21 billion in
fiscal year 1997-98.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
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 and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including 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 to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking reimbursement from the State for certain costs
arising out of the provision of pre-school services and programs for disabled
children; (11) an action seeking enforcement of certain sales and excise taxes
and tobacco products and motor fuel sold to non- Indian consumers on Indian
reservations; and (12) a challenge to the constitutionality of Clean Water/Clean
Air Bond Act.
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 developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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
-19-
<PAGE>
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 was required to make aggregate payments
of $351.4 million. 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. Litigation
challenging the constitutionality of the treatment of certain monies held in a
reserve fund was settled in June 1996 and certain amounts in a Supplemental
Reserve Fund previously credited by the State against prior State and local
pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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.
AUTHORITIES. The fiscal stability of New York State is
related, in part, 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
-20-
<PAGE>
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by
the projects they finance or operate, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent years,
however, New York State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the
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 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 may also be impacted by 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with then
applicable GAAP. The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results.
There can be no assurance that the City will continue to maintain a balanced
budget as required by State law without
-21-
<PAGE>
additional tax or other revenue increases or additional reductions in City
services or entitlement programs, which could adversely affect the City's
economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing the City's chronic structural budget problems and weak
economic outlook. S&P 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 created the Municipal Assistance Corporation
("MAC") in 1975. Since its creation, MAC has provided, among other things,
financing assistance to the City by refunding maturing City short-term debt and
transferring to the City funds received from sales of MAC bonds and notes. 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, subject to certain prior claims, 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. 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
-22-
<PAGE>
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year 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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and the City
University of New York and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The financial plan included increased tax
revenue projections; reduced debt service costs; the assumed restoration of
Federal funding for programs assisting certain legal aliens; additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization, initiatives proposed by the
City Council and other initiatives; and a proposed discretionary transfer to the
1998 fiscal year of $300 million of debt service due in the 1999 fiscal year for
budget
-23-
<PAGE>
stabilization purposes. In addition, the financial plan reflected the
discretionary transfer to the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years, and included actions to eliminate a
previously projected budget gap for the 1998 fiscal year. These gap-closing
actions included (i) additional agency actions totaling $621 million; (ii) the
proposed sale of various assets; (iii) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City from March 1999; and (iv) entitlement savings of $128
million which would result from certain of the reductions in Medicaid spending
proposed in the Governor's 1997-1998 Executive Budget and the State making
available to the City $77 million of additional Federal block grant aid, as
proposed in the Governor's 1997-1998 Executive Budget. The 1998-2001 Financial
Plan also set forth projections for the 1999 through 2001 fiscal years and
projected gaps of $1.8 billion, $2.8 billion and $2.6 billion for the 1999
through 2001 fiscal years, respectively.
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide revenues of
$188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive
-24-
<PAGE>
Budget. The 1998-2001 Financial Plan reflected the increased costs which the
City is prepared to incur as a result of welfare legislation recently enacted by
Congress. The 1998-2001 Financial Plan provided no additional wage increases for
City employees after their contracts expire in fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the
State has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of
its last sixteen fiscal years and is projected to achieve balanced operating
results for the 1997 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998- 2001 Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general
-25-
<PAGE>
obligation bonds and $5.7 billion of bonds to be issued by the proposed New York
City Transitional Finance Authority (the "Finance Authority") to finance City
capital projects. The Finance Authority was created as part of the City's effort
to assist in keeping the City's indebtedness within the forecast level of the
constitutional restrictions on the amount of debt the City is authorized to
incur. Despite this additional financing mechanism, the City currently projects
that, if no further action is taken, it will reach its debt limit in City fiscal
year 1999-2000. Indebtedness subject to the constitutional debt limit includes
liability on capital contracts that are expected to be funded with general
obligation bonds, as well as general obligation bonds. On June 2, 1997, an
action was commenced seeking a declaratory judgment declaring the legislation
establishing the Transitional Finance Authority to be unconstitutional. If such
legislation were voided, projected contracts for the City capital projects would
exceed the City's debt limit during fiscal year 1997-98. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several
-26-
<PAGE>
State fiscal years. The potential impact on the State of any future requests by
localities for additional assistance is not included in the State's projections
of its receipts and disbursements f or the 1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment 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 State to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 State budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the total indebtedness
of all localities in New York State other than New York City was approximately
$19 billion. A small portion (approximately $102.3 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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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
-27-
<PAGE>
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% 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 are in
excess of 5% of the Portfolio's net assets. (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;
-28-
<PAGE>
(4) underwrite securities of other issuers,
except to the extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under federal securities
laws and except to the extent that the purchase of Municipal Obligations
directly from the issuer thereof in accordance with 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.
-29-
<PAGE>
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
shareholder approval.
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
-30-
<PAGE>
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 Ratings Organization (as
defined in the Prospectus), are rated (at the time of purchase) by two
or more Ratings Organizations in the highest rating category for such
securities, (ii) if rated by only one Ratings Organization, are rated
by such Ratings Organization 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 MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
-31-
<PAGE>
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% 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 are in excess of 5% of the Portfolio's net
assets. (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
shareholder approval.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
-32-
<PAGE>
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% 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 are in
excess of 5% of the Portfolio's net assets. (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;
(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;
-33-
<PAGE>
(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
shareholder approval.
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.
-34-
<PAGE>
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 issues 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.
-35-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
*Arnold M. Reichman -49 Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer of Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); Prior to
October 1996,
Executive Vice
President of Gruntal &
Co., Inc. (a
registered broker-
dealer).
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).
-36-
<PAGE>
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, 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 since 1969
16th Floor Comcast Corporation
Philadelphia, PA 19107-3723 (cable television and
communications);
Director Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden -73 Director Self-employed
1200 Old Mill Lane and businessman. From
Wyomissing, PA 19610 Chairman February 1980 to March
of the 1987, Vice Chairman,
Board SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto
service); Director,
Keystone Insurance Co.
-37-
<PAGE>
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice
Bellevue Park Treasurer Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and
Treasurer of various
investment companies
advised by PNC
Institutional
Management
Corporation; Director,
The Bradford Funds,
Inc.
Morgan R. Jones -58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker Biddle
1345 Chestnut Street & Reath LLP; Director,
Philadelphia, PA 19107-3496 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 Fahnestock Co.,
Inc., a registered 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.
-38-
<PAGE>
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 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 the Distributer and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
DIRECTORS' COMPENSATION
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM
AGGREGATE BENEFITS ANNUAL REGISTRANT AND
COMPENSATION ACCRUED AS BENEFITS FUND COMPLEX1
FROM PART OF FUND UPON PAID
NAME OF PERSON/ POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- ------------------------ ------------ ------------ ---------- --------------
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
- ----------------------
1 A FUND COMPLEX MEANS TWO OR MORE INVESTMENT COMPANIES THAT HOLD
THEMSELVES OUT TO INVESTORS AS RELATED COMPANIES FOR PURPOSES OF
INVESTMENT AND INVESTOR SERVICES, OR HAVE A COMMON INVESTMENT ADVISER
OR HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE
INVESTMENT ADVISER OF ANY OTHER INVESTMENT COMPANIES.
-39-
<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 AND ONE OTHER
EMPLOYEE), PURSUANT TO WHICH THE FUND WILL CONTRIBUTE ON A QUARTERLY BASIS
AMOUNTS EQUAL TO 10% OF THE QUARTERLY COMPENSATION OF EACH ELIGIBLE EMPLOYEE. BY
VIRTUE OF THE SERVICES PERFORMED BY PNC INSTITUTIONAL MANAGEMENT CORPORATION
("PIMC"), THE PORTFOLIOS' 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 TWO PART-TIME EMPLOYEES. DRINKER BIDDLE & REATH LLP,
OF WHICH MR. JONES IS A PARTNER, RECEIVES LEGAL FEES AS COUNSEL TO THE FUND. 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. Under the sub-advisory agreements, PIMC pays PNC Bank an annual
fee equal to 75% of the investment advisory fees received by PIMC on behalf of
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios. 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
Agreements."
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market Portfolio $5,366,431 $3,603,130 $469,986
Municipal Money Market $201,095 $1,269,553 $14,921
Portfolio
Government Obligations
Money Market Portfolio $1,774,123 $647,063 $404,193
New York Municipal
Money Market Portfolio $21,831 $324,917 ----
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market Portfolio $4,174,375 $3,522,715 $342,158
Municipal Money Market $190,687 $1,218,973 $17,576
Portfolio
Government Obligations
Money Market Portfolio $1,638,622 $671,811 $406,954
New York Municipal
Money Market Portfolio $2,709 $268,017 $0
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------------- ------- --------------
Money Market Portfolio $2,274,697 $2,589,832 $12,047
Municipal Money Market $67,752 $1,041,321 $11,593
Portfolio
Government Obligations $780,122 $398,363 $0
Money Market Portfolio
New York Municipal $187,660 $187,660 $12,656
Money Market Portfolio
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
-40-
<PAGE>
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) 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; (d) any extraordinary
expenses; (e) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; and (f) the cost
of investment company literature and other publications provided by the Fund to
its directors and officers. The Theta Classes of the Fund pays their own
distribution fees, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Theta classes or if they receive different
services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
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 Agreement 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 Agreement 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 Agreements may also be terminated by PIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminates automatically in the event of assignment thereof.
-41-
<PAGE>
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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
Municipal Money Market $448,548 $0 $0
Portfolio
New York Municipal 99,071 $0 $0
Money Market Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
Municipal Money Market $428,209 $0 $0
New York Municipal Money $67,204 $10,146 $0
Market Portfolio
-42-
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
Municipal Money Market $321,790 $6,233 $0
Portfolio
New York Municipal Money $8,960 $44,657 $0
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 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
-43-
<PAGE>
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. 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 agreement, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of each of the Epsilon Classes,
(collectively, the "Distribution Agreements") 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 appropriate efforts to distribute shares of each of the
Epsilon Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, 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 were approved by the Fund's Board of
Directors, including the directors who are not "interested persons" of the Fund
and who
-44-
<PAGE>
have no direct or indirect financial interest in the operation of the Plans or
any agreements related to the Plans ("12b-1 Directors").
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 Plan remains in effect, the
selection and nomination of the 12b-1 Directors 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, had an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months 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.
-45-
<PAGE>
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 pursuant to Rule
10f-3 under the 1940 Act. Among other things, these
-46-
<PAGE>
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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolios held the following securities:
Portfolio Security Value
--------- -------- -----
Money Market Portfolio Bear Stearns Companies, Inc. $105,000,000
Commercial Paper
Money Market Portfolio Bear Stearns Companies, Inc. $ 20,000,000
Corporate Obligation
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.)
-47-
<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 the close of
the NYSE (generally 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
weekends and on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day and the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday. The FRB is currently closed on
weekends and the same holidays as the NYSE 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 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
-48-
<PAGE>
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 13 months, 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.
-49-
<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 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 MONEY FUND
REPORT(R), 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
-50-
<PAGE>
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").
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
-51-
<PAGE>
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
taxexempt 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.
-52-
<PAGE>
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
-53-
<PAGE>
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 mid-term or other long-term capital gain, 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.
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 earnings
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
-54-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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
-55-
<PAGE>
(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 Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH Common Stock (n/i Numeric Investors 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) 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
700 million shares are classified as Class Janney Money Market Common Stock
(Money), 200 million shares are classified as Class Janney Municipal Money
Market Common Stock (Municipal Money), 500 million shares are classified as
Class Janney Government Obligations Money Market Common Stock (U.S. Government
Money), 100 million shares are classified as Class Janney 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
-56-
<PAGE>
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
Money Market Common Stock, Class Janney Municipal Money Market Common Stock,
Class Janney Government Obligations Money Market Common Stock and Class Janney
New York Municipal Money 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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Funds, the n/i
Numeric Investors 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 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 n/i Numeric Investors Family
-57-
<PAGE>
represents interests in four non-money market portfolios; the Boston Partners
Family represents interests in three non-money 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 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
-58-
<PAGE>
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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
CONTROL PERSONS. As of November 15, 1997, 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.
-59-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
-60-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
-61-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
-62-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
-63-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
-64-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Micro Cap Fund Charles Schwab & Co. Inc. 15.3%
(Class FF) Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Growth Fund Charles Schwab & Co. Inc. 18.6%
(Class GG) Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-65-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Growth and Value Charles Schwab & Co. Inc. 22.9%
Fund (Class HH) Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.0%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
-66-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-67-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-68-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory
-69-
<PAGE>
agreement would normally be subject to shareholder approval. It is not
anticipated that any change in the Fund's method of operations as a result of
these occurrences would affect its net asset value per share or result in a
financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
-70-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
A-1
<PAGE>
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
A-2
<PAGE>
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of
A-3
<PAGE>
debt instruments with original maturities of one year or less. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
A-4
<PAGE>
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic
A-5
<PAGE>
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may
A-6
<PAGE>
be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-7
<PAGE>
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A-8
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
A-9
<PAGE>
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
A-10
<PAGE>
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
A-11
<PAGE>
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
PROSPECTUS
THE ZETA FAMILY
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
December 1, 1997
<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................................................... 4
FINANCIAL HIGHLIGHTS........................................... 8
INVESTMENT OBJECTIVES AND POLICIES............................. 8
PURCHASE AND REDEMPTION OF SHARES.............................. 26
NET ASSET VALUE................................................ 32
MANAGEMENT .................................................... 33
DISTRIBUTION OF SHARES......................................... 35
DIVIDENDS AND DISTRIBUTIONS.................................... 36
TAXES.......................................................... 36
DESCRIPTION OF SHARES.......................................... 39
OTHER INFORMATION.............................................. 41
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
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 incorporated
under the laws of the State of Maryland on February 29, 1988. The Fund is
currently operating or proposing to operate twenty-two separate investment
portfolios. The shares of the 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 (together, 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,
<PAGE>
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.
The New York Municipal Money Market Portfolio may invest a significant
percentage of its assets in a single issuer, and therefore investment in this
Portfolio may be riskier than an investment in other types of money market
funds.
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. 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.
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."
PNC Institutional Management Corporation ("PIMC") serves as investment
adviser for the Portfolios, 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 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 1, 1997, 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. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the Internet Web Site (http://www.sec.gov).
-2-
<PAGE>
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 1, 1997
-3-
<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 twenty-two 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 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.
-4-
<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 Portfolios' 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. 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."
-5-
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (ZETA CLASSES)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating expenses
of the Zeta Classes based on expenses expected to be incurred for the current
fiscal period, as a percentage of average daily net assets. An example based on
the summary is also shown.
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ------------
Management Fees (after
waivers)(1).............. .22% .04% .30% .02%
12b-1 Fees................ .53 .56 .56 .52
Other Expenses............ .22 .25 .115 .28
--- --- ---- ---
Total Fund Operating
Expenses (after
waivers) (1)............. .97% .85% .975% .80%
==== ==== ===== ====
(1) Management Fees and 12b-1 Fees are based on average daily net assets and
are calculated daily and paid monthly. Before 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%, .41% and .35%, respectively, and Total Fund
Operating Expenses would be 1.12%, 1.14%, 1.09% and 1.13%, 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market*................ $10 $31 $54 $119
Municipal Money
Market*..................... $ 9 $27 $47 $105
Government Obligations
Money Market*............... $10 $31 $54 $120
New York Municipal
Money Market*............... $ 8 $25 $44 $ 99
* 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 (Zeta Classes)"
-6-
<PAGE>
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. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc.
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.) 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 figures 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
-7-
<PAGE>
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 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. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved.
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
-8-
<PAGE>
nevertheless entail risks in addition to those of domestic issuers, including
higher transaction costs, less complete financial information, less stringent
regulatory requirements and less liquidity. 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 ("Rating Organization").
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 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 13 months, 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
-9-
<PAGE>
price ("repurchase agreements"). The securities held subject to a repurchase
agreement may have stated maturities exceeding 13 months, provided the
repurchase agreement itself matures in less than 13 months. 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 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. A reverse
repurchase agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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
-10-
<PAGE>
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,
-11-
<PAGE>
(2) securities that are rated at the time of purchase in the two (2) highest
rating categories by one or more Rating Organizations (e.g., commercial paper
rated "A-1" or "A-2" by Standard & Poor's Rating Services ("S&P")), (3)
securities that are rated at the time of purchase by the only Rating
Organization 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 a Rating Organization
("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, and 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, GICs, 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
shareholder approval. 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 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.
-12-
<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 are in excess of 5% of
the Portfolio's net assets. (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.
-13-
<PAGE>
"First Tier Securities" include eligible securities that (i) if rated
by more than one Rating Organization, are rated (at the time of
purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization 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 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"). There is
no assurance that the investment objective of the Municipal Money Market
Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks
-14-
<PAGE>
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.
-15-
<PAGE>
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, 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.
-16-
<PAGE>
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. 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 total
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 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (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 more
than 25% of the value of the total assets of the Portfolio to be
invested in the obligations at the time of purchase 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.
-17-
<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 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
-18-
<PAGE>
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.
Due to fluctuations in interest rates, the market value of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities may vary. Certain government securities held by the Portfolio
may have remaining maturities exceeding 13 months if such securities provide for
adjustments in their interest rates not less frequently than every 13 months and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values. There is no assurance that
the investment objective of the Government Obligations Money Market Portfolio
will be achieved.
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-related securities
consist of mortgage loans which are 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. The Portfolio
may also acquire asset-backed securities as described under "Investment
Objectives and Policies--Money Market Portfolio-- Asset-Backed Securities."
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
-19-
<PAGE>
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.
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 shareholder approval. The following investment limitations may
not be changed, however, 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 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 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 are in excess of 5% of the Portfolio's net
assets. (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. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter
-20-
<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.
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 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
-21-
<PAGE>
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. The Portfolio may invest a significant percentage of its assets
in a single issuer, and therefore investment in this Portfolio may be riskier
than an investment in other types of money market funds.
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
-22-
<PAGE>
within the two highest ratings assigned by Moody's Investor Service, Inc.
("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 than a
diversified portfolio. 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.
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
-23-
<PAGE>
S&P and 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 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.
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 shareholder approval. 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 are in excess of 5% of
the
-24-
<PAGE>
Portfolio's net assets. (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, 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
-25-
<PAGE>
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 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 good order 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. 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. On any Business
Day, orders which are accompanied by Federal Funds and received by PFPC 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 the close of regular trading on
the NYSE (generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE 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 the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
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
-26-
<PAGE>
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
investment Account requirements. Even if 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, and 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 and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
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 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 available in Federal
Funds to the Fund's custodian prior to the close of regular trading on the NYSE,
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
-27-
<PAGE>
invest, and mailing it, together with a check payable to "The Zeta Family" 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. An investor's bank or
Dealer may impose a charge for this service. The Fund does not currently charge
for effecting wire transfers but reserves the right to do so in the future. 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 your name, address, telephone number, Social Security or Tax
Identification Number, the Zeta Class selected, the amount being wired,
and by which bank or Dealer. PFPC will then provide an investor with a
Fund account number. (Investors with existing accounts should also
notify PFPC 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 initial
purchases 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
-28-
<PAGE>
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 in an Account 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 the close of regular trading on the
NYSE on a Business Day, the redemption will be effective as of the close of
regular trading on the NYSE 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 may 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. 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 may be obtained from a domestic bank or trust company, broker, dealer,
-29-
<PAGE>
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone
if they have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone 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 redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe 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 Portfolio, 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, financial institutions, securities dealers, financial
planners, trustee, custodian other than the Distributor 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.
Proceeds of a telephone redemption request 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
-30-
<PAGE>
checking or savings account. If proceeds are to be sent by wire transfer, a
telephone redemption request received prior to the close of regular trading on
the NYSE will result in redemption proceeds being wired to the investor's bank
account on the next bank business day. 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, although no fee is currently
contemplated.
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 may establish a higher minimum. An investor wishing
to use this check writing redemption procedure should complete specimen
signature cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may
not be presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
-31-
<PAGE>
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
notice 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 class 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 the close of regular
trading on the NYSE 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, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays on which the NYSE is closed as well as Veterans' Day and Columbus Day.
The net asset value per share of each class is calculated by adding the value of
the proportionate interest of each class in the securities, cash, and other
assets of the Portfolio, subtracting the accrued and actual liabilities of the
class and dividing the result by the number of its shares outstanding of the
class. The net asset value per share of each class is determined independently
of any of the Fund's other classes.
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.
-32-
<PAGE>
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 twenty-two separate investment
portfolios. Each of the Zeta Classes represents interests in one of the
following 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 $38.7
billion of assets, of which approximately $35.2 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
-33-
<PAGE>
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.
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. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
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."
-34-
<PAGE>
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a
wholly-owned subsidiary of Warburg Pincus Asset Management, Inc. with a
principal business 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 a
distribution agreement and various supplements thereto (collectively, the
"Distribution Agreements") with the Fund on behalf of each of the Zeta Classes.
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, fees paid to the investment adviser and administrator's fees
and 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 the 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, the expense of reports to shareholders, shareholders'
meetings and proxy solicitations, 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. 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 may assume 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
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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 Agreements 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
-35-
<PAGE>
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 Agreements and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including 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 Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or 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 Agreement. Payments under the
plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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 the close
of regular trading on the NYSE. 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
-36-
<PAGE>
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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, 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 current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. 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
-37-
<PAGE>
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.
-38-
<PAGE>
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 13.93 billion shares are
currently classified into 82 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 Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 ZETA CLASSES OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT
-39-
<PAGE>
OBLIGATIONS MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIOS AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE ZETA CLASSES OF THESE PORTFOLIOS.
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 15, 1997, 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.
-40-
<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) 533-7719 (in Delaware call
collect (302) 791-1196).
-41-
<PAGE>
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 1, 1997, (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 1, 1997.
CONTENTS
Prospectus
Page Page
--------- ----------
General.................................................... 2 4
Investment Objectives and Policies......................... 2 8
Directors and Officers..................................... 36 N/A
Investment Advisory, Distribution and
Servicing Arrangements................................... 40 33,35
Portfolio Transactions..................................... 47 N/A
Purchase and Redemption Information........................ 49 26
Valuation of Shares........................................ 49 32
Performance Information.................................... 51 36
Taxes...................................................... 52 39
Additional Information Concerning Fund Shares.............. 57 39
Miscellaneous.............................................. 60 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 twenty-two
separate investment portfolios. This Statement of Additional Information
pertains to four classes of shares (the "Zeta 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
Zeta Classes are offered by the Prospectus dated December 1, 1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the Portfolio is entitled
to the payment of principal at any time, or during specified intervals not
exceeding 13 months, 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 13 months. In determining the average weighted
maturity of the Money Market, Municipal Money Market or New York Municipal
-2-
<PAGE>
Money Market Portfolio and whether a variable rate demand instrument has a
remaining maturity of 13 months 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.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios has
such commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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
-3-
<PAGE>
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 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.
-4-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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
-5-
<PAGE>
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.
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 13 months, 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
-6-
<PAGE>
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the 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, as amended.
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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks 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, if such banks and non-bank dealers are deemed
creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the
-7-
<PAGE>
seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price (including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference between the purchase price
and the repurchase price specified in the repurchase agreement. The Portfolio's
adviser or sub-adviser will mark-to-market daily the value of the securities.
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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
-8-
<PAGE>
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may invest
in multiple class pass-through securities, including collateralized mortgage
obligations ("CMOs"). These multiple class securities may be issued by U.S.
Government agencies or instrumentalities, including FNMA and FHLMC, or by trusts
formed by private originators of, or investors in, mortgage loans. In general,
CMOs are debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
(the "Mortgage Assets"), the payments on which are used to make payments on the
CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMO. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at
a specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
-9-
<PAGE>
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income 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 ("Rating Organizations") 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 Rating Organization 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 13
months 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
-10-
<PAGE>
does not have comparable obligations rated by a Rating Organization ("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 13 months 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 Rating Organization 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 that 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
-11-
<PAGE>
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.
The Portfolios may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Portfolios'
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
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,
among others, 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
Fund's investments in New York Municipal Obligations are summarized below. This
summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have 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 very 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
-12-
<PAGE>
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 a
large portion of 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 position.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and remained lower
until 1991; since then, it has been higher than the national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the
"Governor") to submit to the State legislature (the "Legislature") a balanced
executive budget which contains a complete plan of expenditures for the ensuing
fiscal year and all monies 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 an explanation of any changes from the previous state financial plan.
The State's budget for the 1997-98 fiscal year was adopted by the
Legislature on August 4, 1997, more than four 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 necessary appropriations for State-supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State
-13-
<PAGE>
has failed to adopt a budget prior to the beginning of its fiscal year. There
can be no assurance that State budgets in future fiscal years will be adopted by
the April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General Fund
disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The General
Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced on a
cash basis. The Financial Plan projections include a reserve for future needs of
$530 million. As compared to the Governor's Executive Budget as amended in
February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local assistance ($1.3
billion). Resources used to fund these additional expenditures include increased
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re-estimates of social
service, fringe benefit and other spending, and certain non-recurring resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessments reductions have little or no impact on the 1997-98 State Financial
Plan, and do not begin to materially affect the outyear projections until the
State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
The economic and financial condition of the State may be affected
by various financial, social, economic and political
-14-
<PAGE>
factors. Those factors can be very complex, may vary from fiscal year to fiscal
year, and are frequently the result of actions taken not only by the State and
its agencies and instrumentalities, but also by entities, such as the federal
government, that are not under the control of the State. In addition, the
financial plan is based upon forecasts of national and State economic activity.
Economic forecasts have frequently failed to predict accurately the timing and
magnitude of changes in the national and the State economies. Actual results,
however, could differ materially and adversely from the projections set forth in
the 1997-98 State Financial Plan, and those projections may be changed
materially and adversely from time to time.
In the past, the State has taken management actions and made use
of internal sources to address potential State financial plan shortfalls, and
the Division of Budget believes it could take similar actions should variances
occur in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts
and disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors have created structural
budget gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution, the Governor is required to propose a balanced budget each
year. There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-
-15-
<PAGE>
year commitments for school aid and pre-kindergarten early learning programs
which could add as much as $1.4 billion in costs when fully annualized in fiscal
year 2001-02. These spending commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2001 State fiscal year
could grow to nearly $12 billion.
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 State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in the
1997-98 fiscal year are projected to be $35.09 billion, an increase of over $2
billion or approximately 6% from the $33.04 billion recorded in the prior fiscal
year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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
general obligation 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 general obligation debt that may be so authorized and subsequently
incurred by the State.
-16-
<PAGE>
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 from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general obligation and 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 and 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 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 public authority, municipality or other entity, the
State s obligation to make such 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
-17-
<PAGE>
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through the State's annual seasonal borrowing. The legislation empowered LGAC to
issue its bonds and notes in an amount to yield net proceeds not in excess of
$4.7 billion (exclusive of certain refunding bonds). Over a period of years, the
issuance of these long-term obligations, which were 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 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 the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap was
thus permitted in any fiscal year, it was 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.
On January 13, 1992, Standard & Poor's Ratings Services ("S&P")
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. See Appendix "A" for an explanation
of bond ratings. On August 28, 1997, S&P revised its ratings on the State's
general obligation bonds from A- to A and revised its ratings on the State's
moral obligation, lease purchase, guaranteed and contractual obligation debt. 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 the 1997-98 fiscal year.
The State expects to issue $605 million in general obligation bonds (including
$140 million for purposes of redeeming outstanding bond anticipation notes) and
$140 million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in certificates of participation
(including costs of issuance, reserve funds and other costs) during the State s
1997-98 fiscal year for equipment purchases. The projection of State borrowings
for the 1997-98
-18-
<PAGE>
fiscal year is subject to change as market conditions, interest rates and other
factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved two
new authorizations for lease-purchase and contractual obligation financings. An
aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes were $749.6 million for the 1996-97
fiscal year, and are estimated to be $720.9 million for the 1997-98 fiscal year.
Principal and interest payments on fixed rate and variable rate bonds issued by
LGAC were $329.5 million for the 1996-97 fiscal year, and are estimated to be
$329.6 million for the 1997-98 fiscal year. State lease-purchase and
contractual-obligation payments were $1.74 billion in fiscal year 1996-97, and
are estimated to be $2.21 billion in fiscal year 1997-98.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
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 and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including 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 to
regulations
-19-
<PAGE>
promulgated by the Superintendent of Insurance establishing certain excess
medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking reimbursement from the State for certain costs
arising out of the provision of pre-school services and programs for disabled
children; (11) an action seeking enforcement of certain sales and excise taxes
and tobacco products and motor fuel sold to non-Indian consumers on Indian
reservations; and (12) a challenge to the constitutionality of Clean Water/Clean
Air Bond Act.
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 developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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 was required to make aggregate payments of $351.4 million. 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. Litigation challenging the constitutionality of the
treatment of certain monies held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new
-20-
<PAGE>
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan. In its audited financial statements for the 1996-97
fiscal year, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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.
AUTHORITIES. The fiscal stability of New York State is related, in
part, 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 is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by the
projects they finance or operate, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the 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
-21-
<PAGE>
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 may also be impacted by 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City achieved
balanced operating results as reported in accordance with then applicable GAAP.
The City was required to close substantial budget gaps in recent years in order
to maintain balanced operating results. There can be no assurance that the City
will continue to maintain balanced operating results. There can be no assurance
that the City will continue to maintain a balanced budget as required by State
law without additional tax or other revenue increases or additional reductions
in City services or entitlement programs, which could adversely affect the
City's economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its rating
of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its rating on the City's
$23 billion of outstanding general obligation bonds to "BBB+" from "A-", citing
the City's chronic structural budget problems and
-22-
<PAGE>
weak economic outlook. S&P 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 created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. 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, subject to
certain prior claims, 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. 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, 1997, MAC had outstanding an aggregate of approximately $4.267
billion of its bonds. MAC is authorized to issue bonds and notes to refund its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to the Transit
Authority and the New York City School Construction Authority through the 1997
fiscal year 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
-23-
<PAGE>
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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and the City
University of New York and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The financial plan included increased tax
revenue projections; reduced debt service costs; the assumed restoration of
Federal funding for programs assisting certain legal aliens; additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization, initiatives proposed by the
City Council and other initiatives; and a proposed discretionary transfer to the
1998 fiscal year of $300 million of debt service due in the 1999 fiscal year for
budget stabilization purposes. In addition, the financial plan reflected the
discretionary transfer to the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years, and included actions to eliminate a
previously projected budget gap for the 1998 fiscal year. These gap-closing
actions included (i) additional agency actions totaling $621 million; (ii) the
proposed sale of various assets; (iii) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City from March 1999; and (iv) entitlement savings of $128
million which would result from certain of the reductions in Medicaid spending
proposed in the Governor's 1997-1998 Executive Budget and the State making
available to the City $77 million of additional Federal block grant aid, as
proposed in the Governor's 1997-1998 Executive Budget. The 1998-2001 Financial
Plan also set forth projections for the 1999 through 2001 fiscal years and
projected gaps of $1.8 billion, $2.8 billion and $2.6 billion for the 1999
through 2001 fiscal years, respectively.
-24-
<PAGE>
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide revenues of
$188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected
the increased costs which the City is prepared to incur as a result of welfare
legislation recently enacted by Congress. The 1998-2001 Financial Plan provided
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the State
has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
-25-
<PAGE>
Although the City has maintained balanced budgets in each of its
last sixteen fiscal years and is projected to achieve balanced operating results
for the 1997 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent
upon the City's ability to market its securities successfully. The City's
financing program for fiscal years 1998 through 2001 contemplates the issuance
of $5.7 billion of general obligation bonds and $5.7 billion of bonds to be
issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments
-26-
<PAGE>
concerning the City or entities issuing debt for the benefit of the City,
and public discussion of such developments, as well as prevailing market
conditions and securities credit ratings, may affect the ability or cost to sell
securities issued by the City or such entities and may also affect the market
for their outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment 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 State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC
-27-
<PAGE>
was created to help Troy avoid default on certain obligations. The legislation
creating Troy MAC prohibits the city of Troy from seeking federal bankruptcy
protection while Troy MAC bonds are outstanding. Troy MAC has issued bonds to
effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during
the 1996 legislative session through $50 million in special appropriations
targeted for distressed cities, and that was largely continued in 1997.
Twenty-eight municipalities are scheduled to share in more than $32 million in
targeted unrestricted aid allocated in the 1997-98 State budget. An additional
$21 million will be dispersed among all cities, towns and villages, a 3.97%
increase in General Purpose State Aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in New York State other than New York City was approximately $19
billion. A small portion (approximately $102.3 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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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.
-28-
<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% 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
are in excess of 5% of the Portfolio's net assets. (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
-29-
<PAGE>
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:
-30-
<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
shareholder approval.
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
-31-
<PAGE>
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 Rating Organization (as defined in the Prospectus), are
rated (at the time of purchase) by two or more Rating Organizations in the
highest rating category for such securities, (ii) if rated by only one
Rating Organization, are rated by such Rating Organization 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.
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
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
-32-
<PAGE>
"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% 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 are in excess of 5% of the Portfolio's net assets. (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
-33-
<PAGE>
amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
The foregoing investment limitations cannot be changed without
shareholder approval.
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% 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 are in
excess of 5% of the Portfolio's net assets. (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;
-34-
<PAGE>
(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
shareholder approval.
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.
-35-
<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 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.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
-36-
<PAGE>
Position Principal Occupation
Name and Address and Age with Fund During Past Five Years
- ------------------------ --------- ----------------------
*Arnold M. Reichman -49 Director Senior Managing Director,
466 Lexington Avenue Chief Operating Officer
New York, NY 10017 and Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer of Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc. (a
New York, NY 10005 registered broker-
dealer); Prior to October
1996, Executive Vice
President of Gruntal &
Co., Inc. (a registered
broker-dealer).
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).
-37-
<PAGE>
Position Principal Occupation
Name and Address and Age 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 since 1969
16th Floor Comcast Corporation
Philadelphia, PA 19107-3723 (cable television and
communications); Director
Comcast Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden -73 Director Self-employed
1200 Old Mill Lane and Chairman of businessman. From
Wyomissing, PA 19610 the Board February 1980 to March
1987, Vice Chairman,
SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA
Mid-Atlantic (auto
service); Director,
Keystone Insurance Co.
-38-
<PAGE>
Position Principal Occupation
Name and Address and Age with Fund During Past Five Years
- ------------------------ --------- ----------------------
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice Chairman
Bellevue Park Treasurer of the Board, Fox Chase
Corporate Center Cancer Center; Trustee
400 Bellevue Parkway Emeritus, Pennsylvania
Wilmington, DE 19809 School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and Treasurer
of various investment
companies advised by PNC
Institutional Management
Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones -58 Secretary Chairman of the law firm
Drinker Biddle & Reath LLP of Drinker Biddle & Reath
1345 Chestnut Street LLP; Director, Rocking
Philadelphia, PA 19107-3496 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 positions 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 Fahnestock Co., Inc., a
registered 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.
-39-
<PAGE>
The Nominating Committee recommends to the Board 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 the Distributer and Mr. Sablowsky, who is considered to be an affiliated
person, $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. In addition, the
Chairman of the Board receives an additional fee of $5,000 per year for his
services in this capacity. Directors who are not affiliated persons of the Fund
and Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings
of the Board of Directors or any committee thereof. For the year ended August
31, 1997, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM REGISTRANT
AGGREGATE ACCRUED AS ANNUAL AND FUND
COMPENSATION FROM PART OF FUND BENEFITS UPON COMPLEX1 PAID
NAME OF PERSON/ POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- ------------------------ ----------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
- ----------------------
<FN>
1 A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any other investment companies.
</FN>
</TABLE>
-40-
<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 and one other employee), pursuant
to which the Fund will contribute on a quarterly basis amounts equal to 10% of
the quarterly compensation of each eligible employee. By virtue of the services
performed by PNC Institutional Management Corporation ("PIMC"), the Portfolios'
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
two part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to the Fund. 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. Under the sub-advisory agreements, PIMC pays PNC Bank an annual
fee equal to 75% of the investment advisory fees received by PIMC on behalf of
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios. 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
Agreements."
-41-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------- ------- --------------
<S> <C> <C> <C>
Money Market Portfolio $5,366,431 $3,603,130 $469,986
Municipal Money Market
Portfolio $201,095 $1,269,553 $14,921
Government Obligations
Money Market Portfolio $1,774,123 $647,063 $404,193
New York Municipal
Money Market Portfolio $21,831 $324,917 ----
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------- ------- --------------
<S> <C> <C> <C>
Money Market Portfolio $4,174,375 $3,522,715 $342,158
Municipal Money Market
Portfolio $190,687 $1,218,973 $17,576
Government Obligations
Money Market Portfolio $1,638,622 $671,811 $406,954
New York Municipal
Money Market Portfolio $2,709 $268,017 $0
</TABLE>
-42-
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid PIMC advisory
fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------- ------- --------------
<S> <C> <C> <C>
Money Market Portfolio $2,274,697 $2,589,832 $12,047
Municipal Money
Market Portfolio $67,752 $1,041,321 $11,593
Government Obligations
Money Market Portfolio $780,122 $398,363 $0
New York Municipal
Money Market Portfolio $187,660 $187,660 $12,656
</TABLE>
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
-43-
<PAGE>
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. The Zeta
Classes of the Fund pay their own distribution fees, and may pay a
different share than other classes of other expenses (excluding advisory
and custodial fees) if those expenses are actually incurred in a different
amount by the Zeta classes or if they receive different services.
Under the Advisory Agreements, 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
Agreements, 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 Agreements were each most recently approved July
9, 1997 by a vote of the Fund's Board of Directors, including a majority of
those directors who are not parties to the Advisory Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
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 Agreement 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 Agreement 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 Agreements may also be terminated by PIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements 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
-44-
<PAGE>
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.
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market Portfolio $448,548 $0 $0
New York Municipal Money Market Portfolio $99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market Portfolio $428,209 $0 $0
New York Municipal Money Market Portfolio $67,204 $10,146 $0
</TABLE>
-45-
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market Portfolio $321,790 $6,233 $0
New York Municipal Money Market Portfolio $8,960 $44,657 $0
</TABLE>
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
-46-
<PAGE>
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 $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 agreement, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of each of the Zeta Classes,
(collectively, the "Distribution Agreements") 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 appropriate efforts to distribute shares of each of the
Zeta Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, 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
-47-
<PAGE>
Money Market and New York Municipal Money Market Portfolios were approved
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").
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 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 12b-1 Directors 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, had an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months 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
-48-
<PAGE>
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
-49-
<PAGE>
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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolio held the following securities:
PORTFOLIO SECURITY VALUE
--------- -------- -----
Money Market Portfolio Bear Stearns Companies, Inc. $105,000,000
Commercial Paper
Money Market Portfolio Bear Stearns Companies, Inc. $ 20,000,000
Corporate Obligation
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
-50-
<PAGE>
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 class 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
adding the value of the proportionate interest of each class in a Portfolio's
cash, securities and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value of each class is calculated
independently of the other classes of the Fund. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
liabilities. The Portfolios' net asset values per share are computed twice each
day, as of 12:00 noon (Eastern Time) and as of the close of the NYSE (generally
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 weekends and on
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE, as well as 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
-51-
<PAGE>
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 13 months, 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
-52-
<PAGE>
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 MONEY FUND
REPORT(REGISTERED MARK), 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
-53-
<PAGE>
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").
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
-54-
<PAGE>
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
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
-55-
<PAGE>
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
-56-
<PAGE>
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 mid-term or other long-term capital gain, 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.
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 earnings
and profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
-57-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes as follows: 100 million shares are classified
as Class A Common Stock, 100
-58-
<PAGE>
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 Numeric Investors Micro Cap),50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH Common Stock (n/i Numeric Investors 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
-59-
<PAGE>
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) 100 million shares are classified as Class TT Common Stock (Boston
Partners Investor Mid Cap), 100 million shares are classified as Class UU Common
Stock (Boston Partners Institutional Mid Cap), 100 million shares are classified
as Class VV Common Stock (Boston Partners Institutional Bond), 100 million
shares are classified as Class WW Common Stock (Boston Partners Investor Bond),
50 million shares are classified as Class XX Common Stock (n/i Numeric Investors
Larger Cap Value), 700 million shares are classified as Class Janney Money
Market Common Stock (Money), 200 million shares are classified as Class Janney
Municipal Money Market Common Stock (Municipal Money), 500 million shares are
classified as Class Janney Government Obligations Money Market Common Stock
(U.S. Government Money), 100 million shares are classified as Class Janney 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 Money Market
-60-
<PAGE>
Common Stock, Class Janney Municipal Money Market Common Stock, Class
Janney Government Obligations Money Market Common Stock and Class Janney New
York Municipal Money 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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Funds, the n/i
Numeric Investors 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 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 n/i Numeric Investors Family represents interests in four
non-money market portfolios; the Boston Partners Family represents interests in
three non-money 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
-61-
<PAGE>
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 Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the Fund's non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, 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.
-62-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Cash Preservation Money Market Portfolio Jewish Family and Children's 44.2%
(Class G) Agency of Philadelphia
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta and Successors in Trust 15.9%
under the Dominic and Barbara Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Municipal Money Market Kenneth Farwell and Valerie 11.3%
Portfolio Farwell JTTEN
(Class H) 3854 Sullivan
St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Market Portfolio Wasner & Co. 32.6%
(Class I) FAO Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
-63-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA International Equity - Institutional Blue Cross & Blue Shield of Massachusetts Inc. 6.10%
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield Clinic 5.31%
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Equity Portfolio - Bob & Co. 87.30%
Advisor Class (Class MM) P.O. Box 1809
Boston, MA 02105-1809
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Portfolio - Institutional Fidelity Investments Institutional 15.61%
Class Operations Co. Inc. as Agent for Certain Employee
(Class U) Benefit Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin North America Inc. 17.31%
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
-64-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Portfolio - Advisor Class Richard A. Wilson TTEE 10.81%
(Class OO) E. Francis Wilson TTEE
The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the Exclusive Benefit of
Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Equity Portfolio - Wachovia Bank North Carolina Trust for Carolina Power & 26.22%
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Advisor Class (Class NN) Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4175
-65-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Portfolio - Patterson & Co. 43.71%
Institutional Class P.O. Box 7829
(Class X) Philadelphia, PA 19101-7829
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed Income Portfolio - New England UFCW & Employers' Pension Fund Board of 24.30%
Institutional Class Trustees
(Class Y) 161 Forbes Road, Suite 201
Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
-66-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Fidelity Investments Institutional 9.70%
Operations Co. Inc. (FIIOC) as Agent for Credit Suisse
First Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Fixed Income Sunkist Master Trust 32.35%
Portfolio (Class Z) 14130 Riverside Drive
Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond Fund Portfolio (Class William A. Marquard 39.48%
AA) 2199 Maysville Rd.
Carlisle, KY 40311-9716
-67-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North Miami Beach, FL
33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications Portfolio - Advisor Class 466 Lexington Ave.
(Class PP) New York, NY 10017-3140
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the Exclusive Benefit of
(Class FF) Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
-68-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the Exclusive Benefit of
(Class GG) Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment Portfolio LP 6.5%
c/o Asset Management Advisors Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the Exclusive Benefit of
(Class HH) Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-69-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Cap Value Fund - Dr. Janice B. Yost 26.2%
Institutional Class (Class QQ) Trust Mary Black Foundation Inc.
Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Cap Value Fund - Fleet National Bank TTEE 7.7%
Investor Class Testa Hurwitz THIB
(Class RR) FBO Scott Birnbaum
P.O. Box 92800
Rochester, NY 14692
-70-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid Cap Value Fund National Financial SVCS Corp. 27.2%
Investor Class For Exclusive Bene of our
(Class TT) Customers
Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
-71-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Cap Value Fund Wells Fargo Bank Cust 5.4%
Institutional Class (Class UU) FBO William W. Carter
IRA FIP 007430
P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
</TABLE>
As of the same date, directors and officers as a group owned
less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other
-72-
<PAGE>
institutions that are banks or bank affiliates are subject to such banking laws
and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory or sub-advisory agreement would normally be subject to shareholder
approval. It is not anticipated that any change in the Fund's method of
operations as a result of these occurrences would affect its net asset value per
share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
-73-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
A-1
<PAGE>
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing
A-2
<PAGE>
requirements, access to capital markets is good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
A-3
<PAGE>
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
A-4
<PAGE>
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely
A-5
<PAGE>
impair the obligor's capacity or willingness to meet its financial commitment
on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
A-6
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may
be revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment
A-7
<PAGE>
attributes are designated by the symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future
A-8
<PAGE>
developments, short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
A-9
<PAGE>
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to
A-10
<PAGE>
maturity of long term debt and preferred stock which are issued by United States
commercial banks, thrifts and non-bank banks; non-United States banks; and
broker-dealers. The following summarizes the rating categories used by Thomson
BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues
A-11
<PAGE>
determined to possess very strong characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
PROSPECTUS
THE THETA FAMILY
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 1, 1997
<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...................................................... 6
FINANCIAL HIGHLIGHTS............................................. 10
INVESTMENT OBJECTIVES AND POLICIES............................... 10
PURCHASE AND REDEMPTION OF SHARES................................. 27
NET ASSET VALUE................................................... 34
MANAGEMENT........................................................ 34
DISTRIBUTION OF SHARES............................................ 37
DIVIDENDS AND DISTRIBUTIONS....................................... 38
TAXES............................................................. 38
DESCRIPTION OF SHARES............................................. 41
OTHER INFORMATION................................................. 42
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Drinker Biddle & Reath LLP
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
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate twenty-two separate
investment portfolios. The shares of the 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 (together, 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
-3-
<PAGE>
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.
The New York Municipal Money Market Portfolio may invest a
significant percentage of its assets in a single issuer, and therefore
investment in this Portfolio may be riskier than an investment in other types of
money market funds.
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. 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.
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."
PNC Institutional Management Corporation ("PIMC") serves as
investment adviser for the Portfolios, 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
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 1, 1997, 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. The Prospectus and
Statement of Additional Information are also available for reference, along with
other related materials, on the Internet Web Site (http://www.sec.gov).
-4-
<PAGE>
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 1, 1997
-5-
<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 twenty-two 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 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.
-6-
<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 Portfolios' 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. 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."
-7-
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (THETA CLASSES)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating
expenses of the Theta Classes based on expenses expected to be incurred for the
current fiscal period, as a percentage of average daily net assets. An example
based on the summary is also shown.
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
Management Fees (after
waivers)(1)................ .22% .04% .30% .02%
12b-1 Fees(1)............... .53 .56 .56 .52
Other Expenses.............. .22 .25 .115 .28
--- --- ---- ---
Total Fund Operating
Expenses (after
waivers) (1)............... .97% .85% .975% .80%
==== ==== ===== ====
(1) Management Fees and 12b-1 Fees are based on average daily net assets and
are calculated daily and paid monthly. Before 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%, .41% and .35%, respectively, and Total Fund
Operating Expenses would be 1.12%, 1.14%, 1.09% and 1.13%, 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:
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ -------- --------
Money Market*............... $10 $31 $54 $119
Municipal Money Market*..... $ 9 $27 $47 $105
Government Obligations
Money Market*............. $10 $31 $54 $120
New York Municipal
Money Market*............. $ 8 $25 $44 $99
* 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)" 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. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
-8-
<PAGE>
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-Adviser" and "Distribution of Shares" below.) 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 figures 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 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
-9-
<PAGE>
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. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved.
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 in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less liquidity. 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.
-10-
<PAGE>
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 ("Rating Organization").
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 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 13 months, depending upon the note
involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, provided the repurchase agreement itself matures in less
than 13 months. 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.
-11-
<PAGE>
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 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. A reverse
repurchase agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. 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.
-12-
<PAGE>
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 (2)
highest rating categories by one or more Rating Organizations (e.g., commercial
paper rated "A-1" or "A-2" by Standard & Poor's Rating Services ("S&P")), (3)
securities that are rated at the time of purchase by the only Rating
Organization 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 a
-13-
<PAGE>
Rating Organization ("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, and 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, GICs, 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
shareholder approval. 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 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
-14-
<PAGE>
borrowing; or purchase portfolio securities while borrowings are in
excess of 5% of the Portfolio's net assets. (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 Rating Organization, are rated (at the time of
purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization 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
-15-
<PAGE>
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"). There is
no assurance that the investment objective of the Municipal Money Market
Portfolio will be achieved.
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
-16-
<PAGE>
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.
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
-17-
<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, 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 shareholder approval. 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
-18-
<PAGE>
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 total
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
10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in
excess of 5% of the Portfolio's net assets. (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 more than 25% of
the value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase 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
-19-
<PAGE>
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.
Due to fluctuations in interest rates, the market value of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities may vary. Certain government securities held by the Portfolio
may have remaining maturities exceeding 13 months if such securities provide for
adjustments in their interest rates not less frequently than every 13 months and
the adjustments are sufficient to cause the securities to have
-20-
<PAGE>
market values, after adjustment, which approximate their par values. There is no
assurance that the investment objective of the Government Obligations Money
Market Portfolio will be achieved.
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-related securities
consist of mortgage loans which are 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. The Portfolio
may also acquire asset-backed securities as described under "Investment
Objectives and Policies--Money Market Portfolio-- Asset-Backed Securities."
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.
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.
-21-
<PAGE>
The Government Obligations Money Market Portfolio's investment
objective and policies described above may be changed by the Fund's Board of
Directors without shareholder approval. The following investment limitations may
not be changed, however, 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 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 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
are in excess of 5% of the Portfolio's net assets. (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. 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.
-22-
<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 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
-23-
<PAGE>
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
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 Investor Service, Inc. ("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.
-24-
<PAGE>
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 than a
diversified portfolio. 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.
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 S&P and 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 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
-25-
<PAGE>
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.
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 shareholder approval. 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 are in excess of 5% of
the Portfolio's net assets. (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.
-26-
<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.
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. 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 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.
-27-
<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 good order 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. 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. On any Business
Day, orders which are accompanied by Federal Funds and received by PFPC 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 the close of regular trading on
the NYSE (generally 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 the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE 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 the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
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 investment Account requirements. Even if
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, and 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 and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability
to purchase Theta Shares under an automatic purchase
-28-
<PAGE>
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 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 available in Federal
Funds to the Fund's custodian prior to the close of regular trading on the NYSE,
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" 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. An investor's bank
or Dealer may impose a charge for this service. The Fund does not currently
charge for effecting wire transfers but reserves the right to do so in the
future. 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:
-29-
<PAGE>
A. Telephone the Fund's transfer agent, PFPC, toll-free (800)
447-1139 (in Delaware call collect (302) 791- 1149), and provide your
name, address, telephone number, Social Security or Tax Identification
Number, the Theta Class selected, the amount being wired, and by which
bank or Dealer. PFPC will then provide an investor with a Fund account
number. (Investors with existing accounts should also notify PFPC 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 initial purchases 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 in an Account 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
-30-
<PAGE>
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 the close of regular trading on the NYSE on a Business
Day, the redemption will be effective as of the close of regular trading on the
NYSE 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 may 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 Theta 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 may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone
if they have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone 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 redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the
-31-
<PAGE>
Administrator nor any other Fund agent will be liable for any loss, liability,
cost or expense for following the procedures below or for following instructions
communicated by telephone that they reasonably believe 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 Portfolio, 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, financial institutions, securities dealers, financial
planners, trustee, custodian other than the Distributor 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.
Proceeds of a telephone redemption request 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 the close of
regular trading on the NYSE will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. 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, although no
fee is currently contemplated.
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 may establish a higher minimum. An investor wishing
to use this check writing redemption procedure
-32-
<PAGE>
should complete specimen signature cards (available from PFPC), 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. Pursuant to rules under the 1940 Act, checks may
not be presented for cash payment at the offices of PNC Bank. 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. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed 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. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
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
notice 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 class 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 the close of regular
trading on the
-33-
<PAGE>
NYSE 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, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the value of the proportionate interest of each
class in the securities, cash, and other assets of the Portfolio, subtracting
the accrued and actual liabilities of the class and dividing the result by the
number of its shares outstanding of the class. The net asset value per share of
each class is determined independently of any of the Fund's other classes.
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 twenty-two separate investment
portfolios. Each of the Theta Classes represents interests in one of the
following 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
-34-
<PAGE>
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 $38.7 billion of assets, of which approximately $35.2 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-adviser. Such sub-advisory fees have no
effect on the advisory fees payable by such Portfolio to PIMC.
-35-
<PAGE>
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.
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. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
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."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a
wholly-owned subsidiary of Warburg Pincus Asset Management, Inc. with a
principal business address at 466 Lexington Avenue, New York, New York, acts as
distributor of the Shares of each of the Theta Classes of the Fund pursuant to a
distribution agreement and various supplements thereto (collectively, the
"Distribution Agreements") with the Fund on behalf of each of the Theta Classes.
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, fees paid to the investment adviser and administrator's fees
and 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 the 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, the expense of reports to shareholders, shareholders'
meetings and proxy solicitations, 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
-36-
<PAGE>
upon the relative net assets of the investment portfolios. 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 may assume 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
The Board of Directors of the Fund approved and adopted the
Distribution Agreements 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 Agreements 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 Agreements and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including 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 Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or 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.
-37-
<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 Theta Class
the fee agreed to under the relevant Distribution Agreement. Payments under the
plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
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 the close
of regular trading on the NYSE. 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, it 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, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be
-38-
<PAGE>
taxed to shareholders as long-term capital gain or mid-term capital gain, as the
case may be, 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 current nominal maximum marginal rate on ordinary income
for individuals, trusts and estates is generally 39%, while the maximum rate
imposed on mid-term and other long-term capital gain of such taxpayers is 28%
and 20%, respectively. 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
-39-
<PAGE>
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.
-40-
<PAGE>
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 13.93 billion shares are
currently classified into 82 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 Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class 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 OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE THETA CLASSES
OF THESE PORTFOLIOS.
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.
-41-
<PAGE>
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 15, 1997, 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.
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).
-42-
<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 1, 1997, (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 1, 1997.
CONTENTS
Prospectus
Page Page
---- ----------
General........................................ 3 2
Investment Objectives and Policies............. 3 6
Directors and Officers......................... 37 N/A
Investment Advisory, Distribution and
Servicing Arrangements....................... 41 36
Portfolio Transactions......................... 47 N/A
Purchase and Redemption Information............ 49 29
Valuation of Shares............................ 50 35
Performance Information........................ 51
Taxes.......................................... 53 41
Description of Shares.......................... N/A 44
Additional Information Concerning Fund
Shares....................................... 57 -
Miscellaneous.................................. 61 N/A
Financial Statements........................... N/A 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
<PAGE>
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.
-2-
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate twenty-two separate
investment portfolios. This Statement of Additional Information pertains to four
classes of shares (the "Theta 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
Theta Classes are offered by the Prospectus dated December 1, 1997. 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, as amended (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 or liquid 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 13 months, provided: (i) the Portfolio is entitled
to the payment of principal at any time, or during specified intervals not
exceeding 13 months, 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 13 months. In determining the average weighted
maturity of the Money Market, Municipal Money Market or New York Municipal
-3-
<PAGE>
Money Market Portfolio and whether a variable rate demand instrument has a
remaining maturity of 13 months 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.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios may
purchase "when-issued" and delayed delivery securities purchased for delivery
beyond the normal settlement date at a stated price and yield. While the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios has
such commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
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
-4-
<PAGE>
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 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.
-5-
<PAGE>
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 possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) 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
-6-
<PAGE>
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.
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 13 months, 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
-7-
<PAGE>
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the 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, as amended.
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). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks 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, if such banks and non-bank dealers are deemed
creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the
-8-
<PAGE>
seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price (including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference between the purchase price
and the repurchase price specified in the repurchase agreement. The Portfolio's
adviser or sub-adviser will mark-to-market daily the value of the securities.
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 SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
-9-
<PAGE>
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may invest in
multiple class pass-through securities, including collateralized mortgage
obligations ("CMOs"). These multiple class securities may be issued by U.S.
Government agencies or instrumentalities, including FNMA and FHLMC, or by trusts
formed by private originators of, or investors in, mortgage loans. In general,
CMOs are debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
(the "Mortgage Assets"), the payments on which are used to make payments on the
CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMO. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
-10-
<PAGE>
payments are taken into account in calculating the final distribution date of
each class.
ASSET-BACKED SECURITIES. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income 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 ("Rating Organizations") 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 Rating Organization 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 13
months 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
-11-
<PAGE>
does not have comparable obligations rated by a Rating Organization ("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 13 months 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 Rating Organization 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 that 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
-12-
<PAGE>
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.
The Portfolios may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Portfolios'
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in a Portfolio during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
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,
among others, 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
Fund's investments in New York Municipal Obligations are summarized below. This
summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have 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 very 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
-13-
<PAGE>
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 a
large portion of 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 position.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and remained lower
until 1991; since then, it has been higher than the national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the
"Governor") to submit to the State legislature (the "Legislature") a balanced
executive budget which contains a complete plan of expenditures for the ensuing
fiscal year and all monies 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 an explanation of any changes from the previous state financial plan.
The State's budget for the 1997-98 fiscal year was adopted by the
Legislature on August 4, 1997, more than four 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 necessary appropriations for State-supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State
-14-
<PAGE>
has failed to adopt a budget prior to the beginning of its fiscal year. There
can be no assurance that State budgets in future fiscal years will be adopted
by the April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General Fund
disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The General
Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced on a
cash basis. The Financial Plan projections include a reserve for future needs of
$530 million. As compared to the Governor's Executive Budget as amended in
February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local assistance ($1.3
billion). Resources used to fund these additional expenditures include increased
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re-estimates of social
service, fringe benefit and other spending, and certain non-recurring resources.
The 1997-98 adopted budget includes multi-year reductions, including a
State-funded property and local income tax reduction program, estate tax relief,
utility gross receipts tax reductions, permanent reductions in the State sales
tax on clothing, and elimination of assessments on medical providers. These
reductions are intended to reduce the overall level of State and local taxes in
New York and to improve the State's competitive position vis-a-vis other states.
The various elements of the State and local tax and assessments reductions have
little or no impact on the 1997-98 State Financial Plan, and do not begin to
materially affect the outyear projections until the State's 1999-2000 fiscal
year.
The Division of the Budget estimates that the 1997-98 State Financial
Plan contains actions that provide non-recurring resources or savings totaling
approximately $270 million (or 0.7 percent of total General Fund receipts).
These include the use of $200 million in federal reimbursement funds available
from retroactive social service claims approved by the federal government in
April 1997. The balance is composed of various other actions, primarily the
transfer of unused special revenue fund balances to the General Fund.
The economic and financial condition of the State may be affected by
various financial, social, economic and political
-15-
<PAGE>
factors. Those factors can be very complex, may vary from fiscal year to fiscal
year, and are frequently the result of actions taken not only by the State and
its agencies and instrumentalities, but also by entities, such as the federal
government, that are not under the control of the State. In addition, the
financial plan is based upon forecasts of national and State economic activity.
Economic forecasts have frequently failed to predict accurately the timing and
magnitude of changes in the national and the State economies. Actual results,
however, could differ materially and adversely from the projections set forth in
the 1997-98 State Financial Plan, and those projections may be changed
materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
Division of Budget believes it could take similar actions should variances occur
in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the federal government and other factors have created structural budget gaps
for the State. These gaps resulted from a significant disparity between
recurring revenues and the costs of maintaining or increasing the level of
support for State programs. To address a potential imbalance in any given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-
-16-
<PAGE>
year commitments for school aid and pre-kindergarten early learning programs
which could add as much as $1.4 billion in costs when fully annualized in fiscal
year 2001-02. These spending commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2001 State fiscal year
could grow to nearly $12 billion.
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 State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
Total General Fund receipts and transfers from other funds in the
1997-98 fiscal year are projected to be $35.09 billion, an increase of over $2
billion or approximately 6% from the $33.04 billion recorded in the prior fiscal
year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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
general obligation 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 general obligation debt that may be so authorized and subsequently
incurred by the State.
-17-
<PAGE>
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 from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general obligation and 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 and 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 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 public authority, municipality or other entity, the
State s obligation to make such 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
-18-
<PAGE>
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through the State's annual seasonal borrowing. The legislation empowered LGAC to
issue its bonds and notes in an amount to yield net proceeds not in excess of
$4.7 billion (exclusive of certain refunding bonds). Over a period of years, the
issuance of these long-term obligations, which were 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 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 the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap was
thus permitted in any fiscal year, it was 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.
On January 13, 1992, Standard & Poor's Ratings Services ("S&P")
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. See Appendix "A" for an explanation
of bond ratings. On August 28, 1997, S&P revised its ratings on the State's
general obligation bonds from A- to A and revised its ratings on the State's
moral obligation, lease purchase, guaranteed and contractual obligation debt. 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 the 1997-98 fiscal year.
The State expects to issue $605 million in general obligation bonds (including
$140 million for purposes of redeeming outstanding bond anticipation notes) and
$140 million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in certificates of participation
(including costs of issuance, reserve funds and other costs) during the State s
1997-98 fiscal year for equipment purchases. The projection of State borrowings
for the 1997-98
-19-
<PAGE>
fiscal year is subject to change as market conditions, interest rates and other
factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved two
new authorizations for lease-purchase and contractual obligation financings. An
aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million to finance the
expansion and improvement of facilities at the Albany County airport.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes were $749.6 million for the 1996-97
fiscal year, and are estimated to be $720.9 million for the 1997-98 fiscal year.
Principal and interest payments on fixed rate and variable rate bonds issued by
LGAC were $329.5 million for the 1996-97 fiscal year, and are estimated to be
$329.6 million for the 1997-98 fiscal year. State lease-purchase and
contractual-obligation payments were $1.74 billion in fiscal year 1996-97, and
are estimated to be $2.21 billion in fiscal year 1997-98.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
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 and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including 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 to
regulations
-20-
<PAGE>
promulgated by the Superintendent of Insurance establishing certain excess
medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking reimbursement from the State for certain costs
arising out of the provision of pre-school services and programs for disabled
children; (11) an action seeking enforcement of certain sales and excise taxes
and tobacco products and motor fuel sold to non-Indian consumers on Indian
reservations; and (12) a challenge to the constitutionality of Clean Water/Clean
Air Bond Act.
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 developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal year 1996-97, $193 million in fiscal year 1997-98, peaking at $241
million in fiscal year 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 was required to make aggregate payments of $351.4 million. 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. Litigation challenging the constitutionality of the
treatment of certain monies held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new
-21-
<PAGE>
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan. In its audited financial statements for the 1996-97
fiscal year, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $364 million, of which $134 million is
expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, 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.
AUTHORITIES. The fiscal stability of New York State is related, in
part, 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 is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by the
projects they finance or operate, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the 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
-22-
<PAGE>
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 may also be impacted by 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City achieved
balanced operating results as reported in accordance with then applicable GAAP.
The City was required to close substantial budget gaps in recent years in order
to maintain balanced operating results. There can be no assurance that the City
will continue to maintain balanced operating results. There can be no assurance
that the City will continue to maintain a balanced budget as required by State
law without additional tax or other revenue increases or additional reductions
in City services or entitlement programs, which could adversely affect the
City's economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. 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, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing the City's chronic structural budget problems and
-23-
<PAGE>
weak economic outlook. S&P 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 created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. 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, subject to
certain prior claims, 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. 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, 1997, MAC had outstanding an aggregate of approximately $4.267
billion of its bonds. MAC is authorized to issue bonds and notes to refund its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to the Transit
Authority and the New York City School Construction Authority through the 1997
fiscal year 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
-24-
<PAGE>
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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and the City
University of New York and reflected the City's expense and capital budgets for
the 1998 fiscal year, which were adopted on June 6, 1997. The 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The financial plan included increased tax
revenue projections; reduced debt service costs; the assumed restoration of
Federal funding for programs assisting certain legal aliens; additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization, initiatives proposed by the
City Council and other initiatives; and a proposed discretionary transfer to the
1998 fiscal year of $300 million of debt service due in the 1999 fiscal year for
budget stabilization purposes. In addition, the financial plan reflected the
discretionary transfer to the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years, and included actions to eliminate a
previously projected budget gap for the 1998 fiscal year. These gap-closing
actions included (i) additional agency actions totaling $621 million; (ii) the
proposed sale of various assets; (iii) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City from March 1999; and (iv) entitlement savings of $128
million which would result from certain of the reductions in Medicaid spending
proposed in the Governor's 1997-1998 Executive Budget and the State making
available to the City $77 million of additional Federal block grant aid, as
proposed in the Governor's 1997-1998 Executive Budget. The 1998-2001 Financial
Plan also set forth projections for the 1999 through 2001 fiscal years and
projected gaps of $1.8 billion, $2.8 billion and $2.6 billion for the 1999
through 2001 fiscal years, respectively.
-25-
<PAGE>
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to expire on
December 31, 1998 and the extension of which is projected to provide revenues of
$188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected
the increased costs which the City is prepared to incur as a result of welfare
legislation recently enacted by Congress. The 1998-2001 Financial Plan provided
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the State
has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
-26-
<PAGE>
Although the City has maintained balanced budgets in each of
its last sixteen fiscal years and is projected to achieve balanced operating
results for the 1997 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998-2001 Financial Plan can be successfully implemented
or that the City will maintain a balanced budget in future years without
additional State aid, revenue increases or expenditure reductions. Additional
tax increases and reductions in essential City services could adversely affect
the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments
-27-
<PAGE>
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs
in the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. Although the City's current financial plan projects
$2.4 billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment 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 State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC
-28-
<PAGE>
was created to help Troy avoid default on certain obligations. The legislation
creating Troy MAC prohibits the city of Troy from seeking federal bankruptcy
protection while Troy MAC bonds are outstanding. Troy MAC has issued bonds to
effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 State budget. An additional $21
million will be dispersed among all cities, towns and villages, a 3.97% increase
in General Purpose State Aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in New York State other than New York City was approximately $19
billion. A small portion (approximately $102.3 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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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.
-29-
<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% 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 are in excess of 5% of the Portfolio's net
assets. (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
-30-
<PAGE>
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:
-31-
<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
shareholder approval.
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
-32-
<PAGE>
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 Rating Organization (as defined in the Prospectus), are
rated (at the time of purchase) by two or more Rating Organizations in the
highest rating category for such securities, (ii) if rated by only one
Rating Organization (as defined in the Prospectus), are rated by such
Rating Organization (as defined in the Prospectus) 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.
-33-
<PAGE>
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.
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% 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 are in excess of 5% of the Portfolio's net assets. (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
-34-
<PAGE>
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
shareholder approval.
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% 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 are in
excess of 5% of the Portfolio's net assets. (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
-35-
<PAGE>
estate or interests therein or issued by companies which invest in real
estate or interests therein;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
(8) make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment limitations, the
New York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest"), (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this limitation
only, private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
shareholder approval.
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
-36-
<PAGE>
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 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.
-37-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
Position Principal Occupation
Name and Address and Age with Fund During Past Five Years
- ------------------------ --------- ----------------------
*Arnold M. Reichman -49 Director Senior Managing Director, Chief
466 Lexington Avenue Operating Officer and Assistant
New York, NY 10017 Secretary, Warburg Pincus Asset
Management, Inc.; Director and
Executive Officer of Counsellors
Securities Inc.; Director/Trustee
of various investment companies
advised by Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President, Fahnestock Co.,
110 Wall Street Inc. (a registered broker-dealer);
New York, NY 10005 Prior to October 1996, Executive Vice
President of Gruntal & Co., Inc. (a
registered broker-dealer).
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).
-38-
<PAGE>
Position Principal Occupation
Name and Address and Age with Fund During Past Five Years
- ------------------------ --------- ----------------------
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.) 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 since 1969
1234 Market Street Comcast Corporation (cable television
16th Floor and communications); Director Comcast
Philadelphia, PA 19107-3723 Cablevision of Philadelphia (cable
television and communications) and
Nextel (wireless communications).
Donald van Roden -73 Director Self-employed businessman. From
1200 Old Mill Lane and Chairman February 1980 to March 1987, Vice
Wyomissing, PA 19610 of the Board Chairman, SmithKline Beecham
Corporation (pharmaceuticals);
Director, AAA Mid-Atlantic
(auto service); Director,
Keystone Insurance Co.
-39-
<PAGE>
Position Principal Occupation
Name and Address and Age with Fund During Past Five Years
- ------------------------ --------- ----------------------
Edward J. Roach -73 President Certified Public Accountant; Vice
Suite 100 and Chairman of the Board, Fox Chase
Bellevue Park Treasurer Cancer Center; Trustee Emeritus,
Corporate Center Pennsylvania School for the Deaf;
400 Bellevue Parkway Trustee Emeritus,Immaculata College;
Wilmington, DE 19809 President or Vice President and
Treasurer of various investment
companies advised by PNC
Institutional Management
Corporation; Director, The Bradford
Funds, Inc.
Morgan R. Jones -58 Secretary Chairman of the law firm of Drinker
Drinker Biddle & Reath LLP Biddle & Reath LLP; Director,
1345 Chestnut Street Rocking Horse Child Care Centers of
Philadelphia, PA 19107-3496 America, Inc.
- ----------------------
* Mr. Reichman is an "interested person" of the Fund, as that term is defined in
the 1940 Act, by virtue of his positions 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 Fahnestock Co., Inc., a
registered 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.
-40-
<PAGE>
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 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 the Distributer and Mr. Sablowsky, who is considered to be an
affiliated person, $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. In
addition, the Chairman of the Board receives an additional fee of $5,000 per
year for his services in this capacity. Directors who are not affiliated persons
of the Fund and Mr. Sablowsky are reimbursed for any expenses incurred in
attending meetings of the Board of Directors or any committee thereof. For the
year ended August 31, 1997, each of the following members of the Board of
Directors received compensation from the Fund in the following amounts:
<TABLE>
DIRECTORS' COMPENSATION
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM REGISTRANT
AGGREGATE ACCRUED AS ANNUAL AND FUND
COMPENSATION FROM PART OF FUND BENEFITS UPON COMPLEX1 PAID
NAME OF PERSON/ POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- ------------------------ ----------------- ------------ -------------- ---------------
<S>
<C> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and Chairman
</TABLE>
- ----------------------
1 A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any other investment companies.
-41-
<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 and one other
employee), pursuant to which the Fund will contribute on a quarterly basis
amounts equal to 10% of the quarterly compensation of each eligible employee. By
virtue of the services performed by PNC Institutional Management Corporation
("PIMC"), the Portfolios' 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 two part-time employees. Drinker Biddle & Reath LLP,
of which Mr. Jones is a partner, receives legal fees as counsel to the Fund. 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 that 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. Under the sub-advisory agreements, PIMC pays PNC Bank an annual
fee equal to 75% of the investment advisory fees incurred by PIMC on behalf of
the Money Market, Municipal Management and Government Obligations Money Market
Portfolios. 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
Agreements."
-42-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ----------------- ------- --------------
Money Market Portfolio $5,366,431 $3,603,130 $469,986
Municipal Money
Market Portfolio $201,095 $1,269,553 $14,921
Government Obligations
Money Market Portfolio $1,774,123 $647,063 $404,193
New York Municipal
Money Market Portfolio $21,831 $324,917 ----
For the fiscal year ended August 31, 1996, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ----------------- ------- --------------
Money Market Portfolio $4,174,375 $3,522,715 $342,158
Municipal Money
Market Portfolio $190,687 $1,218,973 $17,576
Government Obligations
Money Market Portfolio $1,638,622 $671,811 $406,954
New York Municipal
Money Market Portfolio $2,709 $268,017 $0
-43-
<PAGE>
For the fiscal year ended August 31, 1995, the Fund paid PIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
Money Market Portfolio $2,274,697 $2,589,832 $12,047
Municipal Money
Market Portfolio $67,752 $1,041,321 $11,593
Government Obligations
Money Market Portfolio $780,122 $398,363 $0
New York Municipal
Money Market Portfolio $187,660 $187,660 $12,656
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) 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; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; and (f) the cost of investment company
literature and other publications provided by the Fund to its directors and
officers. The Theta Classes of the Fund pays their own distribution fees, and
may pay a different share than other classes of other expenses (excluding
advisory and custodial fees) if those expenses are actually incurred in a
different amount by the Theta classes or if they receive different services.
Under the Advisory Agreements, 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
Agreements, 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.
-44-
<PAGE>
The Advisory Agreements were each most recently approved July
9, 1997 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 Agreements
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 Agreement 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 Agreement 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 Agreements may also be terminated by PIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements 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.
-45-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
PORTFOLIOS FEES PAID WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
Municipal Money Market $448,548 $0 $0
Portfolio
New York Municipal $99,071 $0 $0
Money Market Portfolio
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- -------------
Municipal Money Market $428,209 $0 $0
New York Municipal $67,204 $10,146 $0
Money Market Portfolio
For the fiscal year ended August 31, 1995, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER
PORTFOLIOS WAIVERS) WAIVERS REIMBURSEMENTS
- ---------- --------- ------- --------------
Municipal Money Market $321,790 $6,233 $0
Portfolio
New York Municipal $8,960 $44,657 $0
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
-46-
<PAGE>
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 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
-47-
<PAGE>
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 agreement, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of each of the Theta Classes,
(collectively, the "Distribution Agreements"), 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 appropriate efforts to distribute shares of
each of the Theta Classes. As compensation for its distribution services, the
Distributor receives, pursuant to the terms of the Distribution Agreements, 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 approved 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").
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 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 12b-1
-48-
<PAGE>
Directors 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
positions with the Distributor. Mr. Sablowsky, a Director of the Fund, had an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
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 13 months 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 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months 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
-49-
<PAGE>
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.
The Fund is required to identify any securities of its regular
broker dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1997, the following portfolio held the following securities:
-50-
<PAGE>
Portfolio Security Value
--------- -------- -----
Money Market Portfolio Bear Stearns Companies, Inc. $105,000,000
Commercial Paper
Money Market Portfolio Bear Stearns Companies, Inc. $ 20,000,000
Corporate Obligation
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 adding
the value of the proportionate interest of a class in a Portfolio's securities,
cash and other assets, subtracting the actual and accrued liabilities of the
class and dividing the result by the number of outstanding shares of the class.
The net asset value per share of each class is calculated independently of each
other class of the Fund. The net asset value per share of each class is computed
twice each day, as of 12:00 noon (Eastern Time) and as of the close of the NYSE
(generally 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.
-51-
<PAGE>
Currently, the NYSE is closed weekends and on New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day and the preceding Friday and
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays as the NYSE as well as
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 13 months, 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
-52-
<PAGE>
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.
-53-
<PAGE>
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 MONEY FUND
REPORT(R), 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
-54-
<PAGE>
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").
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
-55-
<PAGE>
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)
-56-
<PAGE>
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
-57-
<PAGE>
be taxable to Portfolio shareholders as mid-term or other long-term capital
gain, 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.
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 earnings
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."
-58-
<PAGE>
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 13.93 billion shares are
currently classified in 82 classes 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),
-59-
<PAGE>
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 Numeric Investors Micro Cap),50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH Common Stock (n/i Numeric Investors 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) 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
700 million shares are classified as Class Janney Money Market Common Stock
(Money), 200 million shares are classified as Class Janney Municipal Money
Market Common Stock (Municipal Money), 500 million shares are classified as
Class Janney Government Obligations Money Market Common Stock (U.S. Government
Money), 100 million shares are classified as Class Janney 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
-60-
<PAGE>
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 Money Market Common
Stock, Class Janney Municipal Money Market Common Stock, Class Janney Government
Obligations Money Market Common Stock and Class Janney New York Municipal Money
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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Funds, the n/i
Numeric Investors 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 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 n/i Numeric Investors Family represents interests in four
non-money market portfolios; the Boston Partners Family represents interests in
three non-money market portfolios, and the Beta, Gamma, Delta, Epsilon, Zeta,
Eta
-61-
<PAGE>
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 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).
-62-
<PAGE>
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
CONTROL PERSONS. As of November 15, 1997, 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>
<S>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<C> <C> <C>
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust
under the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
-63-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield
Clinic 5.31%
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
-64-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Operations Co. Inc. as Agent
Class for Certain Employee Benefit
(Class U) Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor Class E. Francis Wilson TTEE
(Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
-65-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for
Advisor Class the
(Class NN) Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4175
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
-66-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of
Institutional Class Trustees
(Class Y) 161 Forbes Road, Suite 201
Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments Institutional 9.70%
Operations Co. Inc. (FIIOC)
as Agent for Credit Suisse
First Boston Employee's
Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
-67-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income 14130 Riverside Drive
Portfolio (Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp.
Collective Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond Fund William A. Marquard 39.48%
Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL
33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
-68-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social Security 6.1%
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for
Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
-69-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for
(Class HH) the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost
Cap Value Fund - Trust Mary Black Foundation 26.2%
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
AC 10-01-001-0578481
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
-70-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-71-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
-72-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
</TABLE>
As of the same 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; and as of the same date, directors and officers as a group
owned less than one percent of the shares of the Fund.
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 underwriting securities, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, administrator, 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 customers. PIMC, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
PIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the
-73-
<PAGE>
Fund enter into new agreements or would consider the possible termination
of the Fund. Any new advisory or sub-advisory agreement would normally be
subject to shareholder approval. It is not anticipated that any change in the
Fund's method of operations as a result of these occurrences would affect its
net asset value per share or result in a financial loss to any shareholder.
SHAREHOLDER APPROVALS. As used in this Statement of Additional
Information and in the Prospectuses, "shareholder approval" and a "majority of
the outstanding shares" of a class, series or Portfolio means, with respect to
the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment limitation, the lesser of (1) 67% of the
shares of the particular class, series or Portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of such class,
series or Portfolio are present in person or by proxy, or (2) more than 50% of
the outstanding shares of such class, series or Portfolio.
-74-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
A-1
<PAGE>
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources
of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing
A-2
<PAGE>
requirements, access to capital markets is good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
A-3
<PAGE>
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
A-4
<PAGE>
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely
A-5
<PAGE>
impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
A-6
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the ratingis provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment
A-7
<PAGE>
attributes are designated by the symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future
A-8
<PAGE>
developments, short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these securities, and "D" represents the lowest potential for
recovery.
A-9
<PAGE>
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to
A-10
<PAGE>
maturity of long term debt and preferred stock which are issued by United States
commercial banks, thrifts and non-bank banks; non-United States banks; and
broker-dealers. The following summarizes the rating categories used by Thomson
BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues
A-11
<PAGE>
determined to possess very strong characteristics are given a plus (+)
designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(INSTITUTIONAL CLASS)
OF
THE RBB FUND, INC.
Boston Partners Large Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Institutional Class ("Shares") offered by this
Prospectus represent interests in the Fund. The Fund is a diversified fund that
seeks long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks and securities
convertible into common stocks. It seeks to achieve its objectives by investing
at least 65% of its total assets in a diversified portfolio consisting of equity
securities of issuers with a market capitalization of primarily $1 billion or
greater and identified by Boston Partners Asset Management, L.P. (the "Adviser")
as equity securities that possess value characteristics. The Adviser examines
various factors in determining the value characteristics of such issuers,
including, but not limited to, price to book value ratios and price to earnings
ratios. These value characteristics are examined in the context of the issuer's
operating and financial fundamentals such as return on equity, earnings growth
and cash flow.
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 1, 1997, 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 by calling (800)
311-9783 or 9829. The Prospectus and the Statement of Additional Information are
available for reference, along with other related materials, on the SEC Internet
Web Site (http://www.sec.gov).
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.
- --------------------------------------------------------------------------------
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 1, 1997
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management company incorporated under the laws of
the State of Maryland currently operating or proposing to operate twenty-two
separate investment portfolios. The Shares offered by this Prospectus represent
interests in the Boston Partners Large Cap Value Fund. RBB was incorporated in
Maryland on February 29, 1988.
FEE TABLE
The following table illustrates annual operating expenses incurred by
Institutional Shares of the Fund (after fee waivers and expense reimbursements)
for the fiscal period ended August 31, 1997, as a percentage of average daily
net assets. An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees (after waivers)*.............................0.07%
12b-1 Fees (after waivers)*..................................0.04%
Other Expenses (after waivers and reimbursements)............0.89%
-----
Total Fund Operating Expenses (after waivers
and expense reimbursements)*........................1.00%
=====
* In the absence of fee waivers and expense reimbursements, Management
Fees would be 0.75%; 12b-1 Fees would be 0.15%; Other Expenses would be
1.74%; and Total Fund Operating Expenses would be 2.64%. Management
Fees and 12b-1 Fees are each based on average daily net assets and are
calculated daily and paid monthly.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period-
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
Boston Partners Large Cap Value Fund $10 $32 $55 $122
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in 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
expense reimbursements and voluntary waivers of Management Fees and 12b-1 Fees
for the Fund. However, there can be no assurance that any future expense
reimbursements and waivers of Management
-2-
<PAGE>
Fees and 12b-1 Fees will not vary from the figures reflected in the Fee 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" 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.
FINANCIAL HIGHLIGHTS
The "Financial Highlights" presented below set forth certain
investment results for shares of the Institutional Class of the Fund for the
period indicated. Shares of the Institutional Class were first issued on January
2, 1997. The financial data included in this table should be read in conjunction
with the financial statements and notes thereto and the unqualified report of
the independent accountants thereon, which are incorporated by reference into
the Statement of Additional Information. Further information about the
performance of the Institutional Class of the Fund is available in the Annual
Report to Shareholders. Both the Statement of Additional Information and the
Annual Report to Shareholders may be obtained from the Fund free of charge by
calling the telephone number on page 1 of the prospectus.
-3-
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Period
January 2, 1997*
through August 31,
1997
------------------
PER SHARE OPERATING PERFORMANCE** $ 10.00
------
NET ASSET VALUE, BEGINNING OF PERIOD
Net investment income (1)........... 0.05
Net realized and unrealized gain on
investments(2)...................... 2.41
-----
Net increase in net assets resulting
from operations..................... 2.46
-----
NET ASSET VALUE, END OF PERIOD...... $12.46
=====
Total investment return(3).......... 24.60%
RATIOS/SUPPLEMENTAL DATA $24,603
Net assets, end of period (000).....
Ratio of expenses to average net
assets***(1)(4)................... 1.00%
Ratio of net investment income to
average net assets***(1).......... 1.19%
PORTFOLIO TURNOVER RATE****......... 67.16%
Average commission rate per share(5) $0.0397
- ----------------------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the
period is not in accord with the change in the aggregate gains and
losses in investments during the period because of the timing of sales
and repurchases of Fund shares in relation to fluctuating net asset
value during the period.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Without the waiver of advisory, 12b-1, administration and transfer
agent fees and without the reimbursement of certain
-4-
<PAGE>
operating expenses, the ratio of expenses to average net assets
annualized for the period ended August 31, 1997 would have been 2.64%
for the Institutional Class.
(5) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period subject to such
commissions.
-5-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term growth of
capital with current income as a secondary objective. The Fund seeks to achieve
its objective by investing at least 65% of its total assets in a diversified
portfolio consisting primarily of equity securities, such as common stocks and
securities convertible into common stocks, of issuers with a market
capitalization of $1 billion or greater and identified by the Adviser as
possessing value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including, but not limited to, price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study
of trends in industries and companies, earnings power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operated in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold from time to time various foreign currencies pending their
investment in foreign securities or their conversion into U.S. dollars. The
value of the assets of the Fund as measured in U.S. dollars may therefore be
affected favorably or unfavorably by changes in exchange rates. There may be
less publicly available information concerning foreign issuers than is available
with respect to U.S. issuers. Foreign securities may not be registered with the
U.S. Securities and Exchange Commission, and generally, foreign companies are
not subject to uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers. See "Investment Objectives and
Policies--Foreign Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity
securities of issuers with lower capitalization; derivative securities; debt
securities issued by U.S. banks, corporations and other business organizations
that are investment
-6-
<PAGE>
grade securities; and debt securities issued by the U.S. Government or
government agencies.
In accordance with the above-mentioned policies, the Fund may also
invest in indexed securities, convertible securities, repurchase and reverse
repurchase agreements and dollar rolls, financial futures contracts, options on
futures contracts and may lend portfolio securities. See "Investment Objectives
and Policies" in the Statement of Additional Information.
The Fund may invest in registered investment companies and investment
funds in foreign countries subject to the provisions of the Investment Company
Act of 1940 (the "1940 Act") and as discussed in "Investment Objectives and
Policies" in the Statement of Additional Information. If the Fund invests in
such investment companies, the Fund will bear its proportionate share of the
costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all
times in accordance with the above mentioned policies, the Fund reserves the
right to hold up to 100% of its assets, as a temporary defensive measure, in
cash and eligible U.S. dollar-denominated money market instruments. The Adviser
will determine when market conditions warrant temporary defensive measures.
The Fund's investment objective and the policies described above may be
changed by RBB's Board of Directors without the affirmative vote of the holders
of a majority of the outstanding Shares representing interests in the Fund.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (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.")
The Fund 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
purchases more than 5% of the value of the Fund'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
Fund, except that up to 25% of the value of the
-7-
<PAGE>
Fund's total assets may be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of
purchase, 25% or more of the value of the total assets of the Fund to
be invested in the obligations of issuers in any single industry,
provided that there is no limitation with respect to investments in
U.S. Government obligations.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks and enter into reverse repurchase agreements
and dollar rolls for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing; or
mortgage, pledge or hypothecate any assets, except in connection with
any such borrowing and then in amounts not in excess of one-third of
the value of the Fund's total assets at the time of such borrowing. The
Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings
from banks) are in excess of 5% of its total assets. Securities held in
escrow or separate accounts in connection with the Fund's investment
practices are not considered to be borrowings or deemed to be pledged
for purposes of this limitation.
PORTFOLIO TURNOVER
The Fund retains the right to sell securities irrespective of how long
they have been held. The Adviser estimates that the annual turnover in the Fund
will not exceed 100%. High Portfolio turnover (100% or more) will generally
result in higher transaction costs to a Portfolio and may result in the
realization of short-term capital gains that are taxable to shareholders as
ordinary income.
RISK FACTORS
- --------------------------------------------------------------------------------
As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The net asset value per share of Shares representing
interests in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. Other risk
factors are discussed above under "Investment Objectives and Policies" and in
the Statement of Additional Information under "Investment Objectives and
Policies."
Investment methods described in this Prospectus are among those that
the Fund has the power to utilize. Some may be
-8-
<PAGE>
employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular method or technique carries no implication that it
will be utilized or, if it is, that it will be successful.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
INVESTMENT ADVISER
Boston Partners Asset Management, L.P., located at One Financial
Center, 43rd Floor, Boston, Massachusetts 02111, serves as the Fund's investment
adviser. The Adviser provides investment management and investment advisory
services to investment companies and other institutional accounts that had
aggregate total assets under management as of September 30, 1997, in excess of
$12.5 billion. Boston Partners' general partner is Boston Partners, Inc., a
company that acts as a general partner to investment advisers organized as
limited partnerships.
Subject to the supervision and direction of RBB's Board of Directors,
the Adviser manages the Fund's portfolio in accordance with the Fund's
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research services to the
Fund. For its services to the Fund, the Adviser is entitled to receive under the
Advisory Agreement a monthly advisory fee computed at an annual rate of 0.75% of
the Fund's average daily net assets. The Adviser is currently waiving advisory
fees in excess of 0.07% of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
The day-to-day portfolio management of the Fund is the responsibility
of Mark E. Donovan and Wayne S. Sharp who are senior portfolio managers of the
Adviser. Mr. Donovan is Chairperson of the Adviser's Equity Strategy Committee
which oversees the investment activities of the Adviser's $4.3 billion of Large
Capitalization Core Value institutional equity assets under management. Prior to
joining the Adviser on April 16, 1995, Mr. Donovan was a Senior Vice President
and Vice Chairman of The Boston Company Asset Management, Inc.'s Equity Policy
Committee. Mr. Donovan is a Chartered Financial Analyst and has over fourteen
years of investment experience. Ms. Sharp is Vice Chairperson of the Adviser's
Equity Strategy Committee and has
-9-
<PAGE>
over twenty years of investment experience. Prior to joining the Adviser on
April 16, 1995, Ms. Sharp was a Senior Vice President and member of the Equity
Policy Committee of The Boston Company Asset Management, Inc. Ms. Sharp is also
a Chartered Financial Analyst.
ADMINISTRATOR
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC is entitled to receive a fee under an administration and
accounting services agreement calculated at an annual rate of .125% of the
Fund's average daily net assets with a minimum fee of $75,000 payable monthly on
a pro rata basis. PFPC is currently waiving one-half of its minimum annual fee.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank, National Association ("PNC Bank") serves as the Fund's
custodian and PFPC serves as the Fund's transfer agent and dividend disbursing
agent. The principal offices of PFPC, an indirect, wholly-owned subsidiary of
PNC Bank, are located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc. ("Warburg"), with a
principal business address at 466 Lexington Avenue, New York, New York, acts as
distributor for the Shares pursuant to a distribution agreement (the
"Distribution Agreement") with RBB on behalf of the Shares.
EXPENSES
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Institutional Class of the Fund pays
its own distribution fees, and may pay a different share than the other classes
of the Fund of other expenses (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount by the Institutional Class
or if it receives different services.
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expenses of the
-10-
<PAGE>
Fund, such assumption of expenses will have the effect of lowering the Fund's
overall expense ratio and of increasing its yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive
from the Fund a distribution fee with respect to the Shares, which is accrued
daily and paid monthly, of up to 0.15% on an annualized basis of the average
daily net assets of the Shares. The actual amount of such compensation under the
Plan is agreed upon by RBB's Board of Directors and by the Distributor under the
Distribution Agreement. Under the Distribution Agreement, the Distributor has
agreed to accept compensation for its services thereunder and under the Plan in
the amount of 0.04% on the first $200 million of the average daily net assets of
the Fund on an annualized basis in any year and 0.05% thereafter. Such
compensation may be increased up to the amount permitted by the Plan with the
approval of RBB's Board of Directors. The Distributor may, in its discretion,
from time to time waive voluntarily all or any portion of its distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may 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 Shares the fee agreed to
under the Distribution Plan. Payments under the Plan are not tied exclusively to
expenses actually incurred by the Distributor, and payments may exceed
distribution expenses actually incurred.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares, consisting of securities dealers who have sold
Shares or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for
-11-
<PAGE>
recipients, employees or clients and other programs or events and may also
include opportunities to participate in advertising or sales campaigns and/or
shareholder services and programs regarding one or more Boston Partners Funds.
Travel, meals and lodging may also be paid in connection with these promotional
activities. In some instances, these incentives may be offered only to certain
institutions whose representatives provide services in connection with the sale
or expected sale of significant amounts of Shares.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Shares representing interests in the Fund are offered continuously for
sale by the Distributor and may be purchased without imposition of a sales
charge. Shares may be purchased initially by completing the application included
in this Prospectus and forwarding the application to the Fund's transfer agent,
PFPC. Purchases of Shares may be effected by wire to an account to be specified
by PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston Partners Large Cap Value Fund," c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. Shareholders may not purchase shares of the
Boston Partners Large Cap Value Fund with a check issued by a third party and
endorsed over to the Fund. The name of the Fund, Boston Partners Large Cap Value
Fund, must also appear on the check or 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 the Fund must be at least
$100,000 and subsequent investments must be at least $5,000. For purposes of
meeting the minimum initial purchase, clients which are part of endowments,
foundations or other related groups may be aggregated. The Fund reserves the
right to suspend the offering of Shares for a period of time or to reject any
purchase order.
Shares may be purchased on any Business Day. A "Business Day" is any
day that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value
next computed after a purchase order is received in good order by the Fund or
its agents. Orders received by the Fund or its agents prior to the close of the
NYSE (generally 4:00
-12-
<PAGE>
p.m. Eastern Time) are priced at that Business Day's net asset value. Orders
received by the Fund or its agents after the close of the NYSE (generally 4:00
p.m. Eastern Time) are priced at the net asset value next determined on the
following Business Day. In those cases where an investor pays for Shares by
check, the purchase will be effected at the net asset value next determined
after the Fund or its agents receives the order and the completed application.
Shares may be purchased and subsequent investments may be made by
principals and employees of the Adviser, and by their spouses and children,
either directly or through their individual retirement accounts, and by any
pension and profit-sharing plan of the Adviser, without being subject to the
minimum investment limitations.
An investor may also purchase Shares by having his bank or his broker
wire Federal Funds to PFPC. An investor's bank or broker may impose a charge for
this service. The Fund does not currently impose a service charge for effecting
wire transfers but reserves the right to do so in the future. 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 (888)
261-4073, and provide PFPC with your name, address, telephone number,
Social Security or Tax Identification Number, the Fund 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 PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount,
together with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with
the Fund)
FOR PURCHASE OF: Boston Partners Large Cap Value
Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the
address shown thereon. PFPC will not process
-13-
<PAGE>
redemptions until it receives a fully completed and signed
Application.
For subsequent investments, an investor should follow steps A and B
above.
AUTOMATIC INVESTING
Additional investments in 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 (888) 261-4073 to obtain the appropriate
forms.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION BY MAIL
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 Boston Partners Large Cap Value Fund, c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899- 8852. There is no charge for a redemption.
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 according to the procedures described below under "How to Redeem
and Exchange Shares --Exchange Privilege."
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. 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.
INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem a shareholder's account at any
time the net asset value of the account falls below $500 as the result of a
redemption or an exchange request. Shareholders will be notified in writing that
the value of their
-14-
<PAGE>
account 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 or its agents. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund or its agents of the request and
any other necessary documents in proper order. Such payment may be postponed or
the right of redemption suspended as permitted 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. The Fund has elected
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.
EXCHANGE PRIVILEGE
The exchange privilege is available to shareholders residing in any
state in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Institutional Shares of the Boston Partners Mid
Cap Value Fund or the Boston Partners Bond Fund, subject to restrictions
described under "Exchange Privilege Limitations" below. Such exchange will be
effected at the net asset value of the exchanged Fund and the net asset value of
the Boston Partners Mid Cap Value Fund or Boston Partners Bond Fund next
determined after receipt of a request for an exchange by the Fund or its agents.
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 PFPC.
If the exchanging shareholder does not currently own Institutional
Shares of the Boston Partners Mid Cap Value Fund or Boston Partners Bond Fund, a
new account will be established with the same registration, dividend and capital
gain options as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
-15-
<PAGE>
of these programs will not be accepted. The exchange privilege may be modified
or terminated at any time, or from time to time, by RBB, upon 60 days' written
notice to shareholders.
If an exchange is to a new account in the Boston Partners Mid Cap Value
Fund or Boston Partners Bond Fund, the dollar value of Shares acquired must
equal or exceed that Fund's minimum for a new account; if to an existing
account, the dollar value must equal or exceed that Fund's minimum for
subsequent investments. If any amount remains in the Fund from which the
exchange is being made, such amount must not drop below the minimum account
value required by the Fund.
EXCHANGE PRIVILEGE LIMITATIONS
The Fund's exchange privilege is not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Fund and increase transactions costs, the Fund has established
a policy of limiting excessive exchange activity.
Shareholders are entitled to three (3) exchange redemptions (at least
30 days apart) from the Fund during any twelve-month period. Notwithstanding
these limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
TELEPHONE TRANSACTIONS
In order to request an exchange or redemption by telephone, a
shareholder must have completed and returned an account application containing
the appropriate telephone election. To add a telephone option to an existing
account that previously did not provide for this option, a Telephone
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 or redemption by calling (888) 261-4073.
Neither RBB, the Fund, the Distributor, the Administrator nor any Fund agent
will be liable for any loss, liability, cost or expense for following RBB's
telephone transaction procedures described below or for following instructions
communicated by telephone that they reasonably believe to be genuine.
RBB'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 RBB's
records; (3) requiring
-16-
<PAGE>
RBB'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 (7) maintaining tapes of telephone transactions for six months, if
the Fund elects to record shareholder telephone transactions. For accounts held
of record by broker-dealers (other than the Distributor), financial
institutions, securities dealers, financial planners and other industry
professionals, 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 an attorney-in-fact under a power of
attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset values for each class of a fund are calculated by adding
the value of the proportionate interest of the class in a fund's securities,
cash and other assets, deducting the actual and accrued liabilities of the class
and dividing by the result of outstanding shares of the class. The net asset
value of each class are calculated independently of each other class. The net
asset values are calculated as of 4:00 p.m. Eastern Time on each Business Day.
Valuation of securities held by the Fund 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 RBB'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.
With the approval of RBB's Board of Directors, the Fund may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Fund's securities. A more detailed
-17-
<PAGE>
discussion of net asset value and security valuation is contained in the
Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Fund to the Fund's shareholders.
All distributions are reinvested in the form of additional full and tractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually and pays them in the calendar year in which they are declared,
generally in December. 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 Fund and its shareholders
and is not intended as a substitute for careful tax planning. Accordingly,
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation.
The Fund 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
Fund qualifies for this tax treatment, it 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.
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 Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, will be taxed to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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.
-18-
<PAGE>
RBB will send written notices to shareholders annually regarding the
tax status of distributions made by the Fund. Dividends declared in 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 Fund
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 shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize 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.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Investor Shares, which is
offered directly to individual investors pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance quotations in the same
manner. The Fund will quote performance of the Investor Shares separately from
Institutional Shares. Because of different expenses paid by the Institutional
Shares, the total return on such shares can be expected, at any time, to be
different than the total return on Investor Shares. Information concerning this
other class may be obtained by calling the Fund at (800) 311-9783 or 9829.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 13.93 billion shares are currently
classified into 82 different classes of Common Stock. See "Description of
Shares" in the Statement of Additional Information."
-19-
<PAGE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO BOSTON PARTNERS LARGE CAP VALUE FUND AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO BOSTON PARTNERS LARGE CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
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.
RBB 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 Fund 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 RBB will vote in the aggregate and
not by portfolio except as otherwise required by law or when RBB's 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 15, 1997, to the Fund's knowledge, no person held of
record or beneficially 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
-20-
<PAGE>
inquiries should be addressed to The Fund's transfer agent, PFPC, at Bellevue
Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809,
toll-tree (888) 261-4073.
SHARE CERTIFICATES
In the interest of economy and convenience, physical certificates
representing Shares in the Fund are not normally issued.
HISTORICAL PERFORMANCE INFORMATION
For the period from commencement of operations (January 2, 1997)
through August 31, 1997, the total return since inception (not annualized) for
the Institutional Class of Shares of the Fund was as follows:
Unannualized investment returns for the period ended
August 31, 1997
Since
INCEPTION
---------
Boston Partners Large Cap Value Fund
(Institutional Shares)................................... 24.60%
The total return assumes reinvestment of all dividends and capital
gains and reflects expense reimbursements and investment advisory fee and 12b-1
fee waivers in effect. Without these expense reimbursements waivers, the Fund's
performance would have been lower. Of course, past performance is no guarantee
of future results. Investment return and principal value will fluctuate, so that
Shares, when redeemed, may be worth more or less than the original cost. For
more information on performance, see "Performance Information" in the Statement
of Additional Information.
The table below presents the Composite performance history of certain
of the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1997. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Fund, which commenced
operations on January 2, 1997. The Composite performance information includes
the reinvestment of dividends received in the underlying securities and reflects
investment advisory fees. The privately managed accounts in the Composite are
only available to the Adviser's institutional advisory clients. The past
performance of the accounts which comprise the Composite is not indicative of
the future
-21-
<PAGE>
performance of the Fund. These accounts have lower investment advisory fees than
the Fund, and the Composite performance figures would have been lower if subject
to the higher fees and expenses incurred by the Fund. These private accounts are
also not subject to the same investment limitations, diversification
requirements and other restrictions, which are imposed upon mutual funds under
the 1940 Act and the Internal Revenue Code, which, if imposed, may have
adversely affected the performance results of the Composite. Listed below the
performance history for the Composite is a comparative index comprised of
securities similar to those in which accounts contained in the Composite are
invested.
Annualized investment returns for the period ended August 31, 1997
Since
ONE YEAR INCEPTION
-------- ---------
Composite Performance............. 46.9% 33.5%*
S&P 500 Stock Index............... 40.7% 28.9%
* The Adviser commenced managing these accounts on June 1, 1995.
The S&P 500 Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the NYSE.
FUTURE PERFORMANCE INFORMATION
From time to time, the Fund 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 over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. 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 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 Fund 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 the Fund's
performance with other measures of investment return. For example, the Fund'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
-22-
<PAGE>
the Dow Jones Industrial Average. Performance information may also include
evaluation of the Fund by nationally recognized ranking services and information
as reported in financial publications such as BUSINESS WEEK, FORTUNE,
INSTITUTIONAL INVESTOR, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL, THE NEW YORK TIMES, or other national, regional or local publications.
All advertisements containing performance data will include a legend disclosing
that such performance data represents 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.
-23-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-24-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS OR IN RBB'S STATEMENT OF ADDITIONAL PROSPECTUS
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS DECEMBER 1, 1997
AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY RBB OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
----------------------
TABLE OF CONTENTS BOSTON PARTNERS
PAGE LARGE CAP
---- VALUE FUND
INTRODUCTION....................................... 2 (INSTITUTIONAL SHARES)
FINANCIAL HIGHLIGHTS............................... 3
INVESTMENT OBJECTIVES AND POLICIES................. 6
INVESTMENT LIMITATIONS............................. 7
RISK FACTORS....................................... 8
MANAGEMENT......................................... 9
DISTRIBUTION OF SHARES............................. 11 bp
HOW TO PURCHASE SHARES............................. 12 BOSTON PARTNERS
HOW TO REDEEM AND EXCHANGE SHARES.................. 14 ---------------
NET ASSET VALUE.................................... 17 ASSET MANAGEMENT, L.P.
DIVIDENDS AND DISTRIBUTIONS........................ 18 ----------------------
TAXES .......................................... 18
MULTI-CLASS STRUCTURE.............................. 19
DESCRIPTION OF SHARES.............................. 19
OTHER INFORMATION.................................. 20
INVESTMENT ADVISER
Boston Partners Asset Management, L.P.
Boston, Massachusetts
CUSTODIAN
PNC Bank, N.A.
Philadelphia, Pennsylvania
TRANSFER AGENT AND ADMINISTRATOR
PFPC Inc.
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities Inc.
New York, New York
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND bp
(INSTITUTIONAL CLASS) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
--------------------------------------
<TABLE>
<CAPTION>
ACCOUNT APPLICATION
PLEASE NOTE: Do not use this form to open a retirement plan account. For an IRA application or help with this Application, please
call 1-888-261-4073
<S> <C>
- ---------------- (Please check the appropriate box(es) below.)
| 1 | [Checkbox] Individual [Checkbox] Joint Tenant [Checkbox] Other
| Account |
| Registration:| -----------------------------------------------------------------------------------------------------------------
- ---------------- Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
-----------------------------------------------------------------------------------------------------------------
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts,the account registrants will be joint tenants with right of survivorship and not tenants in
common unless tenants in common or community property registrations are requested.
- ----------------
GIFT TO MINOR: [Checkbox] UNIFORM GIFTS/TRANSFER TO MINOR'S ACT
- ----------------
-----------------------------------------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
-----------------------------------------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
-----------------------------------------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
- ----------------
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
- ---------------- -----------------------------------------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
-----------------------------------------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
- ---------------- -----------------------------------------------------------------------------------------------------------------
| 2 | STREET OR P.O. BOX AND/OR APARTMENT NUMBER
| Mailing |
| Address: | -----------------------------------------------------------------------------------------------------------------
- ---------------- CITY STATE ZIP CODE
-----------------------------------------------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
- ---------------- Minimum initial investment of $100,000 Amount of investment $_______
| 3 |
| Investment | Make the check payable to Boston Partners Large Cap Value Fund.
| Information: |
- ---------------- Shareholders may not purchase shares of this Fund with a check issued by a third party and endorsed over to
the Fund.
- ----------------
DISTRIBUTION NOTE: Dividends and capital gains may be reinvested or paid by check. If not options are selected below, both
OPTIONS: dividends and capital gains will be reinvested in additional Fund shares.
- ----------------
DIVIDENDS Pay by check Reinvest CAPITAL GAINS Pay by check Reinvest
- ---------------- To use this option, you must initial the appropriate line below.
| 4 | I authorize the Transfer Agent to accept instructions from any persons to redeem or exchange shares
| Telephone | in my account(s) by telephone in accordance with the procedures and conditions set forth in the
| Redemption: | Fund's current prospectus.
- ----------------
---------------------------------- -------------------------------Redeem shares, and send the proceeds to
individual initial joint initial the address of record.
---------------------------------- -------------------------------Exchange shares for shares of The Boston
individual initial joint initial Partners Mid Cap Value Fund or Boston
Partners Bond Fund.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ---------------- The Account Investment Plan which is available to shareholders of the Fund, makes possible regularly
| 5 | scheduled purchases of Fund shares to allow dollar-cost averaging. The Fund's Transfer Agent can
| Automatic | arrange for an amount of money selected by you to be deducted from your checking account and used to
| Investment | purchase shares of the Fund.
| Plan: |
- ----------------
Please debit $________ from my checking account (named below on or about the 20th of the month.
Please attach an unsigned, voided check.
Monthly Every Alternate Month Quarterly Other
- ---------------- -----------------------------------------------------------------------------------------------------------------
BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
- ----------------
-----------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
-----------------------------------------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
- ---------------- The undersigned warrants that I (we) have fully authority and, if a natural person, I (we) am (are) of legal age
| 6 | to purchase shares pursuant to this Account Application, and I (we) have received a current prospectus for the
| | Fund in which I (we) am (are) investing.
| Signatures | Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following
- ---------------- certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to
be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service that I am subject to 31% backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
NOTE: YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO
BACKUP WITHHOLDING BECAUSE YOU HAVE FAILED TO REPORT ALL INTEREST AND DIVIDENDS ON YOUR TAX RETURN. THE INTERNAL
REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION
REQUIRED TO AUDIT BACKUP WITHHOLDING.
-----------------------------------------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
-----------------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
-----------------------------------------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER DATE
-----------------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or title. If you wish additional
signatories on the account, please include a corporate resolution. If signing as a fiduciary, you must indicate
capacity.)
For information on additional options, such as IRA Applications, rollover requests for qualified retirement
plans, or for wire instructions, please call us at 1-888-261-4073.
MAIL COMPLETED ACCOUNT APPLICATION AND CHECK TO: THE BOSTON PARTNERS LARGE CAP VALUE FUND
C/O PFPC INC.
P.O. BOX 8852
WILMINGTON, DE 19899-8852
</TABLE>
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(INVESTOR CLASS)
OF
THE RBB FUND, INC.
Boston Partners Large Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Investor Class ("Shares") offered by this Prospectus
represent interests in the Fund. The Fund is a diversified fund that seeks
long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks and securities
convertible into common stocks. It seeks to achieve its objectives by investing
at least 65% of its total assets in a diversified portfolio consisting of equity
securities of issuers with a market capitalization of primarily $1 billion or
greater and identified by Boston Partners Asset Management, L.P. (the "Adviser")
as equity securities that possess value characteristics. The Adviser examines
various factors in determining the value characteristics of such issuers,
including, but not limited to, price to book value ratios and price to earnings
ratios. These value characteristics are examined in the context of the issuer's
operating and financial fundamentals such as return on equity, earnings growth
and cash flow.
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 1, 1997, 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 by calling (800)
311-9783 or 9829. The Prospectus and the Statement of Additional Information are
available for reference, along with other related material, on the SEC Internet
Web Site (http://www.sec.gov).
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.
- --------------------------------------------------------------------------------
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 1, 1997
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
twenty-two separate investment portfolios. The Shares offered by this Prospectus
represent interests in the Boston Partners Large Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
FEE TABLE
The following table illustrates annual operating expenses incurred by
Investor Shares of the Fund (after fee waivers and expense reimbursements) for
the fiscal period ended August 31, 1997, as a percentage of average daily net
assets. An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after waivers)*....................0.07%
12b-1 Fees (after waivers)*.........................0.11%
Other Expenses (after waivers and reimbursements)...0.93%
-----
Total Fund Operating Expenses
(after waivers and expense reimbursements)*........1.11%
=====
* In the absence of expense reimbursements and fee waivers, Management
Fees would be 0.75%, 12b-1 Fees would be 0.25%, Other Expenses
would be 2.05%, and Total Fund Operating Expenses would be 3.05%.
Management Fees and 12b-1 Fees are each based on average daily net
assets and are calculated daily and paid monthly.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
Boston Partners Large
Cap Value Fund..........$11 $35 $61 $135
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in 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
expense reimbursements and voluntary waivers of Management Fees and
-2-
<PAGE>
12b-1 Fees for the Fund. However, the Adviser, the Distributor and the other
service providers are under no obligation with respect to such expense
reimbursements and waivers and there can be no assurance that any future expense
reimbursements and waivers of Management Fees and 12b-1 Fees will not vary from
the figures reflected in the Fee 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" 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.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The "Financial Highlights" presented below set forth certain investment
results for shares of the Investor Class of the Fund for the period indicated.
The Investor Class commenced operations on January 16, 1997. The financial data
included in this table should be read in conjunction with the financial
statements and notes thereto and the unqualified report of the independent
accountants thereon, which are incorporated by reference into the Statement of
Additional Information. Further information about the performance of the
Investor Class of the Fund is available in the Annual Report to Shareholders.
Both the Statement of Additional Information and the Annual Report to
Shareholders may be obtained from the Fund free of charge by calling the
telephone number on page 1 of the prospectus.
-4-
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(FOR AN INVESTOR SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE PERIOD
JANUARY 16, 1997*
THROUGH
AUGUST 31, 1997
---------------
PER SHARE OPERATING PERFORMANCE**
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.20
------
Net investment income(1).................................... 0.02
Net realized and unrealized gain on investments(2).......... 2.23
-----
Net increase in net assets resulting from operations........ 2.25
-----
NET ASSET VALUE, END OF PERIOD.............................. $12.45
=====
Total investment return(3).................................. 22.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................... $683
Ratio of expenses to average net assets***(1)(4)............ 1.11%
Ratio of net investment income to average net assets***(1).. .91%
PORTFOLIO TURNOVER RATE****................................. 67.16%
Average commission rate per share(5)........................ $0.0397
- ----------------------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of
the period, except dividends and distributions, it any, which are
based on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating net asset value
during the period.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Without the waiver of advisory, 12b-1, administration and transfer
agent fees and without the reimbursement of certain operating
expenses, the ratio of expenses to average net assets annualized for
the period ended August 31, 1997 would have been 3.05% for the
Investor Class.
(5) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period subject to such
commissions.
-5-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term growth of
capital with current income as a secondary objective. The Fund seeks to achieve
its objectives by investing under normal market conditions at least 65% of its
total assets in a diversified portfolio consisting primarily of equity
securities, such as common stocks and securities convertible into common stocks,
of issuers with a market capitalization of $1 billion or greater and identified
by the Adviser as equity securities possessing value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including but not limited to price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study
of trends in industries and companies, earnings power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operating in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold from time to time various foreign currencies pending their
investment in foreign securities or their conversion into U.S. dollars. The
value of the assets of the Fund as measured in U.S. dollars may therefore be
affected favorably or unfavorably by changes in exchange rates. There may be
less publicly available information concerning foreign issuers than is available
with respect to U.S. issuers. Foreign securities may not be registered with the
U.S. Securities and Exchange Commission, and generally, foreign companies are
not subject to uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers. See "Investment Objectives and
Policies--Foreign Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity
securities of issuers with lower capitalizations; derivative securities; debt
securities issued by U.S. banks, corporations and other business organizations
that are investment grade securities; and debt securities issued by the U.S.
Government or government agencies.
-6-
<PAGE>
In accordance with the above-mentioned policies, the Fund may also
invest in indexed securities, convertible securities, repurchase agreements,
reverse repurchase agreements, dollar rolls, financial futures contracts,
options on futures contracts and may lend portfolio securities. See "Investment
Objectives and Policies" in the Statement of Additional Information.
The Fund may invest in registered investment companies and investment
funds in foreign countries subject to the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act") and as discussed in "Investment
Objectives and Policies" in the Statement of Additional Information. If the Fund
invests in such investment companies, the Fund will bear its proportionate share
of the costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all
times in accordance with the above-mentioned policies, the Fund reserves the
right to hold up to 100% of its assets, as a temporary defensive measure, in
cash and eligible U.S. dollar-denominated money market instruments. The Adviser
will determine when market conditions warrant temporary defensive measures.
The Fund's investment objectives and the policies described above may
be changed by RBB's Board of Directors without the affirmative vote of the
holders of a majority of the outstanding Shares representing interests in the
Fund.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (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.")
The Fund 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 Fund'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
Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Fund to
be invested in the obligations of
-7-
<PAGE>
issuers in any single industry, provided that there is no limitation
with respect to investments in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks and enter into reverse repurchase agreements
and dollar rolls for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing; or
mortgage, pledge or hypothecate any assets, except in connection with
any such borrowing and then in amounts not in excess of one-third of
the value of the Fund's total assets at the time of such borrowing. The
Fund will not purchase securities while its aggregate outstanding
borrowings (including reverse repurchase agreements, dollar rolls and
borrowings from banks) are in excess of 5% of its total assets.
Securities held in escrow or separate accounts in connection with the
Fund's investment practices are not considered to be borrowings or
deemed to be pledged for purposes of this limitation.
PORTFOLIO TURNOVER
The Fund retains the right to sell securities irrespective of how long
they have been held. The Adviser estimates that the annual turnover in the Fund
will not exceed 100%. High Portfolio turnover (100% or more) will generally
result in higher transaction costs to a portfolio and may result in the
realization of short-term capital gains that are taxable to shareholders as
ordinary income.
RISK FACTORS
- --------------------------------------------------------------------------------
As with other mutual funds, there can be no assurance that the Fund
will achieve its objectives. The net asset value per share of Shares
representing interests in the Fund will fluctuate as the values of its portfolio
securities change in response to changing conditions in the equity market. An
investment in the Fund is not intended to constitute a balanced investment
program. Other risk factors are discussed above under "Investment Objectives and
Policies" and in the Statement of Additional Information under "Investment
Objectives and Polices."
Investment methods described in this Prospectus are among those which
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
-8-
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
INVESTMENT ADVISER
Boston Partners Asset Management, L.P. located at One Financial Center,
43rd Floor Boston, Massachusetts 02111, serves as the Fund's investment adviser.
The Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of September 30, 1997, in excess of $12.5 billion.
Boston Partners' general partner is Boston Partners, Inc., a company that acts
as a general partner to investment advisers organized as limited partnerships.
Subject to the supervision and direction of RBB's Board of Directors,
the Adviser manages the Fund's portfolio in accordance with the Fund's
investment objectives and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research services to the
Fund. For its services to the Fund, the Adviser is entitled to receive under the
Advisory Agreement a monthly advisory fee computed at an annual rate of 0.75% of
the Fund's average daily net assets. The Adviser is currently waiving advisory
fees in excess of 0.71% of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
The day-to-day portfolio management of the Fund is the responsibility
of Mark E. Donovan and Wayne S. Sharp who are senior portfolio managers of the
Adviser. Mr. Donovan is Chairperson of the Adviser's Equity Strategy Committee
which oversees the investment activities of the Adviser's $4.3 billion of Large
Capitalization Core Value institutional equity assets under management. Prior to
joining the Adviser on April 16, 1995, Mr. Donovan was a Senior Vice President
and Vice Chairman of The Boston Company Asset Management, Inc.'s Equity Policy
Committee. Mr. Donovan is a Chartered Financial Analyst and has over fourteen
years of investment experience. Ms. Sharp is Vice Chairperson of the Adviser's
Equity Strategy Committee and has over twenty years of investment experience.
Prior to joining the Adviser on April 16, 1995, Ms. Sharp was a Senior Vice
President and member of the Equity Policy Committee of The Boston Company Asset
Management, Inc. Ms. Sharp is also a Chartered Financial Analyst.
-9-
<PAGE>
ADMINISTRATOR
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC is entitled to receive a fee under an administration and
accounting services agreement calculated at an annual rate of .125% of the
Fund's average daily net assets with a minimum annual fee of $75,000 payable
monthly on a pro rata basis. PFPC is currently waiving one-half of its minimum
annual fee.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank, National Association ("PNC Bank") serves as the Fund's
custodian and PFPC serves as the Fund's transfer agent and dividend disbursing
agent. The principal offices of PFPC, an indirect, wholly-owned subsidiary of
PNC Bank, are located at 400 Bellevue Parkway, Wilmington, Delaware 19809. 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 Fund. 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."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc. ("Warburg"), with a
principal business address at 466 Lexington Avenue, New York, New York, acts as
distributor for the Shares pursuant to a distribution agreement (the
"Distribution Agreement") with RBB on behalf of the Shares.
EXPENSES
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Investor Class of the Fund pays its own
distribution fees, and may pay a different share than the other classes of the
Fund of other expenses (excluding advisory and custodial fees) if those expenses
are actually incurred in a different amount by the Investor Class or if it
receives different services.
-10-
<PAGE>
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expenses of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
increasing its yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive
from the Fund a distribution fee with respect to the Shares, which is accrued
daily and paid monthly, of up to 0.25% on an annualized basis of the average
daily net assets of the Shares. The actual amount of such compensation under the
Plan is agreed upon by RBB's Board of Directors and by the Distributor in the
Distribution Agreement. The Distributor may, in its discretion, from time to
time waive voluntarily all or any Portion of its distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to Service Agents. See
"How to Purchase Shares--Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of the Shares the fee agreed to
under the Distribution Plan. Payments under the Plan are not tied exclusively to
expenses actually incurred by the Distributor, and payments may exceed
distribution expenses actually incurred.
PURCHASES THROUGH INTERMEDIARIES.
Shares of the Fund may be available through certain brokerage firms,
financial institutions and programs sponsored by other industry professionals
(collectively, "Service Organizations"). Certain features of the Shares, such as
the initial and subsequent investment minimums and certain trading restrictions,
may be modified or waived by Service Organizations. Service Organizations may
impose transaction or administrative charges or other direct fees, which charges
or fees would not be imposed if Shares are purchased directly from the Fund.
Therefore, a client or customer should contact the Service Organization acting
on his behalf concerning the fees (if any) charged in connection with a purchase
or redemption of Shares and should read this Prospectus in light of the terms
governing his accounts with the Service Organization. Service Organizations will
be responsible for promptly transmitting
-11-
<PAGE>
client or customer purchase and redemption orders to the Fund in accordance with
their agreements with clients or customers. Service Organizations or, if
applicable, their designees that have entered into agreements with the Fund or
its agent may enter confirmed purchase orders on behalf of clients and
customers, with payment to follow no later than the Fund's pricing on the
following Business Day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses. The Fund will be
deemed to have received a purchase or redemption order when a Service
Organization, or, if applicable, its authorized designee, accepts a purchase or
redemption order in good order. Orders received by the Fund in good order will
be priced at the Fund's net asset value next computed after they are accepted by
the Service Organization or its authorized designee.
For administration, subaccounting, transfer agency and/or other
services, the Adviser or the Distributor or their affiliates may pay Service
Organizations and certain recordkeeping organizations with whom they have
entered into agreements a fee of up to .35% (the "Service Fee') of the average
annual value of accounts with the Fund maintained by such Service Organizations
or recordkeepers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization
or recordkeeper.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares consisting of securities dealers who have sold
Shares, or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Shares representing interests in the Fund are offered continuously for
sale by the Distributor and may be purchased
-12-
<PAGE>
without imposition of a sales charge. Shares may be purchased initially by
completing the application included in this Prospectus and forwarding the
application to the Fund's transfer agent, PFPC. Purchases of Shares may be
effected by wire to an account to be specified by PFPC or by mailing a check or
Federal Reserve Draft, payable to the order of "The Boston Partners Large Cap
Value Fund," c/o PFPC Inc., P.O. Box 8852, Wilmington, Delaware 19899-8852. The
name of the Fund, Boston Partners Large Cap Value Fund, must also appear on the
check or Federal Reserve Draft. Shareholders may not purchase shares of the
Boston Partners Large Cap Value Fund with a check issued by a third party and
endorsed over to the Fund. Federal Reserve Drafts are available at national
banks or any state bank which is a member of the Federal Reserve System. Initial
investments in the Fund must be at least $2,500 and subsequent investments must
be at least $100. The Fund reserves the right to suspend the offering of Shares
for a period of time or to reject any purchase order.
Shares may be purchased on any Business Day. A "Business Day" is any
day that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value
next computed after a purchase order is received in good order by the Fund or
its agents. Orders received by the Fund or its agents prior to the close of the
NYSE (generally 4:00 p.m. Eastern Time) are priced at that Business Day's net
asset value. Orders received by the Fund or its agents after the close of the
NYSE are priced at the net asset value next determined on the following Business
Day. In those cases where an investor pays for Shares by check, the purchase
will be effected at the net asset value next determined after the Fund or its
agents receives the order and the completed application.
Provided that the investment is at least $2,500, an investor may also
purchase Shares by having his bank or her broker wire Federal Funds to PFPC. An
investor's bank or broker may impose a charge for this service. The Fund does
not currently impose a service charge for effecting wire transfers, but reserves
the right to do so in the future. 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 (888)
261-4073, and provide PFPC with your name, address, telephone number,
Social Security or Tax Identification
-13-
<PAGE>
Number, the Fund 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 PFPC prior to
wiring funds.
B. Instruct your bank or broker to wire the specified amount,
together with your assigned account number, to PFPC's account with PNC
Bank:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number
with the Fund)
FOR PURCHASE OF: Boston Partners Large Cap
Value Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the
address shown thereon. PFPC will not process redemptions until it
receives a fully completed and signed application.
For subsequent investments, an investor should follow steps A and B
above.
AUTOMATIC INVESTING
Additional investments in 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 Investment Plan should call
the Fund's transfer agent, PFPC, at (888) 261-4073 to obtain the appropriate
forms.
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 PFPC at (888)
261-4073. To determine whether the benefits of an IRA are available and/or
appropriate, a shareholder should consult with a tax adviser.
-14-
<PAGE>
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION BY MAIL
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 Boston Partners Large Cap Value Fund, c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. There is no charge for a redemption.
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. It 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 it the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "How to Redeem
and Exchange Shares -- Exchange Privilege."
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. 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.
SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan and receive regular periodic payments. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to PFPC at
P.O. Box 8852, Wilmington, Delaware 19899-8852. Each withdrawal redemption will
be processed on or 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 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
-15-
<PAGE>
yield or income since part of such payments may be a return of capital.
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 the Automatic
Investment Plan. You will receive a confirmation of each 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
and 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 at any
time the net asset value of the account 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 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 or its agents. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund or its agents of the request and
any other necessary documents in proper order. Such payment may be postponed or
the right of redemption suspended as permitted by the 1940 Act. 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. The Fund has elected to be
governed by Rule 18f-1 under the 1940 Act so that it 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.
-16-
<PAGE>
EXCHANGE PRIVILEGE
The exchange privilege will be available to shareholders residing in
any state in which the Shares being acquired may be legally sold. A shareholder
may exchange Shares of the Fund for Investor Shares of the Boston Partners Mid
Cap Value Fund or the Boston Partners Bond Fund, subject to the restrictions
described under "Exchange Privilege Limitations" below. Such exchange will be
effected at the net asset value of the exchanged Fund and the net asset value of
the Boston Partners Mid Cap Value Fund or Boston Partners Bond Fund next
determined after receipt of a request for an exchange by the Fund or its agents.
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 PFPC.
If the exchanging shareholder does not currently own Investor Shares of
the Boston Partners Mid Cap Value Fund or Boston Partners Bond Fund, a new
account will be established with the same registration, dividend and capital
gain options as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted. The exchange privilege may be modified
or terminated at any time, or from time to time, by RBB, upon 60 days' written
notice to shareholders.
If an exchange is to a new account in the Boston Partners Mid Cap Value
Fund or Boston Partners Bond Fund, the dollar value of Investor Shares acquired
must equal or exceed that Fund's minimum for a new account; if to an existing
account, the dollar value must equal or exceed that Fund's minimum for
subsequent investments. If any amount remains in the Fund from which the
exchange is being made, such amount must not drop below the minimum account
value required by the Fund.
EXCHANGE PRIVILEGE LIMITATIONS
The Fund's exchange privilege is not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transactions costs, the Fund has
established a policy of limiting excessive exchange activity.
-17-
<PAGE>
Shareholders are entitled to three (3) exchange redemptions (at least
30 days apart) from the Fund during any twelve-month period. Notwithstanding
these limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
TELEPHONE TRANSACTIONS
In order to request an exchange or redemption by telephone, a
shareholder must have completed and returned an account application containing
the appropriate telephone election. To add a telephone exchange feature to an
existing account that previously did not provide for this option, a Telephone
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 or redemption by calling (888) 261-4073.
Neither RBB, the Fund, the Distributor, the Administrator nor any other Fund
agent will be liable for any loss, liability, cost or expense for following
RBB's telephone transaction procedures described below or for following
instructions communicated by telephone that they reasonably believe to be
genuine.
RBB'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 RBB's
records; (3) requiring RBB'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 (7) maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners and other industry professionals, 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 an
attorney-in-fact under a power of attorney.
-18-
<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset values for each class of a fund are calculated by adding
the value of the proportionate interest of the class in a Fund's cash,
securities and other assets, deducting actual and accrued liabilities of the
class and dividing the result by the number of outstanding shares of the class.
The net asset values of each class are calculated independently from each other
class. The net asset values are calculated as of the close of regular trading on
the NYSE, generally 4:00 p.m. Eastern Time on each Business Day.
Valuation of securities held by the Fund 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 RBB'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.
With the approval of RBB's Board of Directors, the Fund may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Fund's securities. A more detailed discussion of net asset value and security
valuation is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Fund to the Fund's shareholders.
All distributions are reinvested in the form of additional full and fractional
shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually, and pays them in the calendar year in which they are declared,
generally in December. 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 Fund and its shareholders
and is not intended as a substitute for careful
-19-
<PAGE>
tax planning. Accordingly, investors in the Fund should consult their tax
advisers with specific reference to their own tax situation.
The Fund 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
Fund qualifies for this tax treatment, it 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.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), it any, of the Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, will be taxed to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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.
RBB will send written notices to shareholders annually regarding the
tax status of distributions made by the Fund. Dividends declared in 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 Fund
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 shares immediately prior to a distribution will nevertheless be taxed
on the entire amount of the distribution received, although the distribution is,
in effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize 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.
-20-
<PAGE>
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Institutional Shares, which
is offered directly to institutional investors pursuant to a separate
prospectus. Shares of each class represent equal pro rata interests in the Fund
and accrue dividends and calculate net asset value and performance quotations in
the same manner. The Fund will quote performance of the Institutional Shares
separately from Investor Shares. Because of different expenses paid by the
Investor Shares, the total return on such shares can be expected. at any time,
to be different than the total return on Institutional Shares. Information
concerning these other classes may be obtained by calling the Fund at (800)
311-9783 or 9829.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 13.93 billion shares are currently
classified into 82 different classes of Common Stock. See "Description of
Shares" in the Statement of Additional Information.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE BOSTON PARTNERS LARGE CAP VALUE FUND
AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THE BOSTON PARTNERS LARGE CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, 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 will be fully paid and
non-assessable.
RBB 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, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund 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 RBB will vote in the aggregate and
not by portfolio except as otherwise required by law or when RBB's Board of
Directors determines that the matter to be voted upon affects only the interests
of the
-21-
<PAGE>
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 15, 1997 to the Fund's knowledge, no person held of
record or beneficially 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 the Fund's
transfer agent, PFPC, at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (888) 261-4073.
SHARE CERTIFICATES
In the interest of economy and convenience, physical certificates
representing shares in the Fund are not normally issued.
HISTORICAL PERFORMANCE INFORMATION
For the period from commencement of operations (January 16, 1997)
through August 31, 1997, the total return since inception (not annualized) for
the Investor Class of Shares of the Fund was as follows:
Unannualized investment returns for the period ended August 31, 1997
Since
INCEPTION
---------
Boston Partners Large Cap Value Fund
(Investor Shares)........................ 22.06%
The total return assumes the reinvestment of all dividends and capital
gains and reflects expense reimbursements and investment advisory fee and 12b-1
fee waivers in effect. Without these expense reimbursements and waivers, the
Fund's performance would have been lower. Of course, past performance is no
guarantee of
-22-
<PAGE>
future results. Investment return and principal value will fluctuate, so that
Shares, when redeemed, may be worth more or less than the original cost. For
more information on performance, see "Performance Information" in the Statement
of Additional Information.
The table below presents the Composite performance history of certain
of the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1997. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Fund, which commenced
operations on January 16, 1997. The Composite performance information includes
the reinvestment of dividends received in the underlying securities and reflects
the payment of investment advisory fees. The privately managed accounts in the
Composite are only available to the Adviser's institutional advisory clients.
The past performance of the funds and accounts which comprise the Composite is
not indicative of or a substitute for the future performance of the Fund. These
accounts have lower investment advisory fees than the Fund, and the Composite
performance figures would have been lower if subject to the higher fees and
expenses incurred by the Fund. These private accounts are also not subject to
the same investment limitations, diversification requirements and other
restrictions which are imposed upon mutual funds under the 1940 Act and the
Internal Revenue Code, which, if imposed, may have adversely affected the
performance results of the Composite. Listed below the performance history for
the Composite is a comparative index comprised of securities similar to those in
which accounts contained in the Composite are invested.
Annualized investment returns for the period ended August 31, 1997
Since
ONE YEAR INCEPTION
-------- ---------
Composite Performance....................... 46.9% 33.5%*
S&P 500 Stock Index......................... 40.7% 28.9%
* The Adviser commenced managing these accounts on June 1, 1995.
The S&P 500 Stock Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the NYSE.
FUTURE PERFORMANCE INFORMATION
From time to time, the Fund 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 over one,
-23-
<PAGE>
five and ten year periods or, if such periods have not yet elapsed, shorter
periods corresponding to the life of the Fund. 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 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 Fund 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 the Fund's performance with other measures of
investment return. For example, the Fund'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.
Performance information may also include evaluation of the Fund by nationally
recognized ranking services and information as reported in financial
publications such as BUSINESS WEEK, FORTUNE, INSTITUTIONAL INVESTOR, MONEY
MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL, THE NEW YORK TIMES, or
other national, regional or local publications. All advertisements containing
performance data will include a legend disclosing that such performance data
represents 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.
-24-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS OR IN RBB'S STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN PROSPECTUS
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE DECEMBER 1, 1997
RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY RBB OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
----------------------
TABLE OF CONTENTS
BOSTON PARTNERS
PAGE LARGE CAP
---- VALUE FUND
INTRODUCTION........................................ 2 (INVESTOR SHARES)
FINANCIAL HIGHLIGHTS................................ 4
INVESTMENT OBJECTIVES AND POLICIES.................. 6
INVESTMENT LIMITATIONS.............................. 7
RISK FACTORS........................................ 8
MANAGEMENT.......................................... 9
DISTRIBUTION OF SHARES.............................. 11 bp
HOW TO PURCHASE SHARES.............................. 12 BOSTON PARTNERS
HOW TO REDEEM AND EXCHANGE SHARES................... 15 ---------------
NET ASSET VALUE..................................... 19 ASSET MANAGEMENT, L.P.
DIVIDENDS AND DISTRIBUTIONS......................... 19 ----------------------
TAXES ........................................... 19
MULTI-CLASS STRUCTURE............................... 21
DESCRIPTION OF SHARES............................... 21
OTHER INFORMATION................................... 22
INVESTMENT ADVISER
Boston Partners Asset Management, L.P.
Boston, Massachusetts
CUSTODIAN
PNC Bank, N.A.
Philadelphia, Pennsylvania
TRANSFER AGENT AND ADMINISTRATOR
PFPC Inc.
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities Inc.
New York, New York
COUNSEL
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND bp
(INVESTOR CLASS) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
--------------------------------------
<TABLE>
<CAPTION>
ACCOUNT APPLICATION
PLEASE NOTE: Do not use this form to open a retirement plan account. For an IRA application or help with this Application, please
call 1-888-261-4073
<S> <C>
- ---------------- (Please check the appropriate box(es) below.)
| 1 | [Checkbox] Individual [Checkbox]| Joint Tenant [Checkbox] Other
| Account |
| Registration:| -----------------------------------------------------------------------------------------------------------------
- ---------------- Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
-----------------------------------------------------------------------------------------------------------------
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts,the account registrants will be joint tenants with right of survivorship and not tenants in
common unless tenants in common or community property registrations are requested.
- ----------------
GIFT TO MINOR: [Checkbox] UNIFORM GIFTS/TRANSFER TO MINOR'S ACT
- ----------------
-----------------------------------------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
-----------------------------------------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
-----------------------------------------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
- ----------------
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
- ---------------- -----------------------------------------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
-----------------------------------------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
- ---------------- -----------------------------------------------------------------------------------------------------------------
| 2 | STREET OR P.O. BOX AND/OR APARTMENT NUMBER
| Mailing |
| Address: | -----------------------------------------------------------------------------------------------------------------
- ---------------- CITY STATE ZIP CODE
-----------------------------------------------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
- ---------------- Minimum initial investment of $2,500 Amount of investment $_______
| 3 |
| Investment | Make the check payable to Boston Partners Large Cap Value Fund.
| Information: |
- ---------------- Shareholders may not purchase shares of this Fund with a check issued by a third party and endorsed over to
the Fund.
- ----------------
DISTRIBUTION NOTE: Dividends and capital gains may be reinvested or paid by check. If not options are selected below, both
OPTIONS: dividends and capital gains will be reinvested in additional Fund shares.
- ----------------
DIVIDENDS - Pay by check - Reinvest - CAPITAL GAINS - Pay by check - Reinvest -
- ----------------
SYSTEMATIC To select this portion please fill out the information below:
WITHDRAWAL
PLAN: Amount ______________________________________________________ Startup Month _________________________
- ----------------
Frequency Options: Annually - Monthly - Quarterly -
- A minimum account value of $10,000 in a single account is required to establish a Systematic Withdrawal Plan
- Payments will be made on or near the 25th of the month
Please check one of the following options: ________ Please mail checks t Address of Record (Named in
Section 2)
________ Please electronically credit my Bank of Record
(Named in Section 5)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ---------------- To use this option, you must initial the appropriate line below.
| 4 | I authorize the Transfer Agent to accept instructions from any persons to redeem or exchange shares in my
| Telephone | account(s) by telephone in accordance with the procedures and conditions set forth in the Fund's current
| Exchange and | prospectus.
| Redemption: |
- ----------------
------------------------------- ----------------------------- Redeem shares, and send the proceeds to
Individual initial joint initial the address of record.
Exchange shares for shares of the Boston
------------------------------- ----------------------------- Partners Mid Cap Value Fund or Boston
Individual initial joint initial Partners Bond Fund.
- ---------------- The Account Investment Plan which is available to shareholders of the Fund, makes possible regularly scheduled
| 5 | purchases of Fund shares to allow dollar-cost averaging. The Fund's Transfer Agent can arrange for an amount
| Automatic | of money selected by you to be deducted from your checking account and used to purchase shares of the Fund.
| Investment |
| Plan: | Please debit $________ from my checking account (named below) on or about the 20th of the month.
- ---------------- Please attach an unsigned, voided check.
[Checkbox] Monthly [Checkbox] Every Alternate Month [Checkbox] Quarterly [Checkbox] Other
- ---------------- -----------------------------------------------------------------------------------------------------------------
BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
- ----------------
-----------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
-----------------------------------------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
- ---------------- The undersigned warrants that I (we) have full authority and, if a natural person, I (we) am (are) of legal age
| 6 | to purchase shares pursuant to this Account Application, and I (we) have received a current prospectus
| | for the Fund in which I (we) am (are) investing.
| Signatures: | Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following
- ---------------- certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to
be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service that I am subject to 31% backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
NOTE: YOU MUST CROSS OUT ITEM (2) IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP
WITHHOLDING BECAUSE YOU HAVE FAILED TO REPORT ALL INTEREST AND DIVIDENDS ON YOUR TAX RETURN. THE INTERNAL REVENUE
SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO
AUDIT BACKUP WITHHOLDING.
-----------------------------------------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
-----------------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
-----------------------------------------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER DATE
-----------------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or title. If you wish additional
signatories on the account, please include a corporate resolution. If signing as a fiduciary, you must indicate
capacity.)
For information on additional options, such as IRA Applications, rollover requests for qualified retirement
plans, or for wire instructions, please call us at 1-888-261-4073.
MAIL COMPLETED ACCOUNT APPLICATION AND CHECK TO: THE BOSTON PARTNERS LARGE CAP VALUE FUND
C/O PFPC INC.
P.O. BOX 8852
WILMINGTON, DE 19899-8852
</TABLE>
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(ADVISOR CLASS)
OF
THE RBB FUND, INC.
Boston Partners Large Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Advisor Class ("Shares") offered by this Prospectus
represent interests in the Fund. The Fund is a diversified fund that seeks
long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks and securities
convertible into common stocks. It seeks to achieve its objectives by investing
at least 65% of its total assets in a diversified portfolio consisting of equity
securities of issuers with a market capitalization of primarily $1 billion or
greater and identified by Boston Partners Asset Management, L.P. (the "Adviser")
as equity securities that possess value characteristics. The Adviser examines
various factors in determining the value characteristics of such issuers,
including, but not limited to, price to book value ratios and price to earnings
ratios. These value characteristic are examined in the context of the issuer's
operating and financial fundamentals such as return on equity, earnings growth
and cash flow.
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 1, 1997, 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 by calling (800)
311-9783 or 9829. The Prospectus and the Statement of Additional Information are
available for reference, along with other related material on the SEC Internet
Web Site (http://www.sec.gov).
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.
- --------------------------------------------------------------------------------
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 1, 1997
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
twenty-two separate investment portfolios. The Shares offered by this Prospectus
represent interests in the Boston Partners Large Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
The Advisor Class of the Fund is designed primarily for investors
seeking investment of funds held in an advisory or other similar capacity, which
may include the investment of funds held or managed by broker-dealers,
investment counselors and financial planners. Investment professionals such as
those listed above may purchase Shares for discretionary or non- discretionary
accounts maintained by individuals.
EXPENSE TABLE
The following table illustrates the annual operating expenses expected
to be incurred by Advisor Shares of the Fund (after fee waivers) for the fiscal
period ended August 31, 1997, as a percentage of average daily net assets. An
example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after waivers)*..............................0.71%
12b-1 Fees (after waivers)*...................................0.50%
Other Expenses................................................0.29%
-----
Total Fund Operating Expenses (after waivers).................1.50%
=====
* In the absence of fee waivers, Management Fees would be 0.75%, 12b-1
Fees would be 0.75% and Total Fund Operating Expenses would be 1.79%.
Management Fees and 12b-1 Fees are each based on average daily net
assets and are calculated daily and paid monthly.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
ONE YEAR THREE YEARS
-------- -----------
Boston Partners Large Cap
Value Fund............................. $15 $47
-2-
<PAGE>
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in 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 and 12b-1 Fees for the Fund. However, the
Adviser and the Distributor are under no obligation with respect to such
waivers, and there can be no assurance that any future waivers of Management
Fees and 12b-1 Fees will not vary from the figures reflected in the Fee 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" remain the same in the years shown. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers Inc.
No financial data is supplied for the Advisor Class of the Fund
because, as of the date of this Prospectus, the Advisor Class had no performance
history.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term growth of
capital with current income as a secondary objective. The Portfolio seeks to
achieve its objective by investing at least 65% of its total assets in a
diversified portfolio consisting primarily of equity securities, such as common
stocks and securities convertible into common stocks, of issuers with a market
capitalization of $1 billion or greater and identified by the Adviser as
possessing value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including but not limited to, price to book
value ratios and price to earnings ratios. These value characteristic are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study
of trends in industries and companies, earnings power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operated
-3-
<PAGE>
in the United States. Foreign securities generally are denominated and pay
dividends or interest in foreign currencies. The Fund may hold from time to time
various foreign currencies pending their investment in foreign securities or
their conversion into U.S. dollars. The value of the assets of the Fund as
measured in U.S. dollars may therefore be affected favorably or unfavorably by
changes in exchange rates. There may be less publicly available information
concerning foreign issuers than is available with respect to U.S. issuers.
Foreign securities may not be registered with the U.S. Securities and Exchange
Commission, and generally, foreign companies are not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to U.S. issuers. See "Investment Objectives and Policies--Foreign
Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity
securities of issuers with lower capitalization; derivative securities; debt
securities issued by U.S. banks, corporations and other business organizations
that are investment grade securities; and debt securities issued by the U.S.
Government or government agencies.
In accordance with the above-mentioned policies, the Fund may also
invest in indexed securities, convertible securities, repurchase and reverse
repurchase agreements, dollar rolls, financial futures contracts, options on
futures contracts and may lend portfolio securities. See "Investment Objectives
and Policies" in the Statement of Additional Information.
The Fund may invest in registered investment companies and investment
funds in foreign countries subject to the provisions of the Investment Company
Act of 1940 (the "1940 Act") and as discussed in "Investment Objectives and
Policies" in the Statement of Additional Information. If the Fund invests in
such investment companies, the Fund will bear its proportionate share of the
costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all
times in accordance with the above mentioned policies, the Fund reserves the
right to hold up to 100% of its assets, as a temporary defensive measure, in
cash and eligible U.S. dollar-denominated money market instruments. The Adviser
will determine when market conditions warrant temporary defensive measures.
The Fund's investment objective and the policies described above may be
changed by RBB's Board of Directors without the affirmative vote of the holders
of a majority of the outstanding Shares representing an interest in the Fund.
-4-
<PAGE>
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (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.")
The Fund 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 Fund'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 Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of the Fund to be invested in the
obligations of issuers in any single industry, provided that there is no
limitation with respect to investments in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements and dollar rolls
for temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and then in amounts not in
excess of one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation.
PORTFOLIO TURNOVER
The Fund retains the right to sell securities irrespective of how long
they have been held. The Adviser estimates that the annual turnover in the Fund
will not exceed 100%. High Portfolio turnover (100% or more) will generally
result in higher transaction costs to a portfolio and may result in the
realization of short-term capital gains that are taxable to shareholders as
ordinary income.
-5-
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The net asset value per share of Shares representing
interests in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. Other risk
factors are discussed above under "Investment Objectives and Policies" and in
the Statement of Additional Information under "Investment Objectives and
Policies."
Investment methods described in this Prospectus are among those that
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
INVESTMENT ADVISER
Boston Partners Asset Management, L.P., located at One Financial
Center, 43rd Floor, Boston, Massachusetts 02111, serves as the Fund's investment
adviser. The Adviser provides investment management and investment advisory
services to investment companies and other institutional accounts that had
aggregate total assets under management as of September 30, 1997, in excess of
$12.5 billion. Boston Partners' general partner is Boston Partners, Inc., a
company that acts as a general partner to investment advisers organized as
limited partnerships.
Subject to the supervision and direction of RBB's Board of Directors,
the Adviser manages the Fund's portfolio in accordance with the Fund's
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research services to the
Fund. For its services to the Fund, the Adviser is entitled to receive under the
Advisory Agreement a monthly advisory fee computed at an annual rate of 0.75% of
the Fund's average daily net assets. The Adviser is currently waiving advisory
fees in excess of 0.71% of the Fund's average daily net assets.
-6-
<PAGE>
PORTFOLIO MANAGEMENT
The day-to-day portfolio management of the Fund is the responsibility
of Mark E. Donovan and Wayne S. Sharp who are senior portfolio managers of the
Adviser. Mr. Donovan is Chairperson of the Adviser's Equity Strategy Committee
which oversees the investment activities of the Adviser's $4.3 billion of Large
Capitalization Core Value institutional equity assets under management. Prior to
joining the Adviser on April 16, 1995, Mr. Donovan was a Senior Vice President
and Vice Chairman of The Boston Company Asset Management, Inc.'s Equity Policy
Committee. Mr. Donovan is a Chartered Financial Analyst and has over fourteen
years of investment experience. Ms. Sharp is Vice Chairperson of the Adviser's
Equity Strategy Committee and has over twenty years of investment experience.
Prior to joining the Adviser on April 16, 1995, Ms. Sharp was a Senior Vice
President and member of the Equity Policy Committee of The Boston Company Asset
Management, Inc. Mr. Sharp is also a Chartered Financial Analyst.
ADMINISTRATOR
PFPC Inc. ("PFPC") serves as administrator to the Portfolio and
generally assists the Fund in all aspects of its administration and operations,
including matters relating to the maintenance of financial records and
accounting. PFPC's principal offices are located at 400 Bellevue Parkway,
Wilmington, Delaware 19809. For its services, PFPC receives a fee calculated at
an annual rate of .125% of the Fund's average daily net assets, with a minimum
annual fee of $75,000 payable monthly on a pro rata basis. However, PFPC has
notified the Fund that it intends to waive one-half of its minimum annual fee
during the initial fiscal period of the Advisor Class.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank, National Association ("PNC Bank") serves as the Fund's
custodian and PFPC serves as the Fund's transfer agent and dividend disbursing
agent. The principal offices of PFPC, an indirect, wholly-owned subsidiary of
PNC Bank, are located at 400 Bellevue Parkway, Wilmington, Delaware 19809. 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 Fund. 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."
-7-
<PAGE>
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor") a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc. ("Warburg"), with a
principal business address at 466 Lexington Avenue, New York, New York, acts as
distributor for the Shares pursuant to a distribution agreement (the
"Distribution Agreement") with RBB on behalf of the Shares.
EXPENSES
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Advisor Class of the Fund pays its own
distribution fees, and may pay a different share than the other classes of the
Fund of other expenses (excluding advisory and custodial fees) if those expenses
are actually incurred in a different amount by the Advisor Class or if it
receives different services.
The Adviser may assume expenses of the Fund from time to time. In
certain circumstances, it may assume such expenses on the condition that it is
reimbursed by the Fund for such amounts prior to the end of a fiscal year. In
such event, the reimbursement of such amounts will have the effect of lowering
the Fund's overall expense ratio and increasing its yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive
from the Fund a distribution fee with respect to the Shares, which is accrued
daily and paid monthly, of up to 0.75% on an annualized basis of the average
daily net assets of the Shares. The actual amount of such compensation under the
Plan is agreed upon by RBB's Board of Directors and by 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 0.50% of the average
daily net assets of the Fund on an annualized basis in any year. Such
compensation may be increased, up to the amount permitted in the Plan with the
approval of RBB's Board of Directors. The Distributor may, in its discretion,
from time to time waive voluntarily all or any portion of its distribution fee.
-8-
<PAGE>
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to an Intermediary, as
defined below. See "Shareholder Servicing."
The Plan obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of the Shares the fee agreed to
under the Distribution Plan. Payments under the Plan are not tied exclusively to
expenses actually incurred by the Distributor, and payments may exceed
distribution expenses actually incurred.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares, consisting of securities dealers who have sold
Shares or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Advisor Shares are available for investment through investment
professionals such as broker-dealers, financial planners and other financial
intermediaries ("Intermediaries"). The Fund reserves the right to make Advisor
Shares available to other investors in the future.
Shares representing interests in the Fund are offered continuously for
sale by the Distributor and may be purchased through an Intermediary without
imposition of a sales charge. Shares may be purchased initially by completing
the application included in this Prospectus and forwarding the application
through an Intermediary to the Fund's transfer agent, PFPC. Purchases of Shares
may be effected through an Intermediary or by wire to an account to be specified
by PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston
-9-
<PAGE>
Partners Large Cap Value Fund," c/o PFPC Inc., P.O. Box 8852, Wilmington,
Delaware 19899-8852. The name of the Fund, Boston Partners Large Cap Value Fund,
must also appear on the check or 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 the Fund must be at least $10,000
and subsequent investments must be at least $500. The Fund reserves the right to
suspend the offering of Shares for a period of time or to reject any purchase
order.
Shares may be purchased on any Business Day. A "Business Day" is any
day that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value
next computed after a purchase order is received in good order by the Fund or
its agents. Orders received by the Fund or its agents prior to the close of the
NYSE (generally 4:00 p.m. Eastern Time) are priced at that Business Day's net
asset value. Orders received by the Fund or its agents after the close of the
NYSE are priced at the net asset value next determined on the following Business
Day. In those cases where an investor pays for Shares by check, the purchase
will be effected at the net asset value next determined after the Fund or its
agents receives the order and the completed application.
Shareholders whose shares are held in the street name account of an
Intermediary and who desire to transfer such shares to the street name account
of another Intermediary should contact their current Intermediary.
Shareholders may not purchase shares of the Boston Partners Large Cap
Value Fund with a check issued by a third party and endorsed over to the Fund.
Checks for investment must be made payable to Boston Partners Large Cap Value
Fund.
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 PFPC. An
investor's bank or broker may impose a charge for this service. The Fund does
not currently impose a service charge for effecting wire transfers but reserves
the right to do so in the future. 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 (888) 261-4073,
and provide PFPC with your name, address,
-10-
<PAGE>
telephone number, Social Security or Tax Identification Number, the Fund
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 PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together
with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investors account number with
the Fund)
FOR PURCHASE OF: Boston Partners Large Cap Value
Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the address
shown thereon. PFPC will not process redemptions until it receives a fully
completed and signed Application.
For subsequent investments, an investor should follow steps A and B
above.
AUTOMATIC INVESTING
Additional investments in 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 (888) 261-4073 to obtain the appropriate
forms.
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 PFPC at (888)
261-4073. To determine whether the benefits of an IRA are available and/or
appropriate, a shareholder should consult with a tax adviser.
-11-
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
REDEMPTION BY MAIL
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 Boston Partners Large Cap Value Fund, c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899- 8852. There is no charge for a redemption.
Shareholders may also place redemption requests through an Intermediary, but
such Intermediary 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 according to the procedures described below under "How to Redeem
Shares -- Exchange Privilege."
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. 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.
SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan and receive regular periodic payments. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to PFPC at
P.O. Box 8852, Wilmington, Delaware 19899-8852. 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 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
-12-
<PAGE>
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.
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 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
and 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 at any
time the net asset value of the account falls below $500 as the result of a
redemption request. Shareholders will be notified in writing that the value of
their account 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 or its agents. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund or its agents of the request and
any other necessary documents in proper order. Such payment may be postponed or
the right of redemption suspended as permitted by the 1940 Act. 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. The Fund has elected 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.
TELEPHONE TRANSACTIONS
In order to request a redemption by telephone, a shareholder must have
completed and returned an account application
-13-
<PAGE>
containing the appropriate telephone election. To add a telephone option to an
existing account that previously did not provide for this option, a Telephone
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 redemption by calling (888) 261-4073. Neither RBB, the
Fund, the Distributor, the Administrator nor any Fund agent will be liable for
any loss, liability, cost or expense for following RBB's telephone transaction
procedures described below or for following instructions communicated by
telephone that they reasonably believe to be genuine.
RBB'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 RBB's
records; (3) requiring RBB'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 broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners and other industry professionals, 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 an
attorney-in-fact under a power of attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset values for each class of a fund are calculated by adding
the value of the proportionate interest of the class in a fund's securities,
cash and other assets, deducting the actual and accrued liabilities of the class
and dividing by the result of outstanding Shares of the class. The net asset
values of each class are calculated independently from each other class. The net
asset values are calculated as of 4:00 p.m. Eastern Time on each Business Day.
Valuation of securities held by the Fund is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported
-14-
<PAGE>
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 RBB'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.
With the approval of RBB's Board of Directors, the Fund may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Fund's securities. A more detailed discussion of net asset value and security
valuation is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Fund to the Fund's shareholders.
All distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually, and pays them in the calendar year in which they are declared,
generally in December. 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 Fund and its shareholders
and is not intended as a substitute for careful tax planning. Accordingly,
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation.
The Fund 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
Fund qualifies for this tax treatment, it 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.
-15-
<PAGE>
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 Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, will be taxed to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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.
RBB will send written notices to shareholders annually regarding the
tax status of distributions made by the Fund. Dividends declared in 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 Fund
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 shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund 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.
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund is authorized to offer Advisor Shares to Intermediaries whose
clients or customers (collectively, "Customers") are beneficial owners of
Advisor Shares. Those Intermediaries may enter into service agreements
("Agreements") related to the sale of the Advisor Shares with the Distributor
pursuant to the Distribution Plan. Pursuant to the terms of an Agreement, the
Intermediary agrees to perform certain distribution, shareholder servicing,
administrative and accounting services for its Customers. Distribution services
would be marketing or other services in connection with the promotion and sale
of Advisor Shares. Shareholder services that may be
-16-
<PAGE>
provided include responding to Customer inquiries, providing information on
Customer investments and providing other shareholder liaison services.
Administrative and accounting services related to the sale of the Advisor Shares
may include (i) aggregating and processing purchase and redemption requests from
Customers and placing net purchase and redemption orders with the Fund's
transfer agent, (ii) processing dividend payments from the Fund on behalf of
Customers and (iii) providing sub- accounting relating to the sale of Advisor
Shares beneficially owned by Customers or the information to the Fund necessary
for subaccounting. Pursuant to the Rule 12b-1 Plan for the Advisor Shares, the
Distributor may pay each participating Intermediary a negotiated fee on an
annual basis not to exceed .75% of the value of the average daily net assets of
its Customers invested in the Advisor Shares. The Fund may, in the future, enter
into additional Agreements with Intermediaries. The Board of Directors of RBB
will evaluate the appropriateness of the Plan on a continuing basis.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers two other classes of shares which are offered directly
to individual investors, Investor Shares and Institutional Shares, pursuant to
separate prospectuses. Shares of each class represent equal pro rata interests
in the Fund and accrue dividends and calculate net asset value and performance
quotations in the same manner. The Fund quotes performance of the Investor and
Institutional Shares separately from Advisor Shares. Because of different
expenses paid by the Advisor Shares, the total return on such shares can be
expected, at any time, to be different than the total return on Investor and
Institutional Shares. Information concerning these other classes may be obtained
by calling the Fund at (800) 311-9783, or 9829.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 13.93 billion shares are currently
classified into 82 different classes of Common Stock. See "Description of
Shares" in the Statement of Additional Information."
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO BOSTON PARTNERS LARGE CAP VALUE FUND AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO BOSTON PARTNERS LARGE CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund
-17-
<PAGE>
with each other share that represents an interest in the Fund, 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 will be fully paid and non-assessable.
RBB 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, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund 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 RBB will vote in the aggregate and
not by portfolio except as otherwise required by law or when RBB's 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 15, 1997, to the Fund's knowledge, no person held of
record or beneficially 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 the Fund's
transfer agent, PFPC, at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, (888) 261-4073.
-18-
<PAGE>
SHARE CERTIFICATES
In the interest of economy and convenience, physical certificates
representing shares in the Fund are not normally issued.
HISTORICAL PERFORMANCE INFORMATION
The table below presents the Composite performance history of certain
of the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1997. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Advisor Class of the Fund,
which had not offered shares to the public as of August 31, 1997. The Composite
performance information includes the reinvestment of dividends received in the
underlying securities and reflects investment advisory fees. The privately
managed accounts in the Composite are only available to the Adviser's
institutional advisory clients. The past performance of the funds and accounts
which comprise the Composite is not indicative of the future performance of the
Advisor Class of the Fund. These accounts have lower investment advisory fees
than the Advisor Class of the Fund, and the Composite performance would have
been lower if subject to the higher fees and expenses incurred by the Advisor
Class of the Fund. These private accounts are also not subject to the same
investment limitations, diversification requirements and other restrictions
which are imposed upon mutual funds under the 1940 Act, and the Internal Revenue
Code, which, if imposed, may have adversely affected the performance results of
the Composite. Listed below the performance history for the Composite is a
comparative index comprised of securities similar to those in which accounts
contained in the Composite are invested.
Annualized investment returns for the period ended August 31, 1997
Since
ONE YEAR INCEPTION
-------- ---------
Composite Performance.................. 46.9% 33.5%*
S&P 500 Stock Index.................... 40.7% 28.9%
* The Adviser commenced managing these accounts on June 1, 1995.
The S&P 500 Stock Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the NYSE.
-19-
<PAGE>
FUTURE PERFORMANCE INFORMATION
From time to time, the Fund 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 over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. 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 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 Fund 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 the Fund's
performance with other measures of investment return. For example, the Fund's
total return may be compared with data published by Lipper Analytical Services,
Inc., CD 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. Performance information may also include
evaluation of the Fund by nationally recognized ranking services and information
as reported in financial publications such as BUSINESS WEEK, FORTUNE,
INSTITUTIONAL INVESTOR, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL, THE NEW YORK TIMES, or other national, regional or local publications.
All advertisements containing performance data will include a legend disclosing
that such performance data represents 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.
-20-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS OR IN RBB'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 RBB OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY RBB OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
___________________ PROSPECTUS
DECEMBER 1, 1997
TABLE OF CONTENTS
PAGE
----
INTRODUCTION...................................... 2
INVESTMENT OBJECTIVES AND POLICIES................ 3
INVESTMENT LIMITATIONS............................ 5
RISK FACTORS...................................... 6
MANAGEMENT........................................ 6 BOSTON PARTNERS
DISTRIBUTION OF SHARES............................ 8 LARGE CAP
HOW TO PURCHASE SHARES............................ 9 VALUE FUND
HOW TO REDEEM SHARES.............................. 12
NET ASSET VALUE................................... 14 (ADVISOR SHARES)
DIVIDENDS AND DISTRIBUTIONS....................... 15
TAXES ......................................... 15
SHAREHOLDER SERVICING............................. 16
MULTI-CLASS STRUCTURE............................. 17
DESCRIPTION OF SHARES............................. 17
OTHER INFORMATION................................. 18
INVESTMENT ADVISOR
Boston Partners Asset Management, L.P.
Boston, Massachusetts
CUSTODIAN
PNC Bank, N.A.
Philadelphia, Pennsylvania
TRANSFER AGENT AND ADMINISTRATOR
PFPC Inc.
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities Inc.
New York, New York
COUNSEL bp
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS BOSTON PARTNERS
Coopers & Lybrand L.L.P. ASSET MANAGEMENT, L.P.
Philadelphia, Pennsylvania ----------------------
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(ADVISOR CLASS)
ACCOUNT APPLICATION
PLEASE NOTE: Do not use this form to open a retirement plan account.
For an IRA application or help with this Application, please call 1-888-261-4073
1. ACCOUNT
REGISTRATION: (Please check the appropriate box(es) below.)
[Checkbox] Individual [Checkbox] Joint Tenant [Checkbox] Other
-------------------------------------------------------------------------
NAME SOCIAL SECURITY NUMBER OR TAX ID# OF PRIMARY OWNER
-------------------------------------------------------------------------
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID#
For joint accounts, the account registrants will be joint tenants with right of
survivorship and not tenants in common unless tenants in common or community
property registrations are requested.
GIFT TO MINOR:
[Checkbox] UNIFORM GIFTS/TRANSFER TO MINOR'S ACT
-------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
-------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
-------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
CORPORATION, PARTNERSHIP,
TRUST OR OTHER ENTITY:
-------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
-------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
2. MAILING ADDRESS:
-------------------------------------------------------------------------
STREET OR P.O. BOX AND/OR APARTMENT NUMBER
-------------------------------------------------------------------------
CITY STATE ZIP CODE
-------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
<PAGE>
3. INVESTMENT INFORMATION:
Minimum initial investment of $10,000. Amount of investment $__________
Make the check payable to Boston Partners Large Cap Value Fund.
Shareholders may not purchase shares of this Fund with a check issued by a third
party and endorsed over to the Fund.
DISTRIBUTION OPTIONS: NOTE:
Dividends and capital gains may be reinvested or paid by check. If no options
are selected below, both dividends and capital gains will be reinvested in
additional Fund shares.
DIVIDENDS[Checkbox] Pay by check [Checkbox] Reinvest [Checkbox] CAPITAL GAINS
[Checkbox] Pay by check [Checkbox] Reinvest [Checkbox]
SYSTEMATIC WITHDRAWAL PLAN:
To select this portion please fill out the information below:
Amount ______________ Start-up Month _________________________________
Frequency Options: Annually [Checkbox] Monthly [Checkbox] Quarterly [Checkbox]
- - A minimum account value of $10,000 in a single account is required to
establish a Systematic Withdrawal Plan
- - Payments will be made on or near the 25th of the month
Please check one of the
following options: _______Please mail checks to Address of
Record (Named in Section 2)
_______Please electronically credit my Bank
of Record (Named in Section 5)
4. TELEPHONE REDEMPTION:
To use this option, you must initial the appropriate line below.
I authorize the Transfer Agent to accept instructions from any persons to redeem
shares in my account(s) by telephone in accordance with the procedures and
conditions set forth in the Fund's current prospectus.
________________________ _______________________ Redeem shares, and send the
proceeds
individual initial joint initial to the address of record.
5. AUTOMATIC INVESTMENT PLAN:
The Automatic Investment Plan which is available to shareholders of the Fund,
makes possible regularly scheduled purchases of Fund shares to allow dollar-cost
averaging. The Fund's Transfer Agent can arrange for an amount of money selected
by you to be deducted from your checking account and used to purchase shares of
the Fund.
Please debit $__________ from my checking account (named below) on or about
the 20th of the month.
PLEASE ATTACH AN UNSIGNED, VOIDED CHECK.
[Checkbox] Monthly [Checkbox] Every Alternate Month
[Checkbox] Quarterly [Checkbox] Other
BANK RECORD:
--------------------------------------------------------------
BANK NAME STREET ADDRESS OR P.O. BOX
--------------------------------------------------------------
CITY STATE ZIP CODE
----------------------- -----------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
<PAGE>
6. SIGNATURES:
The undersigned warrants that I (we) have full authority and, if a natural
person, I (we) am (are) of legal age to purchase shares pursuant to this Account
Application, and I (we) have received a current prospectus for the Fund in which
I (we) am (are) investing.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required
to have the following certification: Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct identification number (or I
am waiting for a number to be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt
from backup withholding or (b) I have not been notified by the Internal
Revenue Service that I am subject to 31% backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
NOTE: YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS
THAT YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE YOU HAVE FAILED TO
REPORT ALL INTEREST AND DIVIDENDS ON YOUR TAX RETURN. THE INTERNAL REVENUE
SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER
THAN THE CERTIFICATION REQUIRED TO AUDIT BACKUP WITHHOLDING.
- --------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
- --------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
- --------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER DATE
- --------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicated corporate office or
title. If you wish additional signatories on the account, please include a
corporate resolution. If signing as a fiduciary, you must indicate capacity.)
For information on additional options, such as IRA Applications, rollover
requests for qualified retirement plans, or for wire instructions, please call
us at 1-888-261-4073.
MAIL COMPLETED ACCOUNT APPLICATION AND CHECK TO:
THE BOSTON PARTNERS LARGE CAP VALUE FUND
C/O PFPC INC.
P.O. BOX 8852
WILMINGTON, DE 19899-8852
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(INSTITUTIONAL, ADVISOR, AND INVESTOR CLASSES)
OF
THE RBB FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of the Institutional, Advisor and
Investor Classes (the "Shares") representing interests in the Boston Partners
Large Cap Value Fund (the "Fund") of The RBB Fund, Inc. ("RBB"). This Statement
of Additional Information is not a prospectus, and should be read only in
conjunction with the Boston Partners Large Cap Value Fund Prospectuses dated
December 1, 1997 (together, the "Prospectus"). A copy of any of the
Prospectuses may be obtained from RBB by calling toll-free (800) 311-9783 or
9829. This Statement of Additional Information is dated December 1, 1997.
CONTENTS
INSTITUTIONAL/
ADVISOR INVESTOR
PROSPECTUS PROSPECTUS
PAGE PAGE PAGE
---- -------------- ----------
General.................................. 2 2 2
Investment Objectives and Policies....... 2 4 4
Directors and Officers................... 11 N/A N/A
Investment Advisory, Distribution
and Servicing Arrangements............. 16 6 6
Portfolio Transactions................... 20 8 7
Purchase and Redemption Information...... 21 9,13 8,11
Valuation of Shares...................... 22 14 13
Performance Information.................. 23 18 16
Taxes.................................... 24 15 14
Additional Information Concerning
RBB Shares............................. 27 15 15
Miscellaneous............................ 31 N/A N/A
Financial Statements..................... 41 N/A N/A
Appendix A............................... A-1 N/A 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 RBB 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. ("RBB") is an open-end management
investment company currently operating or proposing to operate twenty-two
separate investment portfolios. RBB was organized as a Maryland corporation on
February 29, 1988. The Institutional Shares of the Fund were first issued on
January 2, 1997. The Investor Shares of the Fund were first issued on January
16, 1997. As of the date of this Statement of Additional Information, no Advisor
Shares had been issued.
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 Fund.
ADDITIONAL INFORMATION ON FUND INVESTMENTS.
LENDING OF FUND SECURITIES. The Fund may 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 Fund'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 Fund's securities will be fully
collateralized and marked to market daily. The Fund does not presently intend to
invest more than 5% of net assets in securities lending.
INDEXED SECURITIES. The Fund may invest in indexed securities
whose value is linked to securities indices. Most such securities have values
which rise and fall according to the change in one or more specified indices,
and may have characteristics similar to direct investments in the underlying
securities. The Fund does not presently intend to invest more than 5% of net
assets in indexed securities.
CONVERTIBLE SECURITIES. The Fund may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be
-2-
<PAGE>
converted into or exchanged for a prescribed amount of common stock of the same
or a different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. While no securities investment is completely without risk,
investments in convertible securities generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed-income security. Convertible securities have unique
investment characteristics in that they generally (1) have higher yields than
common stocks, but lower yields than comparable non-convertible securities, (2)
are less subject to fluctuation in value than the underlying stock since they
have fixed-income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors also may have
an effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment
value. Generally the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed-income security.
A convertible security might be subject to redemption at the
option of the issuer at a price established in the
-3-
<PAGE>
convertible security's governing instrument. If a convertible security held by
the Fund is called for redemption, the Fund will be required to permit the
issuer to redeem the security, convert it into the underlying common stock or
sell it to a third party. The Fund does not presently intend to invest more than
5% of net assets in convertible securities.
REPURCHASE AGREEMENTS. The Fund 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 13 months, provided the repurchase agreement itself matures in less
than 13 months. The financial institutions with whom the Fund may enter into
repurchase agreements will be banks which the 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 Adviser will consider the creditworthiness
of a seller in determining whether to have the Fund 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 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 Fund to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may
enter into reverse repurchase agreements with respect to portfolio securities
for temporary purposes (such as to obtain cash to meet redemption requests) when
the liquidation of portfolio securities is deemed disadvantageous or
inconvenient by the Adviser. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to the Fund'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, as
amended (the "1940 Act"), and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, the
Fund will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement and will 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 Fund may decline below the price of the securities the
Fund is obligated to repurchase. The Fund may also enter into "dollar rolls," in
which it sells
-4-
<PAGE>
fixed-income securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Fund would
forgo principal and interest paid on such securities. The Fund would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. The Fund does not presently intend to invest more
than 5% of net assets in reverse repurchase agreement or dollar roll
transactions.
U.S. GOVERNMENT OBLIGATIONS. The Fund 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. Government or by U.S.
Treasury guarantees, such as securities of the Government National Mortgage
Association and the Federal Housing Authority; others, by the ability of the
issuer to borrow, provided approval is granted, 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.
The Fund's net assets may 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.
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, the Maritime
Administration, the Asian-American Development Bank and the Inter-American
Development Bank. The Fund does not presently intend to invest more than 5% of
net assets in U.S. Government obligations.
ILLIQUID SECURITIES. The Fund may not invest more than 15% 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
-5-
<PAGE>
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. With respect to the Fund,
repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Mutual funds do not typically hold a significant amount of
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.
The Fund may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Fund's
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
The Adviser will monitor the liquidity of restricted
securities in the Fund under the supervision of the Board of Directors. In
reaching liquidity decisions, the Adviser may consider, among others, 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).
HEDGING INVESTMENTS. At such times as the Adviser deems it
appropriate and consistent with the investment objective of the Fund, the Fund
may invest in financial futures contracts and options on financial futures
contracts. The purpose of such transactions is to hedge against changes in the
market value of securities in the Fund 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
-6-
<PAGE>
not be used for speculation. Futures contracts and options on futures contracts
are discussed below.
FUTURES CONTRACTS. The Fund may invest in financial futures
contracts with respect to those securities listed on the S&P 500 Stock Index.
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 Fund's investment adviser when hedge
positions were established. The Fund does not presently intend to invest more
than 5% of net assets in futures contracts.
OPTIONS ON FUTURES. The Fund may purchase and write call and
put options on futures contracts with respect to those securities listed on the
S&P 500 Stock Index 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 Fund 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 Fund is not fully invested.
There is no assurance that the Fund 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 securities being hedged, or price distortions due to market
conditions in the futures markets. Such imperfect correlations could have an
impact on the Fund's ability to effectively hedge its securities. The Fund does
not presently intend to invest more than 5% of net assets in options on futures.
-7-
<PAGE>
BANK AND CORPORATE OBLIGATIONS. The Fund 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
Fund may also make interest-bearing savings deposits in commercial and savings
banks in amounts not in excess of 5% of its total assets.
The Fund may invest in debt obligations, such as bonds and
debentures, issued by corporations and other business organizations that are
rated at the time of purchase within the three highest ratings categories of S&P
or Moody's (or which, if unrated, are determined by the Adviser to be of
comparable quality). Unrated securities will be determined to be of comparable
quality to rated debt obligations if, among other things, other outstanding
obligations of the issuers of such securities are rated A or better. See
Appendix "A" for a description of corporate debt ratings.
COMMERCIAL PAPER. The Fund may purchase commercial paper rated
(at the time of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed
advisable by the Fund's investment adviser, issues rated "A-2" or "Prime-2" by
S&P or Moody's respectively. These rating symbols are described in Appendix "A"
hereto. The Fund may also purchase unrated commercial paper provided that such
paper is determined to be of comparable quality by the Fund's investment adviser
pursuant to guidelines approved by the Fund's Board of Directors. Commercial
paper issues in which the Fund may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "Securities 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 Securities 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 Fund does not presently intend to invest more than 5% of net
assets in commercial paper.
FOREIGN SECURITIES. The Fund may invest in foreign securities,
either directly or indirectly through American Depository Receipts and European
Depository Receipts. Investments in foreign securities involve higher costs than
-8-
<PAGE>
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity and political stability. Future political and economic information,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls, or the adoption of other governmental restrictions, might
adversely affect the payment of principal and interest on foreign obligations.
Although the Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of a Fund's shares may fluctuate with
U.S. dollar exchange rates as well as the price changes of the Fund's securities
in the various local markets and currencies. Thus, an increase in the value of
the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar may have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in foreign markets. In addition
to favorable and unfavorable currency exchange rate developments, the Fund is
subject to the possible imposition of exchange control regulations or freezes on
convertibility of currency.
INVESTMENT LIMITATIONS.
RBB has adopted the following fundamental investment
limitations which may not be changed without the affirmative vote of the holders
of a majority of the Fund's outstanding Shares (as defined in Section 2(a)(42)
of the Investment Company Act). The Fund may not:
1. Borrow money, except from banks, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of the
Fund; 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 33 1/3% of the value of the Fund's total assets at the time
of such borrowing;
2. Issue any senior securities, except as permitted under the
1940 Act;
3. Act as an underwriter of securities within the meaning of
the Securities Act except insofar as it might be
-9-
<PAGE>
deemed to be an underwriter upon disposition of certain portfolio securities
acquired within the limitation on purchases of restricted securities;
4. Purchase or sell real estate (including real estate limited
partnership interests), provided that the Fund may invest (a) in securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein or (b) in real estate investment trusts;
5. Purchase or sell commodities or commodity contracts, except
that a Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock index and
currency options, stock index futures, financial futures and currency futures
contracts and related options on such futures;
6. Make loans, except through loans of portfolio instruments
and repurchase agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other debt instruments or interests therein
and investment in government obligations, loan participations and assignments,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan;
7. Invest 25% or more of its assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and instrumentalities);
or
8. 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 Fund'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 Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
(For purposes of Investment Limitation No. 1, any collateral
arrangements, if applicable, with respect to the writing of options, and futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge of assets.
For purposes of Investment Limitation No. 2, neither the foregoing arrangements
nor the purchase or sale of futures or related options are deemed to be the
issuance of senior securities.)
The Fund may invest in securities issued by other investment
companies within the limits prescribed by the 1940
-10-
<PAGE>
Act. As a shareholder of another investment company, the Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations.
Except as required by the 1940 Act with respect to the
borrowing of money, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in market values of portfolio securities or amount of total or net assets will
not be considered a violation of any of the foregoing restrictions.
Securities held by the Fund generally may not be purchased
from, sold or loaned to the Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
DIRECTORS AND OFFICERS
The directors and executive officers of RBB, their ages,
business addresses and principal occupations during the past five years are:
-11-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
*Arnold M. Reichman -49 Director Senior Managing Director,
466 Lexington Avenue Chief Operating Officer
New York, NY 10017 and Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer of Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc. (a
New York, NY 10005 registered broker-
dealer); Prior to October
1996, Executive Vice
President of Gruntal &
Co., Inc. (a registered
broker-dealer).
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).
-12-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
Julian A. Brodsky -63 Director Director and Vice
1234 Market Street Chairman since 1969
16th Floor Comcast Corporation
Philadelphia, PA 19107- (cable television and
3723 communications);
Director Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden -72 Director Self-employed
1200 Old Mill Lane and businessman. From
Wyomissing, PA 19610 Chairman February 1980 to March
of the 1987, Vice Chairman,
Board SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto service);
Director, Keystone
Insurance Co.
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice
Bellevue Park Treasurer Chairman of the Board,
Corporate Center Fox Chase Cancer Center;
400 Bellevue Parkway Trustee Emeritus,
Wilmington, DE 19809 Pennsylvania School for
the Deaf; Trustee
Emeritus, Immaculata
College; President or
Vice President and
Treasurer of various
investment companies
advised by PNC
Institutional Management
Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones -58 Secretary Chairman of the law firm
Drinker Biddle & Reath of Drinker Biddle & Reath
LLP LLP; Director, Rocking
1345 Chestnut Street Horse Child Care Centers
Philadelphia, PA 19107- of America, Inc.
3496
- ----------------------
-13-
<PAGE>
* Mr. Reichman is an "interested person" of RBB, as that term is defined in
the 1940 Act, by virtue of his position with Counsellors Securities Inc.,
RBB's distributor.
** Mr. Sablowsky is an "interested person" of RBB, as that term is defined in
the 1940 Act, by virtue of his position with Fahnestock Co., Inc., a
registered 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 RBB 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 RBB 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 all persons to be nominated as directors of RBB.
RBB 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 and Mr. Sablowsky who is considered to be an affiliated
person, $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. In addition, the
Chairman of the Board receives an additional fee of $5,000 per year for his
services in this capacity. Directors who are not affiliated persons of RBB and
Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings of
the Board of Directors or any committee thereof. For the year ended August 31,
1997, each of the following members of the Board of Directors received
compensation from RBB in the following amounts:
-14-
<PAGE>
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON/ FROM AS PART OF FUND BENEFITS UPON COMPLEX 1 PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ------------------ ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and
Chairman
<FN>
- ----------------------
1 A FUND COMPLEX MEANS TWO OR MORE INVESTMENT COMPANIES THAT HOLD THEMSELVES
OUT TO INVESTORS AS RELATED COMPANIES FOR PURPOSES OF INVESTMENT AND
INVESTOR SERVICES, OR HAVE A COMMON INVESTMENT ADVISER OR HAVE AN
INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE INVESTMENT ADVISER
OF ANY OTHER INVESTMENT COMPANIES.
</FN>
</TABLE>
On October 24, 1990 RBB adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach and one other employee), pursuant
to which RBB will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by RBB's advisers, custodians, administrators and distributor, RBB
itself requires only two part-time employees. Drinker Biddle & Reath LLP, of
which Mr. Jones is a partner, receives legal fees as counsel to RBB. No officer,
director or employee of Boston Partners Asset Management, L.P. ("Boston
Partners" or the "Adviser") or the Distributor currently receives any
compensation from RBB.
-15-
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENT. Boston Partners renders advisory services
to the Fund pursuant to an Investment Advisory Agreement dated October 16, 1996
(the "Advisory Agreement"). Boston Partners' general partner is Boston Partners,
Inc.
Boston Partners has investment discretion for the Fund and
will make all decisions affecting assets in the Fund under the supervision of
RBB's Board of Directors and in accordance with the Fund's stated policies.
Boston Partners will select investments for the Fund. For its services to the
Fund, Boston Partners is entitled to receive a monthly advisory fee under the
Advisory Agreement computed at an annual rate of 0.75% of the Fund's average
daily net assets. Boston Partners is currently waiving advisory fees in excess
of 0.71% of average daily net assets. For the period from the date of the
initial public offering (January 2, 1997 in the case of Institutional Shares and
January 16, 1997 in the case of Investor Shares) through August 31, 1997, the
Fund paid Boston Partners $5,635 in investment advisory fees and Boston Partners
waived advisory fees in the amount of $57,752. Boston Partners reimbursed
expenses of the Fund in the amount of $26,104 for the same period.
Each class of the Fund bears its own expenses not specifically
assumed by Boston Partners. General expenses of RBB not readily identifiable as
belonging to a portfolio of RBB are allocated among all investment portfolios by
or under the direction of RBB'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 Boston Partners; (c) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against RBB or a portfolio for violation of any law; (d)
any extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment company literature and other publications provided by RBB
to its directors and officers; (g) organizational costs; (h) fees to the
investment adviser and PFPC; (i) fees and expenses of officers and directors who
are not affiliated with a portfolios' investment adviser or Distributor; (j)
taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees; (o)
brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Fund and its shares for distribution under
federal and state securities laws; (q) expenses of preparing prospectuses and
statements of additional
-16-
<PAGE>
information and distributing annually to existing shareholders that are not
attributable to a particular class of shares of RBB; (r) the expense of reports
to shareholders, shareholders' meetings and proxy solicitations that are not
attributable to a particular class of shares of RBB; (s) fidelity bond and
directors' and officers' liability insurance premiums; (t) the expense of using
independent pricing services; and (u) other expenses which are not expressly
assumed by a portfolio's investment adviser under its advisory agreement with
the portfolio. Each class of the Fund pays its own distribution fees, if
applicable, and may pay a different share than other classes of other expenses
(excluding advisory and custodial fees) if those expenses are actually incurred
in a different amount by such class or if it receives different services.
Under the Advisory Agreement, Boston Partners will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or RBB in connection with the performance of the Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Boston Partners in the performance of its respective duties or
from reckless disregard of its duties and obligations thereunder.
The Advisory Agreement was most recently approved on July 9,
1997 by vote of RBB's Board of Directors, including a majority of those
directors who are not parties to the Advisory Agreement or interested persons
(as defined in the 1940 Act) of such parties. The Advisory Agreement was
approved by the initial shareholder of each class of the Fund. The Advisory
Agreement is terminable by vote of RBB's Board of Directors or by the holders of
a majority of the outstanding voting securities of the Fund, at any time without
penalty, on 60 days' written notice to Boston Partners. The Advisory Agreement
may also be terminated by Boston Partners on 60 days' written notice to RBB. The
Advisory Agreement terminates automatically in the event of its assignment.
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 Fund
(b) holds and transfers portfolio securities on account of the Fund, (c) accepts
receipts and makes disbursements of money on behalf of the Fund, (d) collects
and receives all income and other payments and distributions on account of the
Fund's portfolio securities and (e) makes periodic reports to RBB's Board of
Directors concerning the Fund'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 of
its duties under the
-17-
<PAGE>
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 Fund's average daily
gross assets as follows: $.18 per $1,000 on the first $100 million of average
daily gross assets; $.15 per $1,000 on the next $400 million of average daily
gross assets; $.125 per $1,000 on the next $500 million of average daily gross
assets; and $.10 per $1,000 on average daily gross assets over $1 billion,
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 pursuant to a Transfer
Agency Agreement dated November 5, 1991, as supplemented (the "Transfer Agency
Agreement"), under which PFPC (a) issues and redeems shares of the Fund, (b)
addresses and mails all communications by the Fund to record owners of the
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 RBB's
Board of Directors concerning the operations of the Fund. PFPC may, on 30 days'
notice to RBB, 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 $12 per
account in the Fund, exclusive of out-of-pocket expenses, and also receives
reimbursement of its out-of-pocket expenses.
ADMINISTRATION AGREEMENT. PFPC serves as administrator to the
Fund pursuant to an Administration and Accounting Services Agreement dated
October 16, 1996, (the "Administration Agreement"). PFPC has agreed to furnish
to the Fund 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. For its services to the Fund, PFPC
is entitled to receive a fee calculated at an annual rate of .125% of the Fund's
average daily net assets, with a minimum annual fee of $75,000 payable monthly
on a pro rata basis. PFPC is currently waiving one-half of its minimum annual
fee. During the period from the date of the initial public offering (January 2,
1997 in the case of Institutional Shares and January 16, 1997 in the case of
Investor Shares) through August 31, 1997, the Fund paid PFPC $25,000 in
administration fees and PFPC waived $25,000 in administration fees.
The Administration Agreement provides that PFPC shall not be
liable for any error of judgment or mistake of law or any
-18-
<PAGE>
loss suffered by RBB or the Fund 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.
DISTRIBUTION AGREEMENT. Pursuant to the terms of a
distribution agreement, dated as of April 10, 1991, as supplemented (the
"Distribution Agreement"), entered into by the Distributor and RBB on behalf of
the Institutional, Investor and Advisor Classes, and Plans of Distribution for
the Institutional, Investor and Advisor Classes (together, the "Plans"), which
were adopted by RBB in the manner prescribed by Rule 12b-1 under the 1940 Act,
the Distributor will use appropriate efforts to solicit orders for the sale of
Fund Shares. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreement, a distribution
fee under the Plans, to be calculated daily and paid monthly by the
Institutional, Investor and Advisor Classes, at the annual rate set forth in the
Prospectus. During the fiscal period beginning the date of the initial public
offering (January 2, 1997 in the case of Institutional Shares and January 16,
1997 in the case of Investor Shares) through August 31, 1997, the Fund paid the
Distributor $3,325 in fees under the Plan with respect to Institutional Shares
and $155 in fees under the Plan with respect to Investor Shares. No Advisor
Shares were offered during the period.
On October 16, 1996, the Plans were approved by RBB's Board of
Directors, including the directors who are not "interested persons" of RBB 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"). RBB believes that
the Plans may benefit the Fund by increasing sales of Fund Shares.
Among other things, the Plans provide that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
RBB regarding all amounts expended under the Plans and the purposes for which
such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are approved at least annually, and
any material amendment thereto is approved, by RBB'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 Investor and Advisor Classes under the Plans shall not be
materially increased without shareholder approval; and (4) while the Plans
remain in effect, the selection and nomination of RBB's directors who are not
"interested persons" of RBB (as defined in the 1940 Act) shall be committed to
the discretion of such directors who are not "interested persons" of RBB.
-19-
<PAGE>
Mr. Reichman, a director of RBB, has an indirect financial
interest in the operation of the Plans by virtue of his positions with the
Distributor. Mr. Sablowsky, a director of RBB, has an indirect interest in the
operation of the Plans by virtue of his position with Fahnestock Co., Inc., a
broker- dealer.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors,
Boston Partners is responsible for the execution of portfolio transactions and
the allocation of brokerage transactions for the Fund. In purchasing or selling
portfolio securities, Boston Partners will seek to obtain the best net price and
the most favorable execution of orders. To the extent that the execution and
price offered by more than one broker/dealer are comparable, the Adviser may
effect transactions in portfolio securities with broker/dealers who provide
research, advice or other services such as market investment literature.
For the fiscal period ended August 31, 1997, the Fund paid
brokerage commissions aggregating $38,326.
For the fiscal period ended August 31, 1997, the Fund paid
commissions in the aggregate amount of $3,583 to brokers on account of research
services on transactions in the aggregate amount of $2,250,917.
RBB is required to identify securities of its "regular brokers
or dealers" that the Fund have acquired during the most recent fiscal period. At
August 31, 1997, the Fund held common stock of Lehman Brothers Holdings, Inc. in
the amount of $443,137. Lehman Brothers, Inc., the parent of Lehman Brothers
Holdings, Inc., is a "regular broker or dealer" of RBB.
Investment decisions for the Fund and for other investment
accounts managed by Boston Partners are made independently of each other in the
light of differing conditions. However, the same investment decision may 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 Fund is concerned, in other cases it is believed
to be beneficial to the Fund.
The Fund expects that its annual portfolio turnover rate will
not exceed 100%. A high rate (100% or more) of portfolio turnover involves
correspondingly greater brokerage commissions expenses and other transaction
costs that must be
-20-
<PAGE>
borne directly by the Fund. The Fund 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
RBB reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of the
Fund's shares by making payment in whole or in part in securities chosen by RBB
and valued in the same way as they would be valued for purposes of computing the
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. RBB has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that the
Fund 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 Fund.
Under the 1940 Act, RBB may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange, Inc. (the "NYSE") is closed (other than customary weekend
and holiday closings), or during which trading on the NYSE 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. (RBB
may also suspend or postpone the recordation of the transfer of its shares upon
the occurrence of any of the foregoing conditions.)
The computation of the hypothetical offering price per share
of an Institutional and Investor Share of the Fund based on the value of the
Fund's net assets on August 31, 1997 and the Fund's Institutional and Investor
Shares outstanding on such date is as follows:
-21-
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
INSTITUTIONAL SHARES INVESTOR SHARES
-------------------- ---------------
Net Assets............. $24,603,045 $682,490
Outstanding Shares..... 1,974,034 54,832
Net Asset Value per $12.46 $12.45
Share..................
Maximum Sales N/A N/A
Charge.................
Maximum Offering
Price to Public........ $12.46 $12.45
On August 31, 1997, no Advisor Shares were issued and
outstanding.
VALUATION OF SHARES
The net asset values per share of each class of the Fund are
calculated as of the close of the NYSE, generally 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, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. Net asset value
per share, the value of an individual share in a fund, is computed by adding the
value of the proportionate interest of each class in a Fund's securities, cash
and other assets, subtracting the actual and accrued liabilities of the class
and dividing the result by the number of outstanding shares of the class. The
net asset values of each class are calculated independently of the other
classes. Securities that 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 the close
of regular trading (generally 4:00 p.m. Eastern Time); 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
-22-
<PAGE>
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of RBB'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.
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 RBB's Board of
Directors.
PERFORMANCE INFORMATION
TOTAL RETURN. The Fund may from time to time advertise its
"average annual total return." The Fund computes such return separately for each
class of shares by determining the average annual compounded rate of return
during specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
The Fund, when advertising its "aggregate total return,"
computes such returns separately for each class of shares by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
-23-
<PAGE>
ERV
Aggregate Total Return = [(-----) - 1]
P
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Total return since inception (not annualized) for Investor and
Institutional Shares of the Fund for the periods January 16, 1997 (initial
public offering of Investor Shares) and January 2, 1997 (initial public offering
of Institutional Shares), through August 31, 1997 were 22.06% and 24.60%,
respectively. During this period, no Advisor Shares had been issued.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Fund 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 Fund 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 Fund 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 Fund is exempt from
federal income tax on its net investment income and realized capital gains that
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 made during
the taxable year or, under specified circumstances, within twelve months after
the close of the taxable year will satisfy the Distribution Requirement.
-24-
<PAGE>
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund'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 Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of the Fund'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 Fund
controls and which are engaged in the same or similar trades or businesses (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
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.
The Fund intends to distribute to shareholders its net capital
gain (excess of net long-term capital gain over net short-term capital loss), if
any, for each taxable year. Such gain is distributed as a capital gain dividend
and is taxable to shareholders as mid-term or other long-term capital gain,
regardless of the length of time the shareholder has held his shares, whether
such gain was recognized by the Fund prior to the date on which a shareholder
acquired shares of the Fund and whether the distribution was paid in cash or
reinvested in shares. The aggregate amount of distributions designated by the
Fund as capital gain dividends may not exceed the net capital gain of the Fund
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 the Fund's taxable year.
In the case of corporate shareholders, distributions (other
than capital gain dividends) of the Fund for any taxable year generally qualify
for the dividends received deduction to the extent of the gross amount of
"qualifying dividends" received by the Fund for the year. Generally, a dividend
will be treated as a "qualifying dividend" if it has been received from a
domestic corporation. Distributions of net investment income
-25-
<PAGE>
received by the Fund from investments in debt securities will be taxable to
shareholders as ordinary income and will not be treated as "qualifying
dividends" for purposes of the dividends received deduction. The Fund will
designate the portion, if any, of the distribution made by the Fund 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 Fund's
taxable year.
If for any taxable year the Fund 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 to the
extent of the Fund's current and accumulated earnings 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 the Fund will be disallowed to the extent an investor
repurchases shares of the Fund 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 the Fund 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 a redemption of
shares or an exchange of shares of the Fund for shares of another Boston
Partners Fund upon exercise of the exchange privilege, to the extent of any
difference between the price at which the shares are redeemed or exchanged and
the price or prices at which the shares were originally purchased for cash.
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. Investors should note that the Fund 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 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
-26-
<PAGE>
(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 Fund 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 Fund may be subject to the tax laws of such states or
localities.
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 13.93 billion shares are currently
classified in 82 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion
shares are classified as Class I Common Stock (Money), 500 million shares are
classified as Class J Common Stock (Municipal Money), 500 million shares are
classified as Class K Common Stock (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 (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 (Government
Money), 500 million shares are classified as Class T Common Stock
(International), 500 million shares are classified as Class U Common Stock (High
Yield), 500 million shares are classified as Class V Common Stock (Emerging),
-27-
<PAGE>
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 Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors 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 Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
700 million shares are classified as Class Janney Money Common Stock (Money),
200 million shares are classified as Class Janney Municipal Money Common Stock
(Municipal Money), 500 million shares are classified as Class Janney Government
Money Common Stock (Government Money), 100 million shares are classified as
Class Janney N.Y. Municipal Money 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 (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 (Government Money), 1 million shares are classified
-28-
<PAGE>
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
(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 (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 (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
(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 (Government Money), and 1
million shares are classified as Theta 4 Common Stock (N.Y. Money). Shares of
the Class QQ, RR, and SS Common Stock constitute the Boston Partners
Institutional, Investor and Advisor classes of the Large Cap Value Fund,
respectively. Under RBB'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 fourteen
separate "families": the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Family, the
n/i Numeric Investors 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 Cash Preservation Family represents interests
in the Money Market and Municipal Money Market Funds; the Sansom Street Family
represents interests in the Money Market, Municipal Money Market and Government
Obligations Money Market Funds; the Bedford Family represents interests in the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Funds; the BEA Family represents interests in
ten non-money market portfolios; the n/i Numeric Investors Family represents
interests in four non-money market portfolios; the Boston Partners Family
represents interest in three non-money market portfolios; the Janney Montgomery
Scott Family and the Beta, Gamma, Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
-29-
<PAGE>
RBB does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. RBB's
amended By-Laws provide that shareholders owning at least ten percent of the
outstanding shares of all classes of Common Stock of RBB 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, RBB 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 the 1940 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 voting securities, as defined in the 1940 Act, 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 Rule 18f-2, 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, as defined in
the 1940 Act, of such portfolio. However, Rule 18f-2 also provides that the
ratification of the selection of independent public accountants 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 RBB's common stock (or of any class voting as a class)
in connection with any corporate action, unless otherwise provided by law or by
RBB's Articles of Incorporation, RBB 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 entitled to vote on the matter voting without regard to class
(or portfolio).
-30-
<PAGE>
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to RBB
and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P.,
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as RBB's
independent accountants.
CONTROL PERSONS. As of November 15, 1997, to RBB's knowledge,
the following named persons at the addresses shown below owned of record
approximately 5% or more of the total outstanding shares of each class of RBB
indicated below. See "Additional Information Concerning RBB Shares" above. RBB
does not know whether such persons also beneficially own such shares.
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
-31-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
-32-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
-33-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
-34-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
-35-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-36-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Public Inst. for Social 6.1%
Security
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
-37-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Special Custody Account for the
Fund (Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
-38-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-39-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
-40-
<PAGE>
As of the above date, directors and officers as a group owned
less than one percent of the shares of RBB.
LITIGATION. There is currently no material litigation
affecting RBB.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal period ended August
31, 1997 has been filed with the Securities and Exchange Commission. The
financial statements in such Annual Report (the "Financial Statements") are
incorporated herein by reference into this Statement of Additional Information.
The Financial Statements included in the Annual Report for the Fund for the
fiscal period ended August 31, 1997 have been audited by RBB's independent
accountants, Coopers & Lybrand, L.L.P., whose report thereon also appears and is
incorporated herein by reference. No other portions of the Annual Report are
incorporated herein by reference. The Financial Statements in such Annual Report
have been incorporated herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. Copies of the
Annual Report may be obtained by calling toll-free (800) 311-9783.
-41-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
A-1
<PAGE>
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
CORPORATE LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates
A-2
<PAGE>
the least degree of speculation and "C" the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication
A-3
<PAGE>
that an obligation will exhibit no volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate
long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when
A-4
<PAGE>
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols Aa1, A1, Baa1, Ba1 and B1.
A-5
<PAGE>
BOSTON PARTNERS MID CAP VALUE FUND
(INSTITUTIONAL SHARES)
OF
THE RBB FUND, INC.
Boston Partners Mid Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Institutional Class ("Shares") offered by this
Prospectus represent interests in the Fund. The Fund is a diversified fund that
seeks long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks. It seeks to achieve
its objectives by investing at least 65% of its total assets in a diversified
portfolio consisting of equity securities of issuers with a market
capitalization of primarily between $200 million and $4 billion, and identified
by Boston Partners Asset Management, L.P. (the "Adviser") as equity securities
that possess value characteristics. The Adviser examines various factors in
determining the value characteristics of such issuers, including, but not
limited to, price to book value ratios and price to earnings ratios. These value
characteristics are examined in the context of the issuer's operating and
financial fundamentals such as return on equity, earnings growth and cash flow.
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 1, 1997, 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 by calling (800)
311-9783 or 9829. The Prospectus and the Statement of Additional Information are
available for reference, along with other related materials, on the SEC Internet
Web Site (http://www.sec.gov).
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.
- --------------------------------------------------------------------------------
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 1, 1997
<PAGE>
EXPENSE TABLE
The following table illustrates annual operating expenses incurred by
Institutional Shares of the Fund (after fee waivers and expense reimbursements)
for the period ended August 31, 1997, as a percentage of average daily net
assets. An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after waivers)*.........................0.00%
12b-1 Fees (after waivers)*..............................0.04%
Other Expenses...........................................0.96%
Total Fund Operating Expenses (after waivers and
expense reimbursements)*........................1.00%
=====
* In the absence of fee waivers and expense reimbursements, Management
Fees would be 0.80%; Other Expenses would be 11.32%; 12b-1 Fees would
be 0.15% and Total Fund Operating Expenses would be 12.37%. Management
Fees and 12b-1 Fees are each based on average daily net assets and are
calculated daily and paid monthly.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
Boston Partners Mid Cap Value Fund $10 $32 $55 $122
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in 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
expense reimbursements and voluntary waivers of Management Fees and 12b-1 fees
for the Fund, which are expected to be in effect during the current fiscal year.
However, the Adviser, the Distributor and the Fund's other service providers are
under no obligation with respect to such expense reimbursements and waivers and
there can be no assurance that any future expense reimbursements and waivers of
Management Fees or 12b-1 Fees will not vary from the figures reflected in the
Fee 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" remain the same in the years
-2-
<PAGE>
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.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The "Financial Highlights" presented below set forth certain investment
results for shares of the Institutional Class of the Fund for the period
indicated. Shares of the Institutional Class were first issued on June 2, 1997.
The financial data included in this table should be read in conjunction with the
financial statements and notes thereto and the unqualified report of the
independent accountants thereon, which are incorporated by reference into the
Statement of Additional Information. Further information about the performance
of the Institutional Class of the Fund is available in the Annual Report to
Shareholders. Both the Statement of Additional Information and the Annual Report
to Shareholders may be obtained from the Fund free of charge by calling the
telephone number on page 1 of the prospectus.
-3-
<PAGE>
BOSTON PARTNERS MID CAP VALUE FUND
(FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Period
June 2, 1997*
through
AUGUST 31, 1997
---------------
PER SHARE OPERATING PERFORMANCE**
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 10.00
------
Net investment income (1)................................ .01
Net realized and unrealized gain on
investments(2)........................................... 1.00
-----
Net increase in net assets resulting
from operations.......................................... 1.01
NET ASSET VALUE, END OF PERIOD........................... $ 11.01
=======
Total investment return(3)............................... 10.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000).......................... $3,750
Ratio of expenses to average net
assets***(1)(4)........................................ 1.00%
Ratio of net investment income to
average net assets***(1)............................... 1.08%
PORTFOLIO TURNOVER RATE****.............................. 21.80%
Average commission rate per share(5)..................... $0.0348
- -----------------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the
period is not in accord with the change in the aggregate gains and
losses in investments during the period because of the timing of sales
and repurchases of Fund shares in relation to fluctuating net asset
value during the period.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
-4-
<PAGE>
(4) Without the waiver of advisory, administration and transfer agent fees
and without the reimbursement of certain operating expenses, the ratio
of expenses to average net assets annualized for the period ended
August 31, 1997 would have been 12.37% for the Institutional Class.
(5) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period subject to such
commissions.
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
twenty-two separate investment portfolios. The Shares offered by this Prospectus
represents an interest in the Boston Partners Mid Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term growth of
capital with current income as a secondary objective. The Fund seeks to achieve
its objective by investing, under normal market conditions, at least 65% of its
total assets in a diversified portfolio consisting primarily of equity
securities such as common stocks of issuers with a market capitalization of
between $200 million and $4 billion and identified by the Adviser as equity
securities that possess value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including, but not limited to, price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study
of trends in industries and companies, earning power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operating in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold from time to time various foreign currencies pending their
investment in foreign securities or their conversion into U.S. dollars. The
value of the assets of the
-5-
<PAGE>
Fund as measured in U.S. dollars may therefore be affected favorably or
unfavorably by changes in exchange rates. There may be less publicly available
information concerning foreign issuers than is available with respect to U.S.
issuers. Foreign securities may not be registered with the U.S. Securities and
Exchange Commission, and generally, foreign companies are not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to U.S. issuers. See "Investment Objectives and Policies--Foreign
Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity
securities of issuers with lower or higher capitalizations; derivative
securities; debt securities issued by U.S. banks, corporations and other
business organizations that are investment grade securities; and debt securities
issued by the U.S. government or government agencies.
In accordance with the above-mentioned policies, the Fund may also
invest in indexed securities, repurchase agreements, reverse repurchase
agreements, dollar rolls, financial futures contracts, options on futures
contracts and may lend portfolio securities. See "Investment Objectives and
Policies" in the Statement of Additional Information.
The Fund may invest in registered investment companies and investment
funds in foreign countries subject to the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act"), and as discussed in "Investment
Objectives and Policies" in the Statement of Additional Information. If the Fund
invests in such investment companies, the Fund will bear its proportionate share
of the costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all
times in accordance with the above-mentioned policies, the Fund reserves the
right to hold up to 100% of its assets, as a temporary defensive measure, in
cash and eligible U.S. dollar-denominated money market instruments. The Adviser
would determine when market conditions warrant temporary defensive measures.
The Fund's investment objectives and the policies described above may
be changed by RBB's Board of Directors without the affirmative vote of the
holders of a majority of the outstanding Shares representing interests in the
Fund.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment
-6-
<PAGE>
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.")
The Fund 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 Fund'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 Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of the Fund to be invested in the
obligations of issuers in any single industry, provided that there is no
limitation with respect to investments in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements and dollar rolls
for temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and then in amounts not in
excess of one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation.
PORTFOLIO TURNOVER
The Fund retains the right to sell securities irrespective of how long
they have been held. The Adviser estimates that the annual turnover in the Fund
will not exceed 50%.
RISK FACTORS
- --------------------------------------------------------------------------------
As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The net asset value per share of Shares representing
an interest in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced
-7-
<PAGE>
investment program. Other risk factors are discussed above under "Investment
Objectives and Policies" and in the Statement of Additional Information under
"Investment Objectives and Policies."
Investment methods described in this Prospectus are among those which
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
INVESTMENT ADVISER
Boston Partners Asset Management, L.P., located at One Financial
Center, 43rd Floor, Boston, Massachusetts 02111, serves as the Fund's investment
adviser. The Adviser provides investment management and investment advisory
services to investment companies and other institutional accounts that had
aggregate total assets under management as of September 30, 1997, in excess of
$12.5 billion. Boston Partners' general partner is Boston Partners, Inc., a
company that acts as a general partner to investment advisers organized as
limited partnerships.
Subject to the supervision and direction of the Trust's Board of
Trustees, the Adviser manages the Fund's portfolio in accordance with the Fund's
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research services to the
Fund. For its services to the Fund, the Adviser is paid a monthly advisory fee
computed at an annual rate of 0.80% of the Fund's average daily net assets. The
Adviser has notified RBB, however, that it intends to waive advisory fees in
excess of .70% during the current fiscal year.
PORTFOLIO MANAGEMENT
The day-to-day portfolio management of the Fund is the responsibility
of Wayne J. Archambo who is senior portfolio manager of the Adviser and a member
of the Adviser's Equity Strategy Committee. Mr. Archambo oversees the investment
activities of the Advisers' $300 million of mid-capitalization value and $900
million of small cap value institutional equity
-8-
<PAGE>
assets under management. Prior to joining the Adviser in April 1995, Mr.
Archambo was employed by The Boston Company Asset Management from 1989 through
April 1995 where he was a senior portfolio manager and a member of the firm's
Equity Policy Committee. Mr. Archambo has over 15 years of investment experience
and is a Chartered Financial Analyst.
ADMINISTRATOR
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC receives a fee calculated at an annual rate of .125% of the
Fund's average daily net assets, with a minimum annual fee of $75,000 payable
monthly on a pro rata basis. PFPC has notified the Fund that it intends to waive
one-half of its minimum annual fee during the current fiscal year.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank, National Association ("PNC Bank") serves as the Fund's
custodian and PFPC serves as the Fund's transfer agent and dividend disbursing
agent. The principal offices of PFPC, an indirect, wholly-owned subsidiary of
PNC Bank, are located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
address at 466 Lexington Avenue, New York, New York, acts as distributor for the
Shares pursuant to a distribution agreement (the "Distribution Agreement") with
RBB on behalf of the Shares.
EXPENSES
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Institutional Class of the Fund pays
its own distribution fees, and may pay a different share than the Investor Class
of other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the Institutional Class or if it
receives different services.
The Adviser may assume expenses of the Fund from time to time.
To the extent any service providers assume expenses of the
-9-
<PAGE>
Fund, such assumption of expenses will have the effect of lowering the Fund's
overall expense ratio and increasing its yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive
from the Fund a distribution fee with respect to the Shares, which is accrued
daily and paid monthly, of up to 0.15% on an annualized basis of the average
daily net assets of the Shares. The actual amount of such compensation under the
Plan is agreed upon by RBB's Board of Directors and by the Distributor. Under
the Distribution Agreement, the Distributor has agreed to accept compensation
for its services thereunder and under the Plan in the amount of 0.04% on the
first $200 million of the average daily net assets of the Fund on an annualized
basis in any year and 0.05% thereafter. Such compensation may be increased up to
the amount permitted by the Plan with the approval of RBB's Board of Directors.
The Distributor may, in its discretion, from time to time waive voluntarily all
or any portion of its distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Fund's 12b-1
Plan. The Distributor may 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 Shares the fee agreed to
under the Distribution Plan. Payments under the Plan are not tied exclusively to
expenses actually incurred by the Distributor, and the payments may exceed
distribution expenses actually incurred.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares, consisting of securities dealers who have sold
Shares or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or
-10-
<PAGE>
sales campaigns and/or shareholder services and programs regarding one or more
Boston Partners Funds. Travel, meals and lodging may also be paid in connection
with these promotional activities. In some instances, these incentives may be
offered only to certain institutions whose representatives provide services in
connection with the sale or expected sale of significant amounts of Shares.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Shares representing an interest in the Fund are offered continuously
for sale by the Distributor. Shares may be purchased initially by completing the
application included in this Prospectus and forwarding the application to the
Fund's transfer agent, PFPC. Purchases of Shares may be effected by wire to an
account to be specified by PFPC or by mailing a check or Federal Reserve Draft,
payable to the order of "The Boston Partners Mid Cap Value Fund," c/o PFPC Inc.,
P.O. Box 8852, Wilmington, Delaware 19899-8852. The name of the Fund, Boston
Partners Mid Cap Value Fund, must also appear on the check or Federal Reserve
Draft. Shareholders may not purchase shares of the Boston Partners Mid Cap Value
Fund with a check issued by a third party and endorsed over to the Fund. Federal
Reserve Drafts are available at national banks or any state bank which is a
member of the Federal Reserve System. Initial investments in the Fund must be at
least $100,000 and subsequent investments must be at least $5,000. For purposes
of meeting the minimum initial purchase, clients which are part of endowments,
foundation or other related groups may be aggregated. The Fund reserves the
right to suspend the offering of Shares for a period of time or to reject any
purchase order.
Shares may be purchased on any Business Day. A "Business Day" is any
day that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value
next computed after a purchase order is received in good order by the Fund or
its agents. Orders received by the Fund or its agents prior to the close of the
NYSE (generally 4:00 p.m. Eastern Time) are priced at that Business Day's net
asset value. Orders received by the Fund or its agents after its close of the
NYSE are priced at the net asset value next determined on the following Business
Day. In those cases where an investor
-11-
<PAGE>
pays for Shares by check, the purchase will be effected at the net asset value
next determined after the Fund or its agents receives the order and the
completed application.
Shares may be purchased and subsequent investments may be made by
principals and employees of the Adviser, and by their spouses and children,
either directly or through their individual retirement accounts, and by any
pension and profit-sharing plan of the Adviser, without being subject to the
minimum investment limitations.
An investor may also purchase Shares by having his bank or his broker
wire Federal Funds to PFPC. An investor's bank or broker may impose a charge for
this service. The Fund does not currently impose a service charge for effecting
wire transfers but reserves the right to do so in the future. 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 (888) 261-4073,
and provide PFPC with your name, address, telephone number, Social Security or
Tax Identification Number, the Fund 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 PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together
with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number
with the Fund)
FOR PURCHASE OF: (name of the Fund)
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the address
shown thereon. PFPC will not process purchases until it receives a fully
completed and signed application.
For subsequent investments, an investor should follow steps A and B
above.
AUTOMATIC INVESTING
Additional investments in Shares may be made automatically by
authorizing the Fund's transfer agent to withdraw funds from
-12-
<PAGE>
your bank account. Investors desiring to participate in the automatic investing
program should call the Fund's transfer agent, PFPC, at (888) 261-4073 to obtain
the appropriate forms.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION BY MAIL
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 Boston Partners Mid Cap Value Fund, c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. There is no charge for a redemption.
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 according to the procedures described below under "Exchange
Privilege."
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. 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.
INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem a shareholder's account at any
time the net asset value of the account 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 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 or its agents. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund or its agents 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
-13-
<PAGE>
1940 Act. 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. The
Fund has elected 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.
EXCHANGE PRIVILEGE
The exchange privilege is available to shareholders residing in any
state in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Institutional Shares of the Boston Partners
Large Cap Value Fund or Boston Partners Bond Fund up to three (3) times per
year. Such exchange will be effected at the net asset value of the exchanged
Fund and the net asset value of the Boston Partners Large Cap Value Fund or
Boston Partners Bond Fund next determined after PFPC's receipt of a request for
an exchange. 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 PFPC.
If the exchanging shareholder does not currently own Institutional
Shares of the Boston Partners Large Cap Value Fund or Boston Partners Bond Fund,
a new account will be established with the same registration, dividend and
capital gain options as the account from which shares are exchanged, unless
otherwise specified in writing by the shareholder with all signatures
guaranteed. A signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted. The
exchange privilege may be modified or terminated at any time, or from time to
time, by RBB, upon 60 days' written notice to shareholders.
If an exchange is to a new account in the Boston Partners Large Cap
Value Fund or Boston Partners Bond Fund, the dollar value of Institutional
Shares acquired must equal or exceed that Fund's minimum for a new account; if
to an existing account, the dollar value must equal or exceed that Fund's
minimum for subsequent investments. If any amount remains in the Fund from which
the exchange is being made, such amount must not drop below the minimum account
value required by the Fund.
-14-
<PAGE>
EXCHANGE PRIVILEGE LIMITATIONS
The Fund's exchange privilege is not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Fund and increase transactions costs, the Fund has established
a policy of limiting excessive exchange activity.
Shareholders are entitled to three (3) exchange redemptions (at least
30 days apart) from the Fund during any twelve-month period. Notwithstanding
these limitations, the Fund reserves the right to reject any purchase request
(including exchange purchases from the Boston Partners Large Cap Value Fund and
Boston Partners Bond Fund) that is deemed to be disruptive to efficient
portfolio management.
TELEPHONE TRANSACTIONS
In order to request a telephone exchange or redemption, a shareholder
must have completed and returned an account application containing a telephone
election. To add a telephone option to an existing account that previously did
not provide for this option, a Telephone 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 or
redemption by calling (888) 261-4073. Neither RBB, the Fund, the Distributor,
the Administrator nor any other Fund agent will be liable for any loss,
liability, cost or expense for following RBB's telephone transaction procedures
described below or for following instructions communicated by telephone that
they reasonably believe to be genuine.
RBB'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 RBB's
records; (3) requiring RBB'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 (7) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners and other industry professionals, additional
-15-
<PAGE>
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 an attorney-in-fact under a power of attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset values for each class of a fund are calculated by adding
the value of the proportionate interest of the class in a fund's cash,
securities and other assets, deducting actual and accrued liabilities of the
class and dividing the result by the number of outstanding shares of the class.
The net asset value of each class are calculated independently of each other
class. The net asset values are calculated as of the close of regular trading on
the NYSE, generally 4:00 p.m. Eastern Time on each Business Day.
Valuation of securities held by the Fund 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 RBB'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.
With the approval of RBB's Board of Directors, the Fund may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Fund's securities. A more detailed discussion of net asset value and security
valuation is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Fund to the Fund's shareholders.
All distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually and pays them in the calendar year in which they
-16-
<PAGE>
are declared, generally in December. 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 Fund and its shareholders
and is not intended as a substitute for careful tax planning. Accordingly,
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation.
The Fund 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
Fund qualifies for this tax treatment, it 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.
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 Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, will be taxed to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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.
RBB will send written notices to shareholders annually regarding the
tax status of distributions made by the Fund. Dividends declared in 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 Fund
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 shares just prior to a distribution will nevertheless be taxed on the
entire
-17-
<PAGE>
amount of the distribution received, although the distribution is, in effect, a
return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund 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.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Investor Shares, which are
offered directly to individual investors pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance quotations in the same
manner. The Fund will quote performance of the Investor Shares separately from
Institutional Shares. Because of different expenses paid by the Institutional
Shares, the total return on such shares can be expected, at any time, to be
different than the total return on Investor Shares. Information concerning these
other classes may be obtained by calling the Fund at (800) 311-9783 or 9829.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 13.93 billion shares are currently
classified into 82 different classes of Common Stock. See "Description of
Shares" in the Statement of Additional Information."
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO BOSTON PARTNERS MID CAP VALUE FUND AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO BOSTON PARTNERS MID CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
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.
-18-
<PAGE>
RBB 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, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund 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 RBB 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 15, 1997, to the Fund's knowledge, no person held of
record or beneficially 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 PFPC Inc.,
the Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (888) 261-4073.
SHARE CERTIFICATES
In the interest of economy and convenience, physical certificates
representing Shares in the Fund are not normally issued.
HISTORICAL PERFORMANCE INFORMATION
For the period from commencement of operations (June 2, 1997) through
August 31, 1997, the total return (not annualized) for the Institutional Class
of Shares of the Fund was as follows:
-19-
<PAGE>
Unannualized investment returns for the period ended
August 31, 1997
Since
INCEPTION
---------
Boston Partners Mid Cap Value Fund
(Institutional Shares)............................... 10.10%
The total return assumes the reinvestment of all dividends and capital
gains and reflects expense reimbursements and investment advisory fee and 12b-1
fee waivers in effect. Without these expense reimbursements and waivers, the
Fund's performance would have been lower. Of course, past performance is no
guarantee of future results. Investment return and principal value will
fluctuate, so that Shares, when redeemed, may be worth more or less than the
original cost. For more information on performance, see "Performance
Information" in the Statement of Additional Information.
The table below presents the Composite performance history of certain
of the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1997. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Fund, which commenced
operations on June 2, 1997. The Composite performance information includes the
reinvestment of dividends received in the underlying securities and includes
payment of investment advisory fees. The privately managed accounts in the
Composite are only available to the Adviser's institutional advisory clients.
The past performance of the accounts which comprise the Composite is not
indicative of the future performance of the Fund. These accounts have lower
investment advisory fees than the Fund and the Composite performance figures
would have been lower if subject to the higher fees and expenses to be incurred
by the Fund. These private accounts are not subject to the same investment
limitations, diversification requirements and other restrictions which are
imposed upon mutual funds under the 1940 Act and the Internal Revenue Code,
which, if imposed, may have adversely affected the performance results of the
Composite. Listed below the performance history for the Composite is a
comparative index comprised of securities similar to those in which accounts
contained in the Composite are invested.
-20-
<PAGE>
Annualized investment returns for the period ended August 31, 1997
SINCE
ONE YEAR INCEPTION
-------- ---------
Composite Performance 51.0% 37.8%*
Russell 2500 Index 31.5% 25.9%
* The Adviser commenced managing these accounts on May 1, 1995.
The Russell 2500 Index represents the largest 3,000 companies domiciled in the
United States minus the largest 500 companies as determined by the market value
of such companies.
FUTURE PERFORMANCE INFORMATION
From time to time, the Fund 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 over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. 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 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 Fund 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 the Fund's
performance with other measures of investment return. For example, the Fund'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 Russell 2500 Index. Performance
information may also include evaluation of the Fund by nationally recognized
ranking services and information as reported in financial publications such as
BUSINESS WEEK, FORTUNE, INSTITUTIONAL INVESTOR, MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, THE NEW YORK TIMES, or other national,
regional or local publications. All advertisements containing performance data
will include a legend disclosing that such performance data represents 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.
-21-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-22-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS OR IN RBB'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY PROSPECTUS
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH DECEMBER 1, 1997
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY RBB OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
----
FINANCIAL HIGHLIGHTS.......................... 3
INTRODUCTION.................................. 5
INVESTMENT OBJECTIVES AND POLICIES............ 5
INVESTMENT LIMITATIONS........................ 6
RISK FACTORS.................................. 7
MANAGEMENT.................................... 8
DISTRIBUTION OF SHARES........................ 10
HOW TO PURCHASE SHARES........................ 11 BOSTON PARTNERS
HOW TO REDEEM AND EXCHANGE MID CAP
SHARES............................... 13 VALUE FUND
NET ASSET VALUE............................... 16
DIVIDENDS AND DISTRIBUTIONS................... 16 (Institutional Shares)
TAXES ..................................... 17
MULTI-CLASS STRUCTURE......................... 18
DESCRIPTION OF SHARES......................... 18
OTHER INFORMATION............................. 19
INVESTMENT ADVISER
Boston Partners Asset Management, L.P.
Boston, Massachusetts
CUSTODIAN
PNC Bank, N.A.
Philadelphia, Pennsylvania
TRANSFER AGENT AND ADMINISTRATOR
PFPC Inc.
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities Inc.
New York, New York
COUNSEL bp
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania BOSTON PARTNERS ASSET MANAGEMENT, L.P.
--------------------------------------
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
<TABLE>
<CAPTION>
BOSTON PARTNERS MID CAP VALUE FUND bp
(INSTITUTIONAL CLASS) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
--------------------------------------
ACCOUNT APPLICATION
PLEASE NOTE: Do not use this form to open a retirement plan account. For an IRA application or help with this Application, please
call 1-888-261-4073
<S> <C>
- ---------------- (Please check the appropriate box(es) below.)
| 1 | [Checkbox] Individual [Checkbox] Joint Tenant [Checkbox] Other
| Account |
| Registration:| ----------------------------------------------------------------------------------------------------------------
- ---------------- Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
----------------------------------------------------------------------------------------------------------------
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts,the account registrants will be joint tenants with right of survivorship and not tenants in
common unless tenants in common or community property registrations are requested.
- -------------- UNIFORM GIFTS/TRANSFER TO MINOR'S ACT
GIFT TO MINOR:
- -------------- ----------------------------------------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
----------------------------------------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
----------------------------------------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
- ------------------
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
- ------------------ ----------------------------------------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
----------------------------------------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
- ---------------- ----------------------------------------------------------------------------------------------------------------
| 2 | STREET OR P.O. BOX AND/OR APARTMENT NUMBER
| Mailing |
| Address: | ----------------------------------------------------------------------------------------------------------------
- ---------------- CITY STATE ZIP CODE
----------------------------------------------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
- ---------------- Minimum initial investment of $100,000 Amount of investment $____________
| 3 |
| Investment | Make the check payable to Boston Partners Mid Cap Value Fund.
| Information: |
- ---------------- Shareholders may not purchase shares of this Fund with a check issued by a third party and endorsed over
to the Fund.
- ----------------
DISTRIBUTION NOTE: Dividends and capital gains may be reinvested or paid by check. If not options are selected below, both
OPTIONS: dividends and capital gains will be reinvested in additional Fund shares.
- ----------------
DIVIDENDS Pay by check Reinvest CAPITAL GAINS Pay by check Reinvest
- ---------------- To use this option, you must initial the appropriate line below. I authorize the Transfer Agent to accept
| 4 | instructions from any persons to redeem or exchange shares in my account(s) by telephone in accordance with the
| Telephone | procedures and conditions set forth in the Fund's current prospectus.
| Redemption: |
- ----------------
-------------------------- --------------------------- Redeem shares, and send the proceeds to the
individual initial joint initial address of record.
-------------------------- --------------------------- Exchange shares for shares of The Boston
individual initial joint initial Partners Large Cap Value Fund or Boston
Partners Bond Fund.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ---------------- The Account Investment Plan which is available to shareholders of the Fund, makes possible regularly scheduled
| 5 | purchases of Fund shares to allow dollar-cost averaging. The Fund's Transfer Agent can arrange for an amount of
| Automatic | money selected by you to be deducted from your checking account and used to purchase shares of the Fund.
| Investment |
| Plan: |
- ----------------
Please debit $________ from my checking account (named below on or about the 20th of the month. Please attach an
unsigned, voided check.
Monthly Every Alternate Month Quarterly Other
- --------------- -----------------------------------------------------------------------------------------------------------------
BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
- ---------------
-----------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
-----------------------------------------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
- ---------------- The undersigned warrants that I (we) have fully authority and, if a natural person, I (we) am (are) of legal age
| 6 | to purchase shares pursuant to this Account Application, and I (we) have received a current prospectus for the
| | Fund in which I (we) am (are) investing.
| Signatures: | Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following
- ---------------- certification:
Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number tobe issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service that I am subject to 31% backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
NOTE: YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO
BACKUP WITHHOLDING BECAUSE YOU HAVE FAILED TO REPORT ALL INTEREST AND DIVIDENDS ON YOUR TAX RETURN. THE INTERNAL
REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION
REQUIRED TO AUDIT BACKUP WITHHOLDING.
-----------------------------------------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
-----------------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
-----------------------------------------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER DATE
-----------------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or title. If you wish additional
signatories on the account, please include a corporate resolution. If signing as a fiduciary, you must indicate
capacity.)
For information on additional options, such as IRA Applications, rollover requests for qualified retirement
plans, or for wire instructions, please call us at 1-888-261-4073.
MAIL COMPLETED ACCOUNT APPLICATION AND CHECK TO: THE BOSTON PARTNERS MID CAP VALUE FUND
C/O PFPC INC.
P.O. BOX 8852
WILMINGTON, DE 19899-8852
</TABLE>
<PAGE>
BOSTON PARTNERS MID CAP VALUE FUND
(INVESTOR CLASS)
OF
THE RBB FUND, INC.
Boston Partners Mid Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Investor Class ("Shares") offered by this Prospectus
represent interests in the Fund. The Fund is a diversified fund that seeks
long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks. It seeks to achieve
its objectives by investing at least 65% of its total assets in a diversified
portfolio consisting of equity securities of issuers with a market
capitalization of primarily between $200 million and $4 billion, and identified
by Boston Partners Asset Management, L.P. (the "Adviser") as equity securities
that possess value characteristics. The Adviser examines various factors in
determining the value characteristics of such issuers, including but not limited
to, price to book value ratios and price to earnings ratios. These value
characteristics are examined in the context of the issuer's operating and
financial fundamentals such as return on equity, earnings growth and cash flow.
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 1, 1997, 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 by calling (800)
311- 9783 or 9829. The Prospectus and the Statement of Additional Information
are available for reference, along with other related material on the SEC
Internet Web Site (http://www.sec.gov).
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.
- --------------------------------------------------------------------------------
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 1, 1997
<PAGE>
EXPENSE TABLE
The following table illustrates annual operating expenses incurred by
Investor Shares of the Fund (after fee waivers and expense reimbursements) for
the fiscal period ended August 31, 1997, as a percentage of average daily net
assets. An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after waivers)*......................... 0.00%
12b-1 Fees (after waivers)*.............................. 0.10%
Other Expenses........................................... 1.00%
-----
Total Fund Operating Expenses (after waivers
and expense reimbursements)*........................... 1.10%
=====
* In the absence of fee waivers and expense reimbursements, Management
Fees would be 0.80%; 12-b Fees would be 0.25%; Other Expenses would
be 11.42%; and Total Fund Operating Expenses would be 12.62%.
Management Fees and 12b-1 Fees are each based on average daily net
assets and are calculated daily and paid monthly.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
Boston Partners Mid Cap Value Fund $11 $35 $61 $134
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in 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
expense reimbursements and a voluntary waiver of Management Fees for the Fund,
which are expected to be in effect during the current fiscal year. However, the
Adviser and the Fund's service providers are under no obligation with respect to
such fee waivers and expense reimbursements and there can be no assurance that
any future expense reimbursements and waivers of Management Fees will not vary
from the figures reflected in the Fee Table.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The "Financial Highlights" presented below set forth certain investment
results for shares of the Investor Class of the Fund for the period indicated.
Shares of the Investor Class were first issued on June 2, 1997. The financial
data included in this table should be read in conjunction with the financial
statements and notes thereto and the unqualified report of the independent
accountants thereon, which are incorporated by reference into the
-2-
<PAGE>
Statement of Additional Information. Further information about the performance
of the Investor Class of the Fund is available in the Annual Report to
Shareholders. Both the Statement of Additional Information and the Annual Report
to Shareholders may be obtained from the Fund free of charge by calling the
telephone number on page 1 of the prospectus.
BOSTON PARTNERS MID CAP VALUE FUND
(FOR AN INVESTOR SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Period June
2, 1997* through
August 31, 1997
---------------
INVESTOR CLASS
--------------
PER SHARE OPERATING PERFORMANCE** $ 10.00
------
NET ASSET VALUE, BEGINNING OF PERIOD..................
Net investment income (1)............................. .01
Net realized and unrealized gain on
investments(2)........................................ 1.00
-----
Net increase in net assets resulting
from operations....................................... 1.01
NET ASSET VALUE, END OF PERIOD........................ $ 11.01
======
Total investment return(3)............................ 10.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)....................... $598
Ratio of expenses to average net
assets***(1)(4)..................................... 1.10%
Ratio of net investment income to
average net assets***(1)............................ .61%
PORTFOLIO TURNOVER RATE****........................... 21.80%
Average commission rate per share(5).................. $0.0348
- ----------------------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing
-3-
<PAGE>
of sales and repurchases of Fund shares in relation to fluctuating net
asset value during the period.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Without the waiver of advisory, administration and transfer agent fees
and without the reimbursement of certain operating expenses, the ratio
of expenses to average net assets annualized for the period ended
August 31, 1997 would have been 12.62% for the Investor Class.
(5) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period subject to such
commissions.
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
twenty-two separate investment portfolios. The Shares offered by this Prospectus
represents an interest in the Boston Partners Mid Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objectives are to provide long-term growth of
capital with current income as a secondary objective. The Fund seeks to achieve
its objectives by investing, under normal market conditions, at least 65% of its
total assets in a diversified portfolio consisting primarily of equity
securities such as common stocks of issuers with a market capitalization of
between $200 million and $4 billion, and identified by the Adviser as equity
securities that possess value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including but not limited to price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study
of trends in industries and companies, earnings power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operating in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold
-4-
<PAGE>
from time to time various foreign currencies pending their investment in foreign
securities or their conversion into U.S. dollars. The value of the assets of the
Fund as measured in U.S. dollars may therefore be affected favorably or
unfavorably by changes in exchange rates. There may be less publicly available
information concerning foreign issuers than is available with respect to U.S.
issuers. Foreign securities may not be registered with the U.S. Securities and
Exchange Commission, and generally, foreign companies are not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to U.S. issuers. See "Investment Objectives and Policies--Foreign
Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity
securities of issuers with lower or higher capitalizations; derivative
securities; debt securities issued by U.S. banks, corporations and other
business organizations that are investment grade securities; and debt securities
issued by the U.S. Government or government agencies.
In accordance with the above-mentioned policies, the Fund may also
invest in indexed securities, repurchase agreements, reverse repurchase
agreements, dollar rolls, financial futures contracts, options on futures
contracts and may lend portfolio securities. See "Investment Objectives and
Policies" in the Statement of Additional Information.
The Fund may invest in registered investment companies and investment
funds in foreign countries subject to the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act") and as discussed in "Investment
Objectives and Policies" in the Statement of Additional Information. If the Fund
invests in such investment companies, the Fund will bear its proportionate share
of the costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all
times in accordance with the above-mentioned policies, the Fund reserves the
right to hold up to 100% of its assets, as a temporary defensive measure, in
cash and eligible U.S. dollar-denominated money market instruments. The Adviser
will determine when market conditions warrant temporary defensive measures.
The Fund's investment objectives and the policies described above may
be changed by the RBB's Board of Directors without the affirmative vote of the
holders of a majority of the outstanding Shares representing interests in the
Fund.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (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.")
-5-
<PAGE>
The Fund 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 Fund'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
Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Fund to
be invested in the obligations of issuers in any single industry,
provided that there is no limitation with respect to investments in
U.S. Government obligations.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks and enter into reverse repurchase agreements
and dollar rolls for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing; or
mortgage, pledge or hypothecate any assets, except in connection with
any such borrowing and then in amounts not in excess of one-third of
the value of the Fund's total assets at the time of such borrowing. The
Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings
from banks) are in excess of 5% of its total assets. Securities held in
escrow or separate accounts in connection with the Fund's investment
practices are not considered to be borrowings or deemed to be pledged
for purposes of this limitation.
PORTFOLIO TURNOVER
The Fund retains the right to sell securities irrespective of how long
they have been held. The Adviser estimates that the annual turnover in the Fund
will not exceed 50%.
RISK FACTORS
- --------------------------------------------------------------------------------
As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The net asset value per share of Shares representing
interests in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. Other risk
factors are discussed above under "Investment Objectives and Policies" and in
the Statement of Additional Information under "Investment Objectives and
Polices."
Investment methods described in this Prospectus are among those which
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all.
-6-
<PAGE>
Accordingly, reference to any particular method or technique carries no
implication that it will be utilized or, if it is, that it will be successful.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
INVESTMENT ADVISER
Boston Partners Asset Management, L.P., located at One Financial
Center, 43rd Floor, Boston, Massachusetts 02111, serves as the Fund's investment
adviser. The Adviser provides investment management and investment advisory
services to investment companies and other institutional accounts that had
aggregate total assets under management as of September 30, 1997, in excess of
$12.5 billion. Boston Partners' general partner is Boston Partners, Inc., a
company that acts as a general partner for investment advisers organized as
limited partnerships.
Subject to the supervision and direction of RBB's Board of Directors,
the Adviser manages the Fund's portfolio in accordance with the Fund's
investment objectives and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research services to the
Fund. For its services to the Fund, the Adviser is paid a monthly advisory fee
computed at an annual rate of 0.80% of the Fund's average daily net assets. The
Adviser has notified RBB, however, that it intends to waive advisory fees in
excess of 0.70% of the Fund's average daily net assets during the current fiscal
year.
PORTFOLIO MANAGEMENT
The day-to-day portfolio management of the Fund is the responsibility
of Wayne J. Archambo who is a senior portfolio manager of the Adviser and a
member of the Adviser's Equity Strategy Committee. Mr. Archambo oversees the
investment activities of the Adviser's $300 million of mid-capitalizations value
and $900 million of small cap value institutional equity assets under
management. Prior to joining the Adviser in April 1995, Mr. Archambro was
employed by The Boston Company Asset Management from 1989 through April 1995
where he was a senior portfolio manager and a member of the Firm's Equity Policy
Committee. Mr. Archambro has over 15 years of investment experience and is a
Chartered Financial Analyst.
ADMINISTRATOR
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC receives
-7-
<PAGE>
a fee calculated at an annual rate of .125% of the Fund's average daily net
assets with a minimum annual fee of $75,000 payable monthly on a pro rata basis.
PFPC has notified RBB, however, that it intends to waive one-half of its minimum
annual fee during the current fiscal year.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank, National Association ("PNC Bank") serves as the Fund's
custodian and PFPC serves as the Fund's transfer agent and dividend disbursing
agent. The principal offices of PFPC, an indirect, wholly-owned subsidiary of
PNC Bank, are located at 400 Bellevue Parkway, Wilmington, Delaware 19809. 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 Fund. 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."
DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
address at 466 Lexington Avenue, New York, New York 10017, acts as distributor
for the Shares pursuant to a distribution agreement (the "Distribution
Agreement") with RBB on behalf of the Shares.
EXPENSES
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Investor Class of the Fund pays its own
distribution fees, and may pay a different share than the Institutional Class of
other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the Investor Class or if it receives
different services.
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expense of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
increasing its yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive
from the Fund a distribution
-8-
<PAGE>
fee with respect to the shares, which is accrued daily and paid monthly, of up
to 0.25% on an annualized basis of the average daily net assets of the Shares.
The actual amount of such compensation under the Plan is agreed upon by RBB's
Board of Directors and by the Distributor in the Distribution Agreement. The
Distributor may, in its discretion, from time to time waive voluntarily all or
any portion of its distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to Service Agents. See
"How to Purchase Shares -- Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of the Shares the fee agreed to
under the Distribution Agreement. Payments under the Plan are not tied
exclusively to expenses actually incurred by the Distributor and the payments
may exceed distribution expenses actually incurred.
PURCHASES THROUGH INTERMEDIARIES
Shares of the Fund may be available through certain brokerage firms,
financial institutions and other industry professionals (collectively, "Service
Organizations"). Certain features of the Shares, such as the initial and
subsequent investment minimums and certain trading restrictions, may be modified
or waived by Service Organizations. Service Organizations may impose transaction
or administrative charges or other direct fees, which charges and fees would not
be imposed if Shares are purchased directly from the Fund. Therefore, a client
or customer should contact the Service Organization acting on his behalf
concerning the fees (if any) charged in connection with a purchase or redemption
of Shares and should read this Prospectus in light of the terms governing his
accounts with the Service Organization. Service Organizations will be
responsible for promptly transmitting client or customer purchase and redemption
orders to the Fund in accordance with their agreements with the Fund and with
clients or customers. Service Organizations or, if applicable, their designees
that have entered into agreements with the Fund or its agent may enter confirmed
purchase orders on behalf of clients and customers, with payment to follow no
later than the Fund's pricing on the following Business Day. If payment is not
received by such time, the Service Organization could be held liable for
resulting fees or losses. The Fund will be deemed to have received a purchase or
redemption order when a Service Organization, or, if applicable, its authorized
designee, accepts a purchase or redemption order in good order. Orders received
by the Fund in good order will be priced at the Fund's net asset value next
computed after they are accepted by the Service Organization or its authorized
designee.
For administration, subaccounting, transfer agency and/or other services,
Boston Partners, the Distributor or their
-9-
<PAGE>
affiliates may pay Service Organizations and certain recordkeeping organizations
a fee of up to .35% (the "Service Fee") of the average annual value of accounts
with the Fund maintained by such Service Organizations or recordkeepers. The
Service Fee payable to any one Service Organization is determined based upon a
number of factors, including the nature and quality of services provided, the
operations processing requirements of the relationship and the standardized fee
schedule of the Service Organization or recordkeeper.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares, consisting of securities dealers who have sold
Shares or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Shares representing interests in the Fund are offered continuously for
sale by the Distributor and may be purchased without imposition of a sales
charge. Shares may be purchased initially by completing the application included
in this Prospectus and forwarding the application to the Fund's transfer agent,
PFPC. Purchases of Shares may be effected by wire to an account to be specified
by PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston Partners Mid Cap Value Fund," c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. The name of the Fund, Boston Partners Mid Cap
Value Fund, must also appear on the check or Federal Reserve Draft. Shareholders
may not purchase shares of the Boston Partners Mid Cap Value Fund with a check
issued by a third party and endorsed over to the fund. Federal Reserve Drafts
are available at national banks or any state bank which is a member of the
Federal Reserve System. Initial investments in the Fund must be at least $2,500
and subsequent investments must be at least $100. The Fund reserves the right to
suspend the offering of Shares for a period of time or to reject any purchase
order.
Shares may be purchased on any Business Day. A "Business Day" is any
day that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
-10-
<PAGE>
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased initially or acquired through the
exercise of an exchange privilege is based on the net asset value next computed
after a purchase order is received in good order by the Fund or its agents.
Orders received by the Fund or its agents prior to the close of the NYSE
(generally 4:00 p.m. Eastern Time) are priced at that Business Day's net asset
value. Orders received by the Fund or its agents after the close of the NYSE are
priced at the net asset value next determined on the following Business Day. In
those cases where an investor pays for Shares by check, the purchase will be
effected at the net asset value next determined after the Fund or its agents
receives the order and the completed application.
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 PFPC. The
Fund does not currently impose a service charge for effecting wire transfers,
but reserves the right to do so in the future. 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 (888)
261-4073, and provide PFPC with your name, address, telephone number,
Social Security or Tax Identification Number, the Fund 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 PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount,
together with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the
Fund)
FOR PURCHASE OF: Boston Partners Mid Cap Value Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the
address shown thereon. PFPC will not process purchases until it
receives a fully completed and signed application.
For subsequent investments, an investor should follow steps A and B
above.
-11-
<PAGE>
AUTOMATIC INVESTING
Additional investments in 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 Investment Plan should call the Fund's
transfer agent, PFPC, at (888)261-4073 to obtain the appropriate forms.
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 Fund's transfer
agent, PFPC, at (888) 261-4073. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION BY MAIL
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 Boston Partners Mid Cap Value Fund, c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. There is no charge for a redemption.
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 according to the procedures described below under "Exchange
Privilege."
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. 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.
SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan and receive regular periodic payments. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to PFPC at
P.O. Box 8852, Wilmington, Delaware 19899-8852. Each withdrawal redemption will
be processed on or about the 25th of the month and mailed as soon as possible
thereafter. There are no service charges for maintenance; the
-12-
<PAGE>
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 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.
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 the Automatic
Investment Plan. You will receive a confirmation of each 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
and 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 at any
time the net asset value of the account 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 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 or its agents. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund or its agents of the request and
any other necessary documents in proper order. Such payment may be postponed or
the right of redemption suspended as permitted by the 1940 Act. 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. The Fund has elected to be
governed by Rule 18f-1 under the 1940 Act so that it is obligated to redeem its
shares solely in cash up to the lesser of $250,000 or 1% of its net
-13-
<PAGE>
asset value during any 90-day period for any one shareholder of a portfolio.
EXCHANGE PRIVILEGE
The exchange privilege is available to shareholders residing in any state
in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Investor Shares of the Boston Partners Large Cap
Value Fund or the Boston Partners Bond Fund subject to the restrictions
described under "Exchange Privilege Limitations." Such exchange will be effected
at the net asset value of the exchanged Fund and the net asset value of the
Boston Partners Large Cap Value Fund or the Boston Partners Bond Fund next
determined after receipt of a request for an exchange by the Fund or its agents.
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 PFPC.
If the exchanging shareholder does not currently own Investor Shares of the
Boston Partners Large Cap Value Fund or Boston Partners Bond Fund, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted. The exchange privilege may be modified
or terminated at any time, or from time to time, by RBB, upon 60 days' written
notice to shareholders.
If an exchange is to a new account in the Boston Partners Large Cap Value
Fund or Boston Partners Bond Fund, the dollar value of Investor Shares acquired
must equal or exceed RBB's minimum for a new account; if to an existing account,
the dollar value must equal or exceed that Fund's minimum for subsequent
investments. If any amount remains in the Fund from which the exchange is being
made, such amount must not drop below the minimum account value required by the
Fund.
EXCHANGE PRIVILEGE LIMITATIONS
The Fund's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transactions costs, the Fund has
established a policy of limiting excessive exchange activity.
Shareholders are entitled to three (3) exchange redemptions (at least 30
days apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the
-14-
<PAGE>
right to reject any purchase request (including exchange purchases from the
Boston Partners Large Cap Value Fund and Boston Partners Bond Fund) that is
deemed to be disruptive to efficient portfolio
management.
TELEPHONE TRANSACTIONS
In order to request an exchange or redemption by telephone, a
shareholder must have completed and returned an account application containing
the appropriate telephone election. To add a telephone option to an existing
account that previously did not provide for this option, a Telephone
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 an exchange or redemption by calling (888) 261-4073.
Neither RBB, the Fund, the Distributor, the Administrator nor any other Fund
agent will be liable for any loss, liability, cost or expense for following
RBB's telephone transaction procedures described below or for following
instructions communicated by telephone that they reasonably believe to be
genuine.
RBB'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's social
security number and name of the Fund, all of which must match RBB's records; (3)
requiring RBB'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 (7) maintaining tapes of telephone transactions
for six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by broker-dealers (other than the Distributor),
financial institutions, securities dealers, financial planners and other
industry professionals, 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 an attorney-in-fact under a power of
attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset values for each class of a fund are calculated by adding
the value of the proportionate interest of the class in a fund's cash,
securities and other assets, deducting actual and accrued liabilities of the
class and dividing the result by the number of outstanding shares of the class.
The net asset values of each class are calculated separately from each other
class. The
-15-
<PAGE>
net asset values are calculated as of the close of regular trading on the NYSE,
generally 4:00 p.m. Eastern time on each Business Day.
Valuation of securities held by the Fund 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 RBB'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.
With the approval of RBB's Board of Directors, the Fund may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Fund's securities. A more detailed discussion of net asset value and security
valuation is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Fund to the Fund's shareholders.
All distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually, and pays them in the calendar year in which they are declared,
generally in December. 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 Fund and its shareholders
and is not intended as a substitute for careful tax planning. Accordingly,
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation.
The Fund 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
Fund qualifies for this tax treatment, it 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.
-16-
<PAGE>
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 Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, will be taxed to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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.
RBB will send written notices to shareholders annually regarding the
tax status of distributions made by the Fund. Dividends declared in 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 Fund
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 shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund 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.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Institutional Shares, which
is offered directly to institutional investors pursuant to a separate
prospectus. Shares of each class represent equal pro rata interests in the Fund
and accrue dividends and calculate net asset value and performance quotations in
the same manner. The Fund will quote performance of Institutional Shares
separately from Investor Shares. Because of different expenses paid by the
Investor Shares, the total return on such shares can be expected, at any time,
to be different than the total return on Institutional Shares. Information
concerning Institutional Shares may be obtained by calling the Fund at (800)
311-9783 or 9829.
-17-
<PAGE>
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 13.93 billion shares are currently
classified into 82 different classes of Common Stock. See "Description of
Shares" in the Statement of Additional Information.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE BOSTON PARTNERS MID CAP VALUE FUND
AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THE BOSTON PARTNERS MID CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, 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 will be fully paid and
non-assessable.
RBB 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, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund 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 RBB will vote in the aggregate and
not by portfolio except as otherwise required by law or when RBB's 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 15, 1997, to the Fund's knowledge, no person held of
record or beneficially 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
-18-
<PAGE>
statements audited by independent accountants. Shareholder inquiries should be
addressed to PFPC Inc., the Fund's transfer agent, Bellevue Park Corporate
Center, 400 Bellevue Parkway, Wilmington, Delaware 19809, toll-free (888)
261-4073.
SHARE CERTIFICATES
In the interest of economy and convenience, physical certificates
representing shares in the Fund are not normally issued.
HISTORICAL PERFORMANCE INFORMATION
For the period from commencement of operations (June 2, 1997) through
August 31, 1997, the total return (not annualized) for the Investor Class of
Shares of the Fund was as follows:
Unannualized investment returns for the period ended August 31, 1997
Since
INCEPTION
---------
Boston Partners Mid Cap Value Fund
(Investor Shares)................................ 10.10%
The total return assumes the reinvestment of all dividends and capital
gains and reflects investment advisory fee waivers and expense reimbursements in
effect. Without these waivers and expense reimbursements, the Fund's performance
would have been lower. Of course, past performance is no guarantee of future
results. Investment return and principal value will fluctuate, so that Shares,
when redeemed, may be worth more or less than the original cost. For more
information on performance, see "Performance Information" in the Statement of
Additional Information.
The table below presents the Composite performance history of certain
of the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1997. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Fund which commenced
operations on June 2, 1997. The Composite performance information includes the
reinvestment of dividends received in the underlying securities and reflects
investment advisory fees. The privately managed accounts in the Composite are
only available to the Adviser's institutional advisory clients. The past
performance of the funds and accounts that comprise the Composite is not
indicative of or a substitute for the future performance of the Fund. These
accounts have lower investment advisory fees than the Fund and the Composite
performance figures would have been lower if subject to the higher fees and
expenses incurred by the Fund. These private accounts are not subject to the
same investment limitations, diversification requirements and other restrictions
which are imposed upon mutual funds under the 1940 Act and the
-19-
<PAGE>
Internal Revenue Code, which, if imposed, may have adversely affected the
performance results of the Composite. Listed below the performance history for
the Composite is the performance history for a comparative index comprised of
securities similar to those in which accounts contained in the Composite are
invested.
Annualized investment returns for the period ended August 31, 1997
Since
ONE YEAR INCEPTION
-------- ---------
Composite Performance.............. 51.0% 37.8%*
Russell 2500 Index................. 31.5% 25.9%
* The Adviser commenced managing these accounts on May 1, 1995.
The Russell 2500 Index represents the largest 3000 companies domiciled
in the United States minus the largest 500 companies as determined by the market
value of such companies.
FUTURE PERFORMANCE INFORMATION
From time to time, the Fund 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 over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. 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 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 Fund 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 the Fund's
performance with other measures of investment return. For example, the Fund'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 Russell 2500 Index. Performance
information may also include evaluation of the Fund by nationally recognized
ranking services and information as reported in financial publications such as
BUSINESS WEEK, FORTUNE, INSTITUTIONAL INVESTOR, MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, THE NEW YORK TIMES, or other national,
regional or local publications. All advertisements containing performance data
will include a legend disclosing that such performance data represents 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.
-20-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS OR IN RBB'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH PROSPECTUS
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY RBB OR ITS DISTRIBUTOR. THIS DECEMBER 1, 1997
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
TABLE OF CONTENTS
PAGE
FINANCIAL HIGHLIGHTS.......................... 2
INTRODUCTION.................................. 4
INVESTMENT OBJECTIVES AND POLICIES............ 4
INVESTMENT LIMITATIONS........................ 5
RISK FACTORS.................................. 6
MANAGEMENT.................................... 7
DISTRIBUTION OF SHARES........................ 8 BOSTON PARTNERS
HOW TO PURCHASE SHARES........................ 10 MID CAP VALUE FUND
HOW TO REDEEM AND EXCHANGE SHARES............. 12 (Investor Shares)
NET ASSET VALUE............................... 15
DIVIDENDS AND DISTRIBUTIONS................... 16
TAXES ..................................... 16
MULTI-CLASS STRUCTURE......................... 17
DESCRIPTION OF SHARES......................... 17
OTHER INFORMATION............................. 18
INVESTMENT ADVISER
Boston Partners Asset Management, L.P.
Boston, Massachusetts
CUSTODIAN
PNC Bank, N.A.
Philadelphia, Pennsylvania
TRANSFER AGENT AND ADMINISTRATOR
PFPC Inc.
Wilmington, Delaware
DISTRIBUTOR bp
Counsellors Securities Inc.
New York, New York
Boston Partners Asset Management, L.P.
COUNSEL --------------------------------------
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
<TABLE>
<CAPTION>
BOSTON PARTNERS MID CAP VALUE FUND bp
(INVESTOR CLASS) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
ACCOUNT APPLICATION
PLEASE NOTE: Do not use this form to open a retirement plan account. For an IRA application or help with this Application, please
call 1-888-261-4073
<S> <C>
- ---------------- (Please check the appropriate box(es) below.)
| 1 | [Checkbox] Individual [Checkbox] Joint Tenant [Checkbox] Other
| Account |
| Registration:| ----------------------------------------------------------------------------------------------------------------
- ---------------- Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
----------------------------------------------------------------------------------------------------------------
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts,the account registrants will be joint tenants with right of survivorship and not tenants in
common unless tenants in common or community property registrations are requested.
- -------------- UNIFORM GIFTS/TRANSFER TO MINOR'S ACT
GIFT TO MINOR:
- -------------- ----------------------------------------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
----------------------------------------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
----------------------------------------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
- ------------------
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
- ------------------ ----------------------------------------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
----------------------------------------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
- ---------------- ----------------------------------------------------------------------------------------------------------------
| 2 | STREET OR P.O. BOX AND/OR APARTMENT NUMBER
| Mailing |
| Address: | ----------------------------------------------------------------------------------------------------------------
- ---------------- CITY STATE ZIP CODE
----------------------------------------------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
- ---------------- Minimum initial investment of $100,000 Amount of investment $____________
| 3 |
| Investment | Make the check payable to Boston Partners Mid Cap Value Fund.
| Information: |
- ---------------- Shareholders may not purchase shares of this Fund with a check issued by a third party and endorsed over
to the Fund.
- ----------------
DISTRIBUTION NOTE: Dividends and capital gains may be reinvested or paid by check. If not options are selected below, both
OPTIONS: dividends and capital gains will be reinvested in additional Fund shares.
- ----------------
DIVIDENDS Pay by check Reinvest CAPITAL GAINS Pay by check Reinvest
- ---------------- To use this option, you must initial the appropriate line below. I authorize the Transfer Agent to accept
| 4 | instructions from any persons to redeem or exchange shares in my account(s) by telephone in accordance with the
| Telephone | procedures and conditions set forth in the Fund's current prospectus.
| Redemption: |
- ----------------
-------------------------- --------------------------- Redeem shares, and send the proceeds to the
individual initial joint initial address of record.
-------------------------- --------------------------- Exchange shares for shares of The Boston
individual initial joint initial Partners Large Cap Value Fund or Boston
Partners Bond Fund.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ---------------- The Account Investment Plan which is available to shareholders of the Fund, makes possible regularly scheduled
| 5 | purchases of Fund shares to allow dollar-cost averaging. The Fund's Transfer Agent can arrange for an amount of
| Automatic | money selected by you to be deducted from your checking account and used to purchase shares of the Fund.
| Investment |
| Plan: |
- ----------------
Please debit $________ from my checking account (named below on or about the 20th of the month. Please attach an
unsigned, voided check.
Monthly Every Alternate Month Quarterly Other
- --------------- -----------------------------------------------------------------------------------------------------------------
BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
- ---------------
-----------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
-----------------------------------------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
- ---------------- The undersigned warrants that I (we) have fully authority and, if a natural person, I (we) am (are) of legal age
| 6 | to purchase shares pursuant to this Account Application, and I (we) have received a current prospectus for the
| | Fund in which I (we) am (are) investing.
| Signatures: | Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following
- ---------------- certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to
be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service that I am subject to 31% backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
NOTE: YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO
BACKUP WITHHOLDING BECAUSE YOU HAVE FAILED TO REPORT ALL INTEREST AND DIVIDENDS ON YOUR TAX RETURN. THE INTERNAL
REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION
REQUIRED TO AUDIT BACKUP WITHHOLDING.
-----------------------------------------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
-----------------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
-----------------------------------------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER DATE
-----------------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or title. If you wish additional
signatories on the account, please include a corporate resolution. If signing as a fiduciary, you must indicate
capacity.)
For information on additional options, such as IRA Applications, rollover requests for qualified retirement
plans, or for wire instructions, please call us at 1-888-261-4073.
MAIL COMPLETED ACCOUNT APPLICATION AND CHECK TO: THE BOSTON PARTNERS MID CAP VALUE FUND
C/O PFPC INC.
P.O. BOX 8852
WILMINGTON, DE 19899-8852
</TABLE>
<PAGE>
BOSTON PARTNERS MID CAP VALUE FUND
(INSTITUTIONAL AND INVESTOR CLASSES)
OF
THE RBB FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of the Investor and Institutional
Classes (the "Shares") representing interests in the Boston Partners Mid Cap
Value Fund (the "Fund") of The RBB Fund, Inc. ("RBB"). This Statement of
Additional Information is not a prospectus, and should be read only in
conjunction with the Boston Partners Mid Cap Value Fund Prospectuses, dated
December 1, 1997 (together, the "Prospectus"). A copy of any of the
Prospectuses may be obtained from RBB by calling toll-free (800) 311-9783 or
9829. This Statement of Additional Information is dated December 1, 1997.
CONTENTS
INSTITUTIONAL INVESTOR
PROSPECTUS PROSPECTUS
PAGE PAGE PAGE
---- ------------- ----------
General............................... 2 3 3
Investment Objectives and Policies.... 2 3 3
Directors and Officers................ 11 N/A N/A
Investment Advisory, Distribution
and Servicing Arrangements.......... 15 5 5
Portfolio Transactions................ 19 6 6
Purchase and Redemption Information... 20 7,10 7,10
Valuation of Shares................... 21 11 12
Performance and Yield Information..... 22 13 15
Taxes................................. 23 11 13
Additional Information Concerning
RBB Shares......................... 26 12 14
Miscellaneous......................... 29 N/A N/A
Financial Statements.................. 40 N/A N/A
Appendix A............................ A-1 N/A 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 RBB 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. ("RBB") is an open-end management
investment company currently operating or proposing to operate twenty-two
separate investment portfolios. RBB was organized as a Maryland corporation on
February 29, 1988. The Institutional and Investor Shares of the Fund were first
issued on June 2, 1997.
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 Fund.
ADDITIONAL INFORMATION ON FUND INVESTMENTS.
LENDING OF FUND SECURITIES. The Fund may 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 Fund'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 Fund's securities will be fully
collateralized and marked to market daily. The Fund does not presently intend to
invest more than 5% of net assets in securities lending.
INDEXED SECURITIES. The Fund may invest in indexed securities
whose value is linked to securities indices. Most such securities have values
which rise and fall according to the change in one or more specified indices,
and may have characteristics similar to direct investments in the underlying
securities. The Fund does not presently intend to invest more than 5% of net
assets in indexed securities.
REPURCHASE AGREEMENTS. The Fund 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 13
-2-
<PAGE>
months, provided the repurchase agreement itself matures in less than 13 months.
The financial institutions with whom the Fund may enter into repurchase
agreements will be banks which the 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 Adviser will consider the creditworthiness of a
seller in determining whether to have the Fund 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 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 Fund to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may
enter into reverse repurchase agreements with respect to portfolio securities
for temporary purposes (such as to obtain cash to meet redemption requests) when
the liquidation of portfolio securities is deemed disadvantageous or
inconvenient by the Adviser. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to the Fund'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 Fund will maintain in
a segregated account with the Fund's custodian or a qualified sub-custodian,
cash or liquid securities of an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement and will 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 Fund may
decline below the price of the securities the Fund is obligated to repurchase.
The Fund may also enter into "dollar rolls," in which it sells fixed income
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, the Fund would forgo principal
and interest paid on such securities. The Fund would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale. The Fund does not presently intend to engage in reverse repurchase or
dollar roll transactions involving more than 5% of the Fund's net assets.
-3-
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. The Fund may purchase U.S.
Government agency and instrumentality obligations that 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. Government or by U.S.
Treasury guarantees, such as securities of the Government National Mortgage
Association and the Federal Housing Authority; others, by the ability of the
issuer to borrow, provided approval is granted, 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.
The Fund's net assets may 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.
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, the Maritime
Administration, the Asian-American Development Bank and the Inter-American
Development Bank. The Fund does not presently intend to invest more than 5% of
net assets in U.S. Government obligations.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of
its net assets in illiquid securities (including repurchase agreements that 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. With respect to the Fund, repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Mutual funds do not typically hold a significant amount of
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
-4-
<PAGE>
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.
The Fund may purchase securities which are not registered
under the Securities Act but which may be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act. These securities
will not be considered illiquid so long as it is determined by the Fund's
adviser that an adequate trading market exists for the securities. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
The Adviser will monitor the liquidity of restricted
securities in the Fund under the supervision of the Board of Directors. In
reaching liquidity decisions, the Adviser may consider, among others, 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).
HEDGING INVESTMENTS. At such times as the Adviser deems it
appropriate and consistent with the investment objective of the Fund, the Fund
may invest in financial futures contracts and options on financial futures
contracts. The purpose of such transactions is to hedge against changes in the
market value of securities in the Fund 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.
Futures contracts and options on futures are discussed below.
FUTURES CONTRACTS. The Fund may invest in financial futures
contracts with respect to those securities listed on the S&P 500 Stock Index.
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
-5-
<PAGE>
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 Fund's
investment adviser when hedge positions were established. The Fund does not
presently intend to invest more than 5% of net assets in futures contracts.
OPTIONS ON FUTURES. The Fund may purchase and write call and
put options on futures contracts with respect to those securities listed on the
S&P 500 Stock Index 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 Fund 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 Fund is not fully invested.
There is no assurance that the Fund 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 securities being hedged, or price distortions due to market
conditions in the futures markets. Such imperfect correlations could have an
impact on the Fund's ability to effectively hedge its securities. The Fund does
not presently intend to invest more than 5% of net assets in options on futures.
BANK AND CORPORATE OBLIGATIONS. The Fund 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
Fund may also make interest-bearing savings deposits in commercial and
-6-
<PAGE>
savings banks in amounts not in excess of 5% of its total assets.
The Fund may invest in debt obligations, such as bonds and
debentures, issued by corporations and other business organizations that are
rated at the time of purchase within the three highest ratings categories of S&P
or Moody's (or which, if unrated, are determined by the Adviser to be of
comparable quality). Unrated securities will be determined to be of the
comparable quality to rated debt obligations if, among other things, other
outstanding obligations of the issuers of such securities are rated A or better.
See Appendix "A" for a description of corporate debt ratings.
COMMERCIAL PAPER. The Fund may purchase commercial paper rated
(at the time of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed
advisable by the Fund's investment adviser, issues rated "A-2" or "Prime-2" by
S&P or Moody's, respectively. These rating symbols are described in Appendix "A"
hereto. The Fund may also purchase unrated commercial paper provided that such
paper is determined to be of comparable quality by the Fund's investment adviser
pursuant to guidelines approved by the Fund's Board of Directors. Commercial
paper issues in which the Fund may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "Securities 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 Securities 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 Fund does not presently intend to invest more than 5% of its net
assets in commercial paper.
FOREIGN SECURITIES. The Fund may invest in foreign securities,
either directly or indirectly through American Depository Receipts and European
Depository Receipts. Investments in foreign securities involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity and political stability. Future political and economic information,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls, or the adoption of other governmental restrictions,
-7-
<PAGE>
might adversely affect the payment of principal and interest on foreign
obligations.
Although the Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of a Fund's shares may fluctuate with
U.S. dollar exchange rates as well as the price changes of the Fund's securities
in the various local markets and currencies. Thus, an increase in the value of
the U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar may have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in its foreign markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
INVESTMENT LIMITATIONS.
RBB has adopted the following fundamental investment
limitations, which may not be changed without the affirmative vote of the
holders of a majority of the Fund's outstanding Shares (as defined in Section
2(a)(42) of the 1940 Act). The Fund may not:
1. Borrow money, except from banks, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of the
Fund; 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 33 1/3% of the value of the Fund's total assets at the time
of such borrowing;
2. Issue any senior securities, except as permitted under the
1940 Act;
3. Act as an underwriter of securities within the meaning of
the Securities Act, except insofar as it might be deemed to be an underwriter
upon disposition of certain portfolio securities acquired within the limitation
on purchases of restricted securities;
4. Purchase or sell real estate (including real estate limited
partnership interests), provided that the Fund may invest (a) in securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein or (b) in real estate investment trusts;
-8-
<PAGE>
5. Purchase or sell commodities or commodity contracts, except
that a Fund may deal in forward foreign exchanges between currencies of the
different countries in which it may invest and purchase and sell stock index and
currency options, stock index futures, financial futures and currency futures
contracts and related options on such futures;
6. Make loans, except through loans of portfolio instruments
and repurchase agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other debt instruments or interests therein
and investment in government obligations, loan participations and assignments,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan;
7. Invest 25% or more of its assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and instrumentalities);
or
8. 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 Fund'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 Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
(For purposes of Investment Limitation No. 1, any collateral
arrangements with respect to, if applicable, the writing of options and futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge of assets.
For purposes of Investment Limitation No. 2, neither the foregoing arrangements
nor the purchase or sale of futures or related options are deemed to be the
issuance of senior securities.)
The Fund may invest in securities issued by other investment
companies within the limits prescribed by the 1940 Act. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Except as required by the 1940 Act with respect to the
borrowing of money, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in
-9-
<PAGE>
percentage resulting from a change in market values of portfolio securities or
amount of total or net assets will not be considered a violation of any of the
foregoing restrictions.
Securities held by the Fund generally may not be purchased
from, sold or loaned to the Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
-10-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of RBB, their ages,
business addresses and principal occupations during the past five years are:
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- -----------------------
*Arnold M. Reichman -49 Director Senior Managing
466 Lexington Avenue Director, Chief
New York, NY 10017 Operating Officer and
Assistant Secretary,
Warburg Pincus Asset
Management, Inc.;
Director and Executive
Officer of Counsellors
Securities Inc.;
Director/Trustee of
various investment
companies advised by
Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky -58 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc.
New York, NY 10005 (a registered broker-
dealer); Prior to
October 1996,
Executive Vice
President of Gruntal &
Co., Inc. (a
registered broker-
dealer).
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).
-11-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- -----------------------
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, 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 since 1969
16th Floor Comcast Corporation
Philadelphia, PA 19107- (cable television and
3723 communications);
Director Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
communications).
Donald van Roden -72 Director Self-employed
1200 Old Mill Lane and businessman. From
Wyomissing, PA 19610 Chairman February 1980 to March
of the 1987, Vice Chairman,
Board SmithKline Beecham
Corporation
(pharmaceuticals);
Director, AAA Mid-
Atlantic (auto
service); Director,
Keystone Insurance Co.
-12-
<PAGE>
POSITION PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- -----------------------
Edward J. Roach -73 President Certified Public
Suite 100 and Accountant; Vice
Bellevue Park Treasurer Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
President or Vice
President and
Treasurer of various
investment companies
advised by PNC
Institutional
Management
Corporation; Director,
The Bradford Funds,
Inc.
Morgan R. Jones -58 Secretary Chairman of the law
Drinker Biddle & Reath LLP firm of Drinker Biddle
1345 Chestnut Street & Reath LLP; Director,
Philadelphia, PA 19107- Rocking Horse Child
3496 Care Centers of
America, Inc.
- ----------------------
* Mr. Reichman is an "interested person" of RBB, as that term is defined
in the 1940 Act, by virtue of his position with Counsellors Securities
Inc., RBB's distributor.
** Mr. Sablowsky is an "interested person" of RBB, as that term is defined
in the 1940 Act, by virtue of his position with Fahnestock Co., Inc., a
registered 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 RBB 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 RBB when the Board of Directors is
not in session.
-13-
<PAGE>
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 all persons to be nominated as directors of RBB.
RBB 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 and Mr. Sablowsky, who is considered to be an affiliated
person, $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. In addition, the
Chairman of the Board receives an additional fee of $5,000 per year for his
services in this capacity. Directors who are not affiliated persons of RBB and
Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings of
the Board of Directors or any committee thereof. For the year ended August 31,
1997, each of the following members of the Board of Directors received
compensation from RBB in the following amounts:
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED REGISTRANT
AGGREGATE ACCRUED AS ANNUAL AND FUND
COMPENSATION PART OF BENEFITS COMPLEX1
NAME OF PERSON/ FROM FUND UPON PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- --------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden, $24,000 N/A N/A $24,000
Director and
Chairman
- ----------------------
<FN>
1 A FUND COMPLEX MEANS TWO OR MORE INVESTMENT COMPANIES THAT HOLD
THEMSELVES OUT TO INVESTORS AS RELATED COMPANIES FOR PURPOSES OF
INVESTMENT AND INVESTOR SERVICES, OR HAVE A COMMON INVESTMENT ADVISER
OR HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE
INVESTMENT ADVISER OF ANY OTHER INVESTMENT COMPANIES.
</FN>
</TABLE>
-14-
<PAGE>
On October 24, 1990 RBB adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach and one other employee), pursuant
to which RBB will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by RBB's advisers, custodians, administrators and distributor, RBB
itself requires only two part-time employees. Drinker Biddle & Reath LLP, of
which Mr. Jones is a partner, receives legal fees as counsel to RBB. No officer,
director or employee of Boston Partners Asset Management, L.P. ("Boston
Partners" or the "Adviser") or the Distributor currently receives any
compensation from RBB.
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENT. Boston Partners renders advisory services
to the Fund pursuant to an Investment Advisory Agreement dated May 30, 1997 (the
"Advisory Agreement"). Boston Partners' general partner is Boston Partners, Inc.
Boston Partners has investment discretion for the Fund and
will make all decisions affecting assets in the Fund under the supervision of
RBB's Board of Directors and in accordance with the Fund's stated policies.
Boston Partners will select investments for the Fund. For its services to the
Fund, Boston Partners is entitled to receive a monthly advisory fee under the
Advisory Agreement computed at an annual rate of 0.80% of the Fund's average
daily net assets. Boston Partners is currently waiving advisory fees in excess
of 0.70% of average daily net assets. For the period from the initial public
offering (June 2, 1997) through August 31, 1997, the Fund paid Boston Partners
$0.00 in investment advisory fees and Boston Partners waived advising fees in
the amount of $3,606, and Boston Partners reimbursed expenses of the Fund in the
amount of $32,554.
Each class of the Fund bears its own expenses not specifically
assumed by Boston Partners. General expenses of RBB not readily identifiable as
belonging to a portfolio of RBB are allocated among all investment portfolios by
or under the direction of RBB'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 Boston Partners; (c) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted
-15-
<PAGE>
against RBB or a portfolio for violation of any law; (d) any extraordinary
expenses; (e) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; (f) the cost of
investment company literature and other publications provided by RBB to its
directors and officers; (g) organizational costs; (h) fees to the investment
adviser and PFPC; (i) fees and expenses of officers and directors who are not
affiliated with a portfolios' investment adviser or Distributor; (j) taxes; (k)
interest; (l) legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage
fees and commissions; (p) certain of the fees and expenses of registering and
qualifying the Fund and its shares for distribution under federal and state
securities laws; (q) expenses of preparing prospectuses and statements of
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of shares of RBB; (r) the expense of
reports to shareholders, shareholders' meetings and proxy solicitations that are
not attributable to a particular class of shares of RBB; (s) fidelity bond and
directors' and officers' liability insurance premiums; (t) the expense of using
independent pricing services; and (u) other expenses which are not expressly
assumed by a portfolio's investment adviser under its advisory agreement with
the portfolio. Each class of the Fund pays its own distribution fees, if
applicable, and may pay a different share than other classes of other expenses
(excluding advisory and custodial fees) if those expenses are actually incurred
in a different amount by such class or if it receives different services.
Under the Advisory Agreement, Boston Partners will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or RBB in connection with the performance of the Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Boston Partners in the performance of its duties or from reckless
disregard of its duties and obligations thereunder.
The Advisory Agreement was most recently approved on April 23,
1997 by vote of RBB's Board of Directors, including a majority of those
directors who are not parties to the Advisory Agreement or interested persons
(as defined in the 1940 Act) of such parties. The Advisory Agreement was
approved by the initial shareholder of each class of the Fund. The Advisory
Agreement is terminable by vote of RBB's Board of Directors or by the holders of
a majority of the outstanding voting securities of the Fund, at any time without
penalty, on 60 days' written notice to Boston Partners. The Advisory Agreement
may also be terminated by Boston Partners on 60 days' written notice to RBB. The
Advisory Agreement terminates automatically in the event of its assignment.
-16-
<PAGE>
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of the Fund
(b) holds and transfers portfolio securities on account of the Fund, (c) accepts
receipts and makes disbursements of money on behalf of the Fund, (d) collects
and receives all income and other payments and distributions on account of the
Fund's portfolio securities and (e) makes periodic reports to RBB's Board of
Directors concerning the Fund'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 of
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
Fund's average daily gross assets as follows: $.18 per $1,000 on the first $100
million of average daily gross assets; $.15 per $1,000 on the next $400 million
of average daily gross assets; $.125 per $1,000 on the next $500 million of
average daily gross assets; and $.10 per $1,000 on average daily gross assets
over $1 billion, 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 pursuant to a Transfer
Agency Agreement dated November 5, 1991, as supplemented (the "Transfer Agency
Agreement"), under which PFPC (a) issues and redeems shares of the Fund, (b)
addresses and mails all communications by the Fund to record owners of the
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 RBB's
Board of Directors concerning the operations of the Fund. PFPC may, on 30 days'
notice to RBB, 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 $12 per
account in the Fund, exclusive of out-of-pocket expenses, and also receives
reimbursement of its out-of-pocket expenses.
ADMINISTRATION AGREEMENT. PFPC serves as administrator to the
Fund pursuant to an Administration and Accounting Services Agreement dated May
30, 1997, (the "Administration Agreement"). PFPC has agreed to furnish to the
Fund 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
-17-
<PAGE>
any state securities commission having jurisdiction over the Fund. For its
services to the Fund, PFPC is entitled to receive a fee calculated at an annual
rate of .125% of the Fund's average daily net assets, with a minimum annual fee
of $75,000 payable monthly on a pro rata basis. PFPC is currently waiving
one-half of its minimum annual fee. During the period from the date of the
initial public offering (June 2, 1997) through August 31, 1997, the Fund paid
PFPC $9,166 in administration fees and PFPC waived administration fees in the
amount of $9,167.
The Administration Agreement provides that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by RBB
or the Fund 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.
DISTRIBUTION AGREEMENT. Pursuant to the terms of a
distribution agreement, dated as of April 10, 1991, as supplemented (the
"Distribution Agreement"), entered into by the Distributor and RBB on behalf of
the Institutional and Investor Classes, and Plans of Distribution for the
Institutional and Investor Classes (together, the "Plans"), which were adopted
by RBB in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use appropriate efforts to solicit orders for the sale of Fund
Shares. As compensation for its distribution services, the Distributor receives,
pursuant to the terms of the Distribution Agreement, a distribution fee under
the Plans, to be calculated daily and paid monthly by the Institutional and
Investor Classes, at the annual rate set forth in the Prospectus. During the
period beginning on the date of the initial public offering (June 2, 1997) and
ended August 31, 1997, the Fund paid the Distributor $161 in fees under the Plan
with respect to Institutional Shares and $77 in fees under the Plan with respect
to Investor Shares.
On April 23, 1997, the Plans were approved by RBB's Board of
Directors, including the directors who are not "interested persons" of RBB 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"). RBB believes that
the Plans may benefit the Fund by increasing sales of Fund shares.
Among other things, the Plans provide that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
RBB regarding all amounts expended under the Plans and the purposes for which
such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are approved at least annually, and
any material amendment thereto is approved, by RBB's
-18-
<PAGE>
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 Institutional and Investor Classes
under the Plans shall not be materially increased without shareholder approval;
and (4) while the Plans remain in effect, the selection and nomination of RBB's
directors who are not "interested persons" of RBB (as defined in the 1940 Act)
shall be committed to the discretion of such directors who are not "interested
persons" of RBB.
Mr. Reichman, a director of RBB, has an indirect financial
interest in the operation of the Plans by virtue of his position with the
Distributor. Mr. Sablowsky, a director of RBB, has an indirect interest in the
operation of the Plans by virtue of his position with Fahnestock Co., Inc., a
broker-dealer.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors,
Boston Partners is responsible for the execution of portfolio transactions and
the allocation of brokerage transactions for the Fund. In purchasing and selling
portfolio securities, Boston Partners seeks to obtain the best net price and the
most favorable execution of orders. To the extent that the execution and price
offered by more than one broker/dealer are comparable, the Adviser may effect
transactions in portfolio securities with broker/dealers who provide research,
advice or other services such as market investment literature.
For the fiscal period ended August 31, 1997, the Fund paid
brokerage commissions aggregating $5,648.
For the fiscal period ended August 31, 1997, the Fund paid
commissions in the aggregate amount of $181 to brokers on account of research
services on transactions in the aggregate amount of $95,669.
RBB is required to identify securities of its regular broker
dealers that the Fund has acquired during the most recent fiscal period. At
August 31, 1997, the Fund held common stock of Lehman Brothers Holdings, Inc. in
the amount of $120,700. Lehman Brothers, Inc., the parent of Lehman Brothers
Holdings, Inc., is a "regular broker or dealer" of RBB.
Investment decisions for the Fund and for other investment
accounts managed by Boston Partners are made independently of each other in the
light of differing conditions. However, the same investment decision may 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
-19-
<PAGE>
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 Fund is concerned,
in other cases it is believed to be beneficial to the Fund.
The Fund expects that its annual portfolio turnover rate will
not exceed 100%. A high rate (100% or more) of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs that must be borne directly by the Fund. The Fund 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
RBB reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of the
Fund's shares by making payment in whole or in part in securities chosen by RBB
and valued in the same way as they would be valued for purposes of computing the
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. RBB has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that the
Fund 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 Fund.
Under the 1940 Act, RBB may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange, Inc. (the "NYSE") is closed (other than customary weekend
and holiday closings), or during which trading on the NYSE 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. (RBB
may also suspend or postpone the recordation of the transfer of its shares upon
the occurrence of any of the foregoing conditions.)
The computation of the hypothetical offering price per share
of an Institutional and Investor Share of the Fund based on the value of the
Fund's net assets on August 31, 1997 and the Fund's Institutional and Investor
Shares outstanding on such date is as follows:
-20-
<PAGE>
BOSTON PARTNERS MID CAP VALUE FUND
INSTITUTIONAL SHARES INVESTOR SHARES
-------------------- ---------------
Net Assets......................... $3,749,986 $ 598,108
Outstanding Shares................. 340,455 54,308
Net Asset Value
per Share......................... $ 11.01 $ 11.01
Maximum Sales Charge............... N/A N/A
Maximum Offering Price
to Public........................ $11.01 $11.01
VALUATION OF SHARES
The net asset values per share of each class of the Fund are
calculated as of the close of the NYSE, generally 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, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday and subsequent
Monday when one of these holidays falls on Saturday or Sunday. Net asset value
per share, the value of an individual share in a fund, is computed by adding the
value of the proportionate interest of each class in a Fund's securities, cash
and other assets, subtracting the actual and accrued liabilities of the class,
and dividing the result by the number of outstanding shares of the class. The
net asset values of each class are calculated independently of the other
classes. Securities that 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 the close
of regular trading (generally 4:00 p.m. Eastern Time); 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
RBB's Board of Directors. The amortized cost method
-21-
<PAGE>
of valuation may also be used with respect to debt obligations with sixty days
or less remaining to maturity.
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 RBB's Board of
Directors.
PERFORMANCE AND YIELD INFORMATION
TOTAL RETURN. The Fund may from time to time advertise its
"average annual total return." The Fund computes such return separately for each
class of shares by determining the average annual compounded rate of return
during specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
The Fund, when advertising its "aggregate total return,"
computes such returns separately for each class of shares by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - 1]
P
-22-
<PAGE>
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Total return since inception (not annualized) for Investor and
Institutional Shares of the Fund for the period June 2, 1997 (initial public
offering) through August 31, 1997 were 10.10% and 10.10%, respectively.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Fund 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 Fund 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 Fund 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 Fund is exempt from
federal income tax on its net investment income and realized capital gains that
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 made during
the taxable year or, under specified circumstances, within twelve months after
the close of the taxable year will satisfy the Distribution Requirement.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of the Fund'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 Fund has not invested more than 5% of the value of its total assets in
-23-
<PAGE>
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of the Fund'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 Fund
controls and which are engaged in the same or similar trades or businesses (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
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.
The Fund intends to distribute to shareholders its net capital
gain (excess of net long-term capital gain over net short-term capital loss), if
any, for each taxable year. Such gain is distributed as a capital gain dividend
and is taxable to shareholders as mid-term or other long-term capital gain,
regardless of the length of time the shareholder has held his shares, whether
such gain was recognized by the Fund prior to the date on which a shareholder
acquired shares of the Fund and whether the distribution was paid in cash or
reinvested in shares. The aggregate amount of distributions designated by the
Fund as capital gain dividends may not exceed the net capital gain of the Fund
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 the Fund's taxable year.
In the case of corporate shareholders, distributions (other
than capital gain dividends) of the Fund for any taxable year generally qualify
for the dividends received deduction to the extent of the gross amount of
"qualifying dividends" received by the Fund for the year. Generally, a dividend
will be treated as a "qualifying dividend" if it has been received from a
domestic corporation. Distributions of net investment income received by the
Fund from investments in debt securities will be taxable to shareholders as
ordinary income and will not be treated as "qualifying dividends" for purposes
of the dividends received deduction. The Fund will designate the portion, if
any, of the distribution made by the Fund that qualifies for the dividends
received deduction in a written notice mailed by the
-24-
<PAGE>
Fund to corporate shareholders not later than 60 days after the close of the
Fund's taxable year.
If for any taxable year the Fund 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 to the
extent of the Fund's current and accumulated earnings 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 the Fund will be disallowed to the extent an investor
repurchases shares of the Fund 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 the Fund 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 a redemption of
shares or an exchange of shares of the Fund for shares of another Boston
Partners Fund upon exercise of the exchange privilege, to the extent of any
difference between the price at which the shares are redeemed or exchanged and
the price or prices at which the shares were originally purchased for cash.
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. Investors should note that the Fund 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 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
-25-
<PAGE>
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 Fund 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 Fund may be subject to the tax laws of such states or
localities.
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 13.93 billion shares are currently
classified in 82 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion
shares are classified as Class I Common Stock (Money), 500 million shares are
classified as Class J Common Stock (Municipal Money), 500 million shares are
classified as Class K Common Stock (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 (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 (Government
Money), 500 million shares are classified as Class T Common Stock
(International), 500 million shares are classified as Class U Common Stock (High
Yield), 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),
-26-
<PAGE>
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 Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors 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 Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
700 million shares are classified as Class Janney Money Common Stock (Money),
200 million shares are classified as Class Janney Municipal Money Common Stock
(Municipal Money), 500 million shares are classified as Class Janney Government
Money Common Stock (Government Money), 100 million shares are classified as
Class Janney N.Y. Municipal Money 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 (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 (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
(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
-27-
<PAGE>
(Money), 1 million shares are classified as Epsilon 2 Common Stock (Municipal
Money), 1 million shares are classified as Epsilon 3 Common Stock (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 (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
(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 (Government Money), and 1
million shares are classified as Theta 4 Common Stock (N.Y. Money). Shares of
the Class TT and UU Common Stock constitute the Boston Partners Mid Cap Value
Fund Institutional and Investor classes, respectively. Under RBB'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 fourteen
separate "families": The Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the BEA Family, the Janney Montgomery Scott Money Family, the
n/i Numeric Investors 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 Cash Preservation Family represents interests
in the Money Market and Municipal Money Market Funds; the Sansom Street Family
represents interests in the Money Market, Municipal Money Market and Government
Obligations Money Market Funds; the Bedford Family represents interests in the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Funds; the BEA Family represents interests in
ten non-money market portfolios; the n/i Numeric Investors Family represents
interests in four non-money market portfolios; the Boston Partners Family
represents interest in three non-money market portfolios; the Janney Montgomery
Scott Family and the Beta, Gamma, Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
RBB does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. RBB's
amended By-Laws provide that shareholders owning at least ten percent of the
outstanding shares of all classes of Common Stock of RBB have the right to call
for a meeting of shareholders to consider the removal of one or more
-28-
<PAGE>
directors. To the extent required by law, RBB 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 the 1940 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 voting securities, as defined in the 1940 Act, 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 Rule 18f-2, 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, as defined in
the 1940 Act, of such portfolio. However, Rule 18f-2 also provides that the
ratification of the selection of independent public accountants 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 RBB's common stock (or of any class voting as a class)
in connection with any corporate action, unless otherwise provided by law, or by
RBB's Articles of Incorporation, RBB 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 entitled to vote on the matter voting without regard to class
(or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496 serves as counsel to RBB
and the non-interested directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as RBB's independent
accountants.
-29-
<PAGE>
CONTROL PERSONS. As of November 15, 1997, to RBB's knowledge,
the following named persons at the addresses shown below owned of record
approximately 5% or more of the total outstanding shares of each class of RBB
indicated below. See "Additional Information Concerning RBB Shares" above. RBB
does not know whether such persons also beneficially own such shares.
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Cash Preservation Jewish Family and Children's 44.2%
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Dominic and Barbara Pisciotta 15.9%
and Successors in Trust under
the Dominic and Barbara
Pisciotta Caring Trust
207 Woodmere Way
St. Charles, MO 63303
Cash Preservation Kenneth Farwell and Valerie 11.3%
Municipal Money Market Farwell JTTEN
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 32.6%
Susan D. Lange JTTEN
1354 Shady Knoll Ct.
Longwood, FL 32750
Andrew Diederich and 6.2%
Doris Diederich JTTEN
1003 Lindeman
Des Peres, MO 63131
Gwendolyn Haynes 5.2%
2757 Geyer
St. Louis, MO 63104
Savannah Thomas Trust 6.3%
200 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 32.6%
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
-30-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Saxon and Co. 65.5%
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
BEA International Blue Cross & Blue Shield of 6.10%
Equity - Institutional Massachusetts Inc.
Class Retirement Income Trust
(Class T) 100 Summer Street
Boston, MA 02110-2106
Credit Suisse Private Banking 6.89%
Dividend Reinvest Plan
c/o Credit Suisse PVT PKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Indiana University Foundation 5.49%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
Employees Ret. Plan Marshfield 5.31%
Clinic
1000 N. Oak Avenue
Marshfield, WI 54449
State Street Bank & Trust 5.06%
FBC Consumers Energy
DTD 3-1-1997
P.O. Box 1992
Boston, MA 02105-1992
BEA International Bob & Co. 87.30%
Equity Portfolio - P.O. Box 1809
Advisor Class (Class Boston, MA 02105-1809
MM)
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
BEA High Yield Fidelity Investments 15.61%
Portfolio - Institutional
Institutional Class Operations Co. Inc. as Agent
(Class U) for Certain Employee Benefit
Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
-31-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Guenter Full Trust Michelin 17.31%
North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
C S First Boston Pension Fund 6.15%
Park Avenue Plaza, 34th Floor
Attn: Steve Medici
55 E. 52nd Street
New York, NY 10055-0002
Southdown Inc. Pension Plan 9.65%
MAC & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 31980
Edward J. Demske TTEE 5.42%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
BEA High Yield Richard A. Wilson TTEE 10.81%
Portfolio - Advisor E. Francis Wilson TTEE
Class (Class OO) The Wilson Family Trust
7612 March Avenue
West Hills, CA 91304-5232
Charles Schwab & Co. 88.82%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
BEA Emerging Markets Wachovia Bank North Carolina 26.22%
Equity Portfolio - Trust for Carolina Power &
Institutional Class Light Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101-3819
Hall Family Foundation 38.21%
P.O. Box 419580
Kansas City, MO 64141-8400
Arkansas Public Employees 18.33%
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201-3704
-32-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA Emerging Markets Charles Schwab & Co. 22.65%
Equity Portfolio - Special Custody Account for the
Advisor Class Exclusive Benefit of Customers
(Class NN) 101 Montgomery Street
San Francisco, CA 94104-4175
Donald W. Allgood 72.66%
3106 Johannsen Dr.
Burlington, IA 52601-1541
BEA US Core Equity Patterson & Co. 43.71%
Portfolio - P.O. Box 7829
Institutional Class Philadelphia, PA 19101-7829
(Class X)
Credit Suisse Private Banking 13.51%
Dividend Reinvest Plan
c/o Credit Suisse PVT BKG
12 E. 49th Street, 40th Fl.
New York, NY 10017-1028
Fleet National Bank Trust 5.86%
Hospital St. Raphael
Malpractice
Attn: 1958875020
P.O. Box 92800
Rochester, NY 14692-8900
Werner & Pfleiderer Pension 6.98%
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446-1220
Washington Hebrew Congregation 11.22%
3935 Macomb St. NW
Washington, DC 20016-3799
BEA US Core Fixed New England UFCW & Employers' 24.30%
Income Portfolio - Pension Fund Board of Trustees
Institutional Class 161 Forbes Road, Suite 201
(Class Y) Braintree, MA 02184-2606
Patterson & Co. 6.50%
P.O. Box 7829
Philadelphia, PA 19101-7829
MAC & Co 5.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
-33-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Fidelity Investments 9.70%
Institutional
Operations Co. Inc. (FIIOC) as
Agent for Credit Suisse First
Boston Employee's Savings PSP
100 Magellan Way #KWIC
Covington, KY 41015-1987
DCA Food Industries Inc. 8.95%
100 East Grand Avenue
Beloit, WI 53511-6255
State St. Bank & Trust TTE 6.57%
Fenway Holdings LLC Master
Trust
P.O. Box 470
Boston, MA 02102-0470
The Valley Foundation 6.47%
c/o Enterprise Trust
16450 Los Gatos Boulevard
Suite 210
Los Gatos, CA 95032-5594
BEA Strategic Global Sunkist Master Trust 32.35%
Fixed Income Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423-2313
Patterson & Co. 23.13%
P.O. Box 7829
Philadelphia, PA 19101-7829
Key Trust Co. of Ohio 18.70%
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 94870
Cleveland, OH 44101-4870
Hard & Co. 17.34%
Trust for Abtco Inc.
Retirement Plan
c/o Associated Bank, N.A.
100 W. Wisconsin Ave.
Neenah, WI 54956-3012
BEA Municipal Bond William A. Marquard 39.48%
Fund Portfolio (Class 2199 Maysville Rd.
AA) Carlisle, KY 40311-9716
-34-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Arnold Leon 13.16%
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008-3199
Irwin Bard 6.51%
1750 North East 183rd St. North
Miami Beach, FL 33179-4908
S. Finkelstein Family Fund 5.01%
1755 York Ave., Apt. 35 BC
New York, NY 10128-6827
BEA Global Tele- E. M. Warburg Pincus & Co. Inc. 17.48%
communications 466 Lexington Ave.
Portfolio - Advisor New York, NY 10017-3140
Class (Class PP)
Bea Associates 401K 11.82%
153 East 53rd Street
New York, NY 10022-4611
John B. Hurford 47.62%
153 E. 53rd St., Flr. 57
New York, NY 10022-4611
n/i Numeric Investors Charles Schwab & Co. Inc. 15.3%
Micro Cap Fund Special Custody Account for the
(Class FF) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Public Inst. for Social 6.1%
Security
1001 19th Street N, 16th Floor
Arlington, VA 22209
Portland General Corp. 13.7%
Invest Trust
DTD 01/29/90
Attn: William J. Valach
121 SW Salmon Street
Portland, OR 97202
-35-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
State Street Bank and 7.0%
Trust Company
FBO Yale Univ Ret Pln for Staff
Emp
State Street Bank & Trust Co.
Master TR Div
Attn: Kevin Sutton
Solomon Williard Bldg. One
Enterprise Dr.
North Quincy, MA 02171
n/i Numeric Investors Charles Schwab & Co. Inc. 18.6%
Growth Fund Special Custody Account for the
(Class GG) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
U.S. Equity Investment 6.5%
Portfolio LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy 1 STE 800
Jupiter, FL 33477
Portland General Corp. VEBA 5.7%
Plan
DTD 12/19/90
Attn: William Valach
121 SW Salmon Street
Portland, OR 97202
CitiBank FSB 18.9%
Sargent & Lundy Retirement
Trust
C/O CitiCorp
Attn: D. Erwin Jr.
1410 N. West Shore Blvd.
Tampa, FL 33607
n/i Numeric Investors Charles Schwab & Co. Inc. 22.9%
Growth and Value Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
-36-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Chase Manhattan Bank 6.2%
Collins Group Trust I
840 Newport Center Dr.
Newport Beach, CA 92660
Boston Partners Large Dr. Janice B. Yost 26.2%
Cap Value Fund - Trust Mary Black Foundation
Institutional Class Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
Saxon and Co. 12.4%
FBO UJF Equity Funds
P.O. Box 7780-1888
Philadelphia, PA 19182
Irving Fireman's Relief & Ret 8.1%
Fund
Lou Mayfield-Chairman
601 N. Beltline Ste. 20
Irving, TX 75061
John N. Brodson and 10.0%
Paul A. Ebert
Trst Amer Coll of Surg Staf
Mem Ret Plan
55 E. Erie Street
Chicago, IL 60611
Wells Fargo Bank 15.7%
Trst Stoel Rives
Tr 008125
P. O. Box 9800
Calabasas, CA 91308
Hawaiian Trust Company LTD 6.3%
Trst The Estate of James
Campbell
Pension Fund
P.O. Box 3170
Honolulu, HI 96802-3170
Shady Side Academy Endowment 11.0%
423 Fox Chapel Rd.
Pittsburgh, PA 15238
Boston Partners Large Fleet National Bank TTEE 7.7%
Cap Value Fund - Testa Hurwitz THIB
Investor Class FBO Scott Birnbaum
(Class RR) P.O. Box 92800
Rochester, NY 14692
-37-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
National Financial Services 25.5%
Corp
For the Exclusive Benefit of
our Customers
Attn: Mutual Funds, 5th Floor
200 Liberty Street I World
Financial Center
New York, NY 10281
Joseph P. Scherer 10.3%
Rollover IRA
26 Embassy Ct
Cherry Hill, NJ 08002
Linda C. Brodson 7.3%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
John N. Brodson 7.3%
Trust John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Charles Schwab & Co. Inc. 12.0%
Special Custody Account
for Bene of Cust
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mark R. Scott 6.1%
and Maryann Scott
JTTEN WROS
2543 Longmount Dr.
Wexford, PA 15090
Boston Partners Mid National Financial SVCS Corp. 27.2%
Cap Value Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
-38-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Charles Schwab & Co. Inc. 32.0%
Special Custody Account for
Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
George B. Smithy, Jr. 13.0%
38 Greenwood Road
Wellesley, MA 02181
John N. Brodson 6.4%
Trst John N. Brodson Trust
U/A DTD 08/06/87
465 Lakeside Pl
Highland Park, IL 60035
Linda C. Brodson 6.4%
Trst Linda C. Brodson Trust
465 Lakeside Pl
Highland Park, IL 60035
Boston Partners Mid Wells Fargo Bank Cust 5.4%
Cap Value Fund FBO William W. Carter
Institutional Class IRA FIP 007430
(Class UU) P.O. Box 1389
San Carlos, CA 94070-1389
USNB of Oregon 77.2%
Cust Jean Vollum
Attn: Mutual Funds
P.O. Box 3168
Portland, OR 97208
-39-
<PAGE>
As of the same date, directors and officers as a group owned
less than one percent of the shares of RBB.
LITIGATION. There is currently no material litigation
affecting RBB.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal period ended August
31, 1997 has been filed with the Securities and Exchange Commission. The
financial statements in such Annual Report (the "Financial Statements") are
incorporated herein by reference into this Statement of Additional Information.
The Financial Statements included in the Annual Report for the Fund for the
fiscal period ended August 31, 1997 have been audited by RBB's independent
accountants, Coopers & Lybrand, L.L.P., whose report thereon also appears and is
incorporated herein by reference. No other portions of the Annual Report are
incorporated herein by reference. The Financial Statements in such Annual Report
have been incorporated herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. Copies of the
Annual Report may be obtained by calling toll-free (800)311-9783.
-40-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") 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. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad
A-1
<PAGE>
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market compositions 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.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
CORPORATE LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
A-2
<PAGE>
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly
vulnerable to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options;
A-3
<PAGE>
and interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate
debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings
A-4
<PAGE>
of projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
A-5
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A of the Registration Statement:
Financial Highlights (audited) for the Cash Preservation
Classes of the Money Market and the Municipal Money Market
Portfolios for the years ended August 31, 1997, 1996, l995,
1994, 1993, 1992, 1991 and 1990 and the period from
commencement of operations (September 30, 1988) to August 31,
1989; for the Bedford Classes of the Money Market, Municipal
Money Market and Government Obligations Money Market
Portfolios for the years ended August 31, l997, 1996, 1995,
1994, 1993, 1992, 1991, 1990 and the period from commencement
of operations (September 30, 1988) to August 31, 1989, and for
the Bedford Class of the New York Municipal Money Market
Portfolio for the years ended August 3l, 1997, 1996, 1995,
1994, 1993, 1992 and 1991 and for the period from commencement
of operations (July 13, 1990) to August 31, 1990; for the
Sansom Street Class of the Money Market Portfolio for the
years ended August 31, 1997, 1996, 1995, 1994, 1993, 1992,
1991, 1990 and for the period from commencement of operations
(September 30, 1988) to August 31, 1989, and for the Sansom
Street Class of the Municipal Money Market Portfolio for the
years ended August 31, 1993, 1992, 1991 and 1990 and for the
period from commencement of operations (September 30, l988) to
August 31, 1989, and for the Sansom Street Class of the
Government Obligations Money Market Portfolio for the years
ended August 31, 1992, 1991 and 1990 and for the period from
commencement of operations (October 18, 1988) to August 31,
1989; for the RBB Class of the Government Securities Portfolio
for the years ended August 31, 1997, 1996, l995, 1994, 1993
and 1992 and for the period from commencement of operations
(August 1, 1991) to August 31, 1991; for the Janney Montgomery
Scott Class of the Money Market, Municipal Money Market and
Government Obligations Money Market Portfolios for the years
ended August 31, l997 and 1996 and for the period from
commencement of operations (June 12, 1995) to August 31, 1995,
and for the Janney Montgomery Scott Class of the New York
Municipal Money Market Portfolio for the years ended August
31, 1997 and 1996 and for the period from commencement of
operations (June 9, 1995) to August 31, 1995; and for the
Institutional Shares of the Boston Partners Large Cap Value
Fund for the period from commencement of operations (January
2, 1997) to August 3l, 1997, and for the Investor Shares of
the Boston Partners Large Cap Value Fund for the period from
commencement of operations (January 16, 1997) through August
31, 1997; and for the Institutional and Investor Shares of the
Boston Partners Mid Cap Value Fund for the period from
commencement of operations (June 2, 1997) to August 31, 1997.
(2) Incorporated by reference into Part B:
Audited Financial Statements included in the Registrant's
August 31, 1997 Annual Reports to Shareholders, copies of
which have been filed with the U.S. Securities and Exchange
Commission are incorporated herein by reference.
(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 2
Incorporation of Registrant.
(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
(r) Articles Supplementary of Registrant. 27
(s) Articles of Amendment to Charter of the 28
Registrant.
(t) Articles Supplementary of Registrant. 28
(2) By-Laws, as amended 28
(3) None.
(4) (a) See Articles VI, VII, VIII, IX and XI of 1
Registrant's Articles of Incorporation dated
February 17, 1988.
<PAGE>
(b) Exhibits: SEE NOTE #
----------
(b) See Articles II, III, VI, XIII, and XIV of 23
Registrant's By-Laws as amended through April 26,
1996.
(5) (a) Investment Advisory Agreement (Money Market) 3
between Registrant and Provident
Institutional Management Corporation, dated
as of August 16, 1988.
(b) Sub-Advisory Agreement (Money Market) between 3
Provident Institutional Management
Corporation and Provident National Bank, dated as of
August 16, 1988.
(c) Investment Advisory Agreement (Tax-Free Money 3
Market) between Registrant and Provident
Institutional Management Corporation, dated
as of August 16, 1988.
(d) Sub-Advisory Agreement (Tax-Free Money 3
Market) between Provident Institutional
Management Corporation and Provident National
Bank, dated as of August 16, 1988.
(e) Investment Advisory Agreement (Government 3
Obligations Money Market) between Registrant
and Provident Institutional Management
Corporation, dated as of August 16, 1988.
(f) Sub-Advisory Agreement (Government 3
Obligations Money Market) between Provident
Institutional Management Corporation and
Provident National Bank, dated as of August 16, 1988.
(g) Investment Advisory Agreement (Government 8
Securities) between Registrant and Provident
Institutional Management Corporation dated as
of April 8, 1991.
(h) Investment Advisory Agreement (New York 9
Municipal Money Market) between Registrant
and Provident Institutional Management
Corporation dated November 5, 1991.
(i) Investment Advisory Agreement (Tax-Free Money 10
Market) between Registrant and Provident
Institutional Management Corporation dated
April 21, 1992.
(j) Investment Advisory Agreement (BEA 11
International Equity Portfolio) between
Registrant and BEA Associates.
(k) Investment Advisory Agreement (BEA Strategic 11
Fixed Income Portfolio) between Registrant
and BEA Associates.
(l) Investment Advisory Agreement (BEA Emerging 11
Markets Equity Portfolio) between Registrant
and BEA Associates.
-2-
<PAGE>
(b) Exhibits: SEE NOTE #
----------
(m) Investment Advisory Agreement (BEA U.S. Core 15
Equity Portfolio) between Registrant and BEA
Associates, dated as of October 27, 1993.
(n) Investment Advisory Agreement (BEA U.S. Core 15
Fixed Income Portfolio) between Registrant
and BEA Associates, dated as of October 27,
1993.
(o) Investment Advisory Agreement (BEA Global 15
Fixed Income Portfolio) between Registrant
and BEA Associates, dated as of October 27,
1993.
(p) Investment Advisory Agreement (BEA Municipal 15
Bond Fund Portfolio) between Registrant and
BEA Associates, dated as of October 27, 1993.
(q) Investment Advisory Agreement (BEA Balanced) 16
between Registrant and BEA Associates.
(r) Investment Advisory Agreement (BEA Short 16
Duration Portfolio) between Registrant and
BEA Associates.
(s) Investment Advisory Agreement (n/i Micro Cap 23
Fund) between Registrant and Numeric
Investors, L.P.
(t) Investment Advisory Agreement (n/i Growth 23
Fund) between Registrant and Numeric
Investors, L.P.
(u) Investment Advisory Agreement (n/i Growth & 23
Value Fund) between Registrant and Numeric
Investors, L.P.
(v) Investment Advisory Agreement (BEA Global 24
Telecommunications Portfolio) between
Registrant and BEA Associates.
(w) Investment Advisory Agreement (Boston 26
Partners Large Cap Value Fund) between
Registrant and Boston Partners Asset
Management, L.P.
(x) Investment Advisory Agreement (Boston 28
Partners Mid Cap Value Fund) between
Registrant and Boston Partners Asset
Management, L.P.
(6) (r) Distribution Agreement and Supplements 8
(Classes A through Q) between the Registrant
and Counsellors Securities Inc. dated as of
April 10, 1991.
(s) Distribution Agreement Supplement (Classes L, 9
M, N and 0) between the Registrant and
Counsellors Securities Inc. dated as of
November 5, 1991.
-3-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(t) Distribution Agreement Supplements (Classes 9
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 (Classes T, 10
U and V) between the Registrant and
Counsellors Securities Inc. dated as of
September 18, 1992.
(w) Distribution Agreement Supplement (Classes X, 14
Y, Z and AA) between the Registrant and
Counselors Securities Inc.
(x) Distribution Agreement Supplement (Classes BB 18
and CC) between Registrant and Counsellors
Securities Inc. dated as of October 26, 1994.
(z) Distribution Agreement Supplement (Classes L, 19
M, N and O) between the Registrant and
Counsellors Securities Inc.
(aa) Distribution Agreement Supplement (Classes R, 19
S) between the Registrant and Counsellors
Securities Inc.
(bb) Distribution Agreement Supplements (Classes 19
Alpha 1 through Theta 4) between the
Registrant and Counsellors Securities Inc.
(cc) Distribution Agreement Supplement (Janney 20
Classes) between the Registrant and
Counsellors Securities Inc.
(dd) Distribution Agreement Supplement ni Classes 23
(Classes FF, GG and HH) between Registrant
and Counsellors Securities Inc.
(ee) Distribution Agreement Supplement (Classes 24
II, JJ, KK, and LL) between Registrant and
Counsellors Securities Inc.
(ff) Distribution Agreement Supplement (Classes 24
MM, NN, OO, and PP) between Registrant and
Counsellors Securities Inc.
(gg) Distribution Agreement Supplement (Class QQ) 26
between Registrant and Counsellors Securities
Inc.
(hh) Distribution Agreement Supplement (Class RR) 27
between Registrant and Counsellors Securities
Inc.
(ii) Distribution Agreement Supplement (Class SS) 27
between Registrant and Counsellors Securities
Inc.
(jj) Distribution Agreement Supplement (Class TT) 28
between Registrant and Counsellors Securities
Inc.
-4-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(kk) Distribution Agreement Supplement (Class UU) 28
between Registrant and Counsellors Securities
Inc.
(7) Fund Office Retirement Profit-Sharing and Trust Agreement,
dated as of October 24, 1990, as amended.
(8) (a) Custodian Agreement between Registrant and 3
Provident National Bank dated as of
August 16, 1988.
(b) Sub-Custodian Agreement among The Chase 10
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 dated 9
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.
(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 Portfolios
dated as of November 29, 1993.
(k) Custodian Contract between Registrant and 18
State Street Bank and Trust Company.
(l) Custody Agreement between Registrant and 23
Custodial Trust Company on behalf of n/i
Micro Cap Fund, n/i Growth Fund and n/i
Growth & Value Fund Portfolios of the
Registrant.
(m) Custodian Agreement Supplement Between 26
Registrant and PNC Bank, National Association
dated October 16, 1996.
-5-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(n) Custodian Agreement Supplement between 27
Registrant and Brown Brothers Harriman & Co.
on behalf of the BEA Municipal Bond Fund.
(o) Custodian Agreement Supplement between 28
Registrant and PNC Bank, National
Association, on behalf of the Boston Partners
Mid Cap Value Fund.
(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 (Sansom 3
Street Money Market).
(d) Shareholder Servicing Agreement (Sansom 3
Street Tax-Free Money Market).
(e) Shareholder Servicing Agreement (Sansom 3
Street Government Obligations Money Market).
(f) Shareholder Services Plan (Sansom Street 3
Money Market).
(g) Shareholder Services Plan (Sansom Street Tax- 3
Free Money Market).
(h) Shareholder Services Plan (Sansom Street 3
Government Obligations Money Market).
(i) Transfer Agency Agreement (Bedford) between 3
Registrant and Provident Financial Processing
Corporation, dated as of August 16, 1988.
(j) Administration and Accounting Services 8
Agreement between Registrant and Provident
Financial Processing Corporation, relating to
Government Securities Portfolio, dated as of
April 10, 1991.
(k) 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.
(l) Administration and Accounting Services 10
Agreement between Registrant and Provident
Financial Processing Corporation (BEA
International Equity) dated September 18,
1992.
-6-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(m) Administration and Accounting Services 10
Agreement between Registrant and Provident
Financial Processing Corporation (BEA
Strategic Fixed Income) dated September 18,
1992.
(n) Administration and Accounting Services 10
Agreement between Registrant and Provident
Financial Processing Corporation (BEA
Emerging Markets Equity) dated September 18,
1992.
(o) Transfer Agency Agreement and Supplements 9
(Bradford, Alpha (now known as Janney), Beta,
Gamma, Delta, Epsilon, Zeta, Eta and Theta)
between Registrant and Provident Financial
Processing Corporation dated as of November
5, 1991.
(p) Transfer Agency Agreement Supplement (BEA) 10
between Registrant and Provident Financial
Processing Corporation dated as of September
19, 1992.
(q) Administrative Services Agreement between 10
Registrant and Counsellor's Fund Services,
Inc. (BEA Portfolios) dated September 18,
1992.
(r) 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.
(s) Transfer Agency Agreement Supplement (BEA 15
U.S. Core Equity, BEA U.S. Core Fixed Income,
BEA Global Fixed Income and BEA Municipal
Bond Fund Portfolios) between Registrant and
PFPC Inc. dated as October 27, 1993.
(t) Administration and Accounting Services Agreement 15
between Registrant and PFPC Inc.
relating to BEA U.S. Core Equity Portfolio
dated as of October 27, 1993.
(u) Administration and Accounting Services Agreement 15
between Registrant and PFPC Inc.
(BEA U.S. Core Fixed Income Portfolio) dated
October 27, 1993.
(v) Administration and Accounting Services 15
Agreement between Registrant and PFPC Inc.
(International Fixed Income Portfolio) dated
October 27, 1993.
(w) Administration and Accounting Services 15
Agreement between Registrant and PFPC Inc.
(Municipal Bond Fund Portfolio) dated
October 27, 1993.
-7-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(x) Transfer Agency Agreement Supplement (BEA 18
Balanced and Short Duration Portfolios)
between Registrant and PFPC Inc. dated
October 26, 1994.
(y) Administration and Accounting Services Agreement 18
between Registrant and PFPC Inc.
(BEA Balanced Portfolio) dated October 26, 1994.
(z) Administration and Accounting Services 18
Agreement between Registrant and PFPC Inc.
(BEA Short Duration Portfolio) dated
October 26, 1994.
(aa) Administrative Services Agreement Supplement 18
between Registrant and Counsellors Fund
Services, Inc. (BEA Classes) dated
October 26, 1994.
(bb) Transfer Agency and Service Agreement between 21
Registrant and State Street Bank and Trust
Company and PFPC, Inc. dated February 1,
1995.
(cc) Supplement to Transfer Agency and Service 21
Agreement between Registrant, State Street
Bank and Trust Company, Inc. and PFPC dated
April 10, 1995.
(dd) Amended and Restated Credit Agreement dated 22
December 15, 1994.
(ee) Transfer Agency Agreement Supplement (n/i 23
Micro Cap Fund, n/i Growth Fund and n/i
Growth & Value Fund) between Registrant and
PFPC, Inc. dated April 14, 1996.
(ff) Administration and Accounting Services 23
Agreement between Registrant and PFPC, Inc.
(n/i Micro Cap Fund) dated April 24, 1996.
(gg) Administration and Accounting Services 23
Agreement between Registrant and PFPC, Inc.
(n/i Growth Fund) dated April 24, 1996.
(hh) Administration and Accounting Services 23
Agreement between Registrant and PFPC, Inc.
(n/i Growth & Value Fund) dated April 24,
1996.
(ii) Administrative Services Agreement between 23
Registrant and Counsellors Fund Services,
Inc. (n/i Micro Cap Fund, n/i Growth Fund and
n/i Growth & Value Fund) dated April 24,
1996.
(jj) Administration and Accounting Services 24
Agreement between Registrant and PFPC, Inc.
(BEA Global Telecommunications Portfolio).
-8-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(kk) Co-Administration Agreement between 24
Registrant Investor and BEA Associates (BEA
International Equity Investor Portfolio).
(ll) Co-Administration Agreement between 24
Registrant and BEA Associates (BEA
International Equity Advisor Portfolio).
(mm) Co-Administration Agreement between 24
Registrant and BEA Associates (BEA Emerging
Markets Equity Investor Portfolio).
(nn) Co-Administration Agreement between 24
Registrant and BEA Associates (BEA Emerging
Markets Equity Advisor Portfolio).
(oo) Co-Administration Agreement between 24
Registrant and BEA Associates (BEA High Yield
Investor Portfolio).
(pp) Co-Administration Agreement between 24
Registrant and BEA Associates (BEA High Yield
Advisor Portfolio).
(qq) Co-Administration Agreement between 24
Registrant and BEA Associates (BEA Global
Telecommunications Investor Portfolio).
(rr) Co-Administration Agreement between 24
Registrant and BEA Associates (BEA Global
Telecommunications Advisor Portfolio).
(ss) Transfer Agreement and Service Agreement 24
between Registrant and State Street Bank and
Trust Company.
(tt) Administration and Accounting Services 27
Agreement between the Registrant and PFPC
Inc. dated October 16, 1996 (Boston Partners
Large Cap Value Fund).
(uu) Transfer Agency Agreement Supplement between 26
Registrant and PFPC Inc. (Boston Partners
Large Cap Value Fund, Institutional Class).
(vv) Transfer Agency Agreement Supplement between 26
Registrant and PFPC Inc. (Boston Partners
Large Cap Value Fund, Investor Class).
(ww) Transfer Agency Agreement Supplement between 26
Registrant and PFPC Inc. (Boston Partners
Large Cap Value Fund, Advisor Class).
(xx) Transfer Agency Agreement Supplement between 28
Registrant and PFPC Inc., (Boston Partners
Mid Cap Value Fund, Institutional Class).
(yy) Transfer Agency Agreement Supplement between 28
Registrant and PFPC Inc., (Boston Partners
Mid Cap Value Fund, Investor Class).
-9-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(zz) Administration and Accounting Services 28
Agreement between Registrant and PFPC Inc.
dated, May 30, 1997 (Boston Partners Mid Cap
Value Fund).
(11) (a) Consent of Counsel.
(b) Consent of Wilkie, Farr & Gallagher.
(c) Consent of Independent Accountants.
(12) None.
(13) (a) Subscription Agreement (relating to Classes A 2
through N).
(b) Subscription Agreement between Registrant and 7
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 and 9
Counsellors Securities Inc. relating to
Classes R, S, and Alpha 1 through Theta 4.
(e) Subscription Agreement between Registrant and 10
Counsellors Securities Inc. relating to
Classes T, U and V.
(f) Subscription Agreement between Registrant and 18
Counsellor's Securities Inc. relating to
Classes BB and CC.
(g) Purchase Agreement between Registrant and 23
Numeric Investors, L.P. relating to Class FF
(n/i Micro Cap Fund).
(h) Purchase Agreement between Registrant and 23
Numeric Investors, L.P. relating to Class GG
(n/i Growth Fund).
(i) Purchase Agreement between Registrant and 23
Numeric Investors, L.P. relating to Class HH
(n/i Growth & Value Fund).
(j) Subscription Agreement between Registrant and 24
Counsellors Securities, Inc. relating to
Classes II through PP.
(k) Purchase Agreement between Registrant and 27
Boston Partners Asset Management, L.P.
relating to Classes QQ, RR and SS. (Boston
Partners Large Cap Value Fund).
(l) Purchase Agreement between Registrant and 28
Boston Partners Asset Management, L.P.
relating to Classes TT, and UU. (Boston
Partners Mid Cap Value Fund).
(14) None.
-10-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(15) (a) Plan of Distribution (Sansom Street Money 3
Market).
(b) Plan of Distribution (Sansom Street Tax-Free 3
Money Market).
(c) Plan of Distribution (Sansom Street 3
Government Obligations Money Market).
(d) Plan of Distribution (Cash Preservation 3
Money).
(e) Plan of Distribution (Cash Preservation Tax- 3
Free Money Market).
(f) Plan of Distribution (Bedford Money Market). 3
(g) Plan of Distribution (Bedford Tax-Free Money 3
Market).
(h) Plan of Distribution (Bedford Government 3
Obligations Money Market).
(i) Plan of Distribution (Income Opportunities 7
High Yield).
(j) Amendment No. 1 to Plans of Distribution 8
(Classes A through Q).
(k) Plan of Distribution (Alpha (now known as 9
Janney) Money Market).
(l) Plan of Distribution (Alpha (now known as 9
Janney) Tax-Free Money Market (now known
as the Municipal Money Market)).
(m) Plan of Distribution (Alpha (now known as 9
Janney) Government Obligations Money Market).
(n) Plan of Distribution (Alpha (now known as 9
Janney) New York Municipal Money Market).
(o) Plan of Distribution (Beta Money Market). 9
(p) Plan of Distribution (Beta Tax-Free Money 9
Market).
(q) Plan of Distribution (Beta Government 9
Obligations Money Market).
(r) Plan of Distribution (Beta New York Money 9
Market).
(s) Plan of Distribution (Gamma Money Market). 9
(t) Plan of Distribution (Gamma Tax-Free Money 9
Market).
(u) Plan of Distribution (Gamma Government 9
Obligations Money Market).
(v) Plan of Distribution (Gamma New York 9
Municipal Money Market).
(w) Plan of Distribution (Delta Money Market). 9
-11-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(x) Plan of Distribution (Delta Tax-Free Money 9
Market).
(y) Plan of Distribution (Delta Government 9
Obligations Money Market).
(z) Plan of Distribution (Delta New York 9
Municipal Money Market).
(aa) Plan of Distribution (Epsilon Money Market). 9
(bb) Plan of Distribution (Epsilon Tax-Free Money 9
Market).
(cc) Plan of Distribution (Epsilon Government 9
Municipal Money Market).
(dd) Plan of Distribution (Epsilon New York 9
Municipal Money Market).
(ee) Plan of Distribution (Zeta Money Market). 9
(ff) Plan of Distribution (Zeta Tax-Free Money 9
Market).
(gg) Plan of Distribution (Zeta Government 9
Obligations Money Market).
(hh) Plan of Distribution (Zeta New York Municipal 9
Money Market).
(ii) Plan of Distribution (Eta Money Market). 9
(jj) Plan of Distribution (Eta Tax-Free Money 9
Market).
(kk) Plan of Distribution (Eta Government 9
Obligations Money Market).
(ll) Plan at Distribution (Eta New York Municipal 9
Money Market).
(mm) Plan of Distribution (Theta Money Market). 9
(nn) Plan of Distribution (Theta Tax-Free Money 9
Market).
(oo) Plan of Distribution (Theta Government 9
Obligations Money Market).
(pp) Plan of Distribution (Theta New York 9
Municipal Money Market).
(qq) Plan of Distribution (BEA International 24
Equity Investor).
(rr) Plan of Distribution (BEA International 24
Equity Advisor).
(ss) Plan of Distribution (BEA Emerging Markets 24
Equity Investor).
(tt) Plan of Distribution (BEA Emerging Markets 24
Equity Advisor).
-12-
<PAGE>
b) Exhibits: SEE NOTE #
----------
(uu) Plan of Distribution (BEA High Yield 24
Investor).
(vv) Plan of Distribution (BEA High Yield 24
Advisor).
(ww) Plan of Distribution (BEA Global 24
Telecommunications Investor).
(xx) Plan of Distribution (BEA Global 24
Telecommunications Advisor).
(yy) Plan of Distribution (Boston Partners Large 26
Cap Value Fund Institutional Class)
(zz) Plan of Distribution (Boston Partners Large 27
Cap Value Fund Investor Class)
(aaa) Plan of Distribution (Boston Partners Large 27
Cap Value Fund Advisor Class)
(bbb) Plan of Distribution (Boston Partners Mid Cap 27
Value Fund Investor Class)
(ccc) Plan of Distribution (Boston Partners Mid Cap 27
Value Fund Institutional Class)
(16) (a) Schedule of Computation of Performance
Quotations
(17) Financial Data Schedules for Boston Partners and
Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal
Money Market Portfolios.
(18) Amended 18f-3 Plan.
NOTE #
- ------
1 Incorporated herein by reference to the same exhibit number of
Registrant's Registration Statement (No. 33-20827) filed on March 24,
1988.
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.
-13-
<PAGE>
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.
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 Registration 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 an December 19, 1994.
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.
-14-
<PAGE>
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.
26 Incorporated herein by reference to the same exhibit number of Post-
Effective Amendment No. 41 to the Registrant's Registration Statement
(No. 33-20827) filed on November 27, 1996.
27 Incorporated herein by reference to the same exhibit number of Post-
Effective Amendment No. 45 to the Registrant's Registration Statement
(No. 33-20827) filed on May 9, 1997.
28 Incorporated herein by reference to the same exhibit number of Post-
Effective Amendment No. 46 to the Registrant's Registration Statement
(33-20827) filed on September 25, 1997.
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 15, 1997.
TITLE OF CLASS OF COMMON STOCK NUMBER OF RECORD HOLDERS
- ------------------------------ ------------------------
a) Cash Preservation Money Market 42
b) Cash Preservation Municipal Money Market 59
c) Sansom Street Money Market 3
d) Sansom Street Municipal Money Market 0
e) Sansom Street Government Obligations Money Market 0
f) Bedford Money Market 143205
g) Bedford New York Municipal Money Market 3191
h) RBB Government Securities 530
i) Bedford Municipal Money Market 6713
j) Bedford Government Obligations Money Market 10999
k) BEA International Equity - Institutional Class 442
l) BEA International Equity - Investor Class 0
m) BEA International Equity - Advisor Class 11
n) BEA High Yield - Institutional Class 102
o) BEA High Yield - Investor Class 0
p) BEA High Yield - Advisor Class 10
q) BEA Emerging Markets Equity - Institutional Class 47
r) BEA Emerging Markets Equity - Investor Class 0
s) BEA Emerging Markets Equity - Advisor Class 10
t) BEA U.S. Core Equity 93
u) BEA U.S. Core Fixed Income 64
v) BEA Strategic Global Fixed Income 28
w) BEA Municipal Bond Fund 38
x) BEA Short Duration 0
y) BEA Balanced 0
-15-
<PAGE>
z) BEA Global Telecommunications - Investor Class 0
aa) BEA Global Telecommunications - Advisor Class 21
bb) Janney Montgomery Scott
Money Market 95911
cc) Janney Montgomery Scott
Municipal Money Market 4319
dd) Janney Montgomery Scott
Government Obligations Money Market 33839
ee) Janney Montgomery Scott
New York Municipal Money Market 1407
ff) ni Micro Cap 3628
gg) ni Growth 3581
hh) ni Growth & Value 3024
ii) Boston Partners Large Cap Value Fund - Institutional
Class 28
jj) Boston Partners Large Cap Value Fund - Investor Class 32
kk) Boston Partners Large Cap Value Fund - Advisor Class 0
ll) Boston Partners Mid Cap Value Fund - Investor Class 19
mm) Boston Partners Mid Cap Value Fund - Institutional Class 26
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 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.
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
-16-
<PAGE>
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 substantial nature in which any directors and officers of PIMC,
BEA, Numeric and Boston Partners 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,
1997, Schedules B and D of BEA's FORM ADV (File No. 801-37170) filed on March
31, 1997, Schedules B and D of Numeric's FORM ADV (File No. 801-35649) filed on
March 27, 1997, and Schedules of Boston Partners' FORM ADV (File No. 801- 49059)
filed on July 17, 1997, 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 PNB 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.
PNC BANK, NATIONAL ASSOCIATION
DIRECTORS
POSITION WITH TYPE
PNC BANK NAME OTHER BUSINESS CONNECTIONS OF BUSINESS
Director B.R. Brown President and C.E.O. of Coal
Consol, Inc.
Consol Plaza
Pittsburgh, PA 15241
Director Constance E. Clayton Associate Dean, School of Medical
Health & Professor of Pediatrics
Medical College of PA
Hahnemann University
430 East Sedgwick St.
Philadelphia, PA 19119
Director Eberhard Faber IV Chairman and C.E.O. Manufacturing
E.F.L., Inc.
450 Hedge Road
P.O. Box 49
Bearcreek, PA 18602
-17-
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH TYPE
PNC BANK NAME OTHER BUSINESS CONNECTIONS OF BUSINESS
<S> <C> <C> <C>
Director Dr. Stuart Heydt President and C.E.O. Medical
Geisinger Foundation
100 N. Academy Avenue
Danville, PA 17822
Director Edward P. Junker, III Vice Chairman Banking
PNC Bank, N.A.
Ninth and State Streets
Erie, PA 16553
Director Thomas A. McConomy President, C.E.O. and Manufacturing
Chairman, Calgon Carbon Corporation
413 Woodland Road
Sewickley, PA 15143
Director Thomas H. O'Brien Chairman Banking
PNC Bank, National Association
One PNC Plaza, 30th Floor
Pittsburgh, PA 15265
Director Dr. J. Dennis O'Connor Provost, The Smithsonian Education
Institution
1000 Jefferson Drive, S.W.
Room 230, MRC 009
Washington, DC 20560
Director Rocco A. Ortenzio Chairman and C.E.O. Medical
Continental Medical Systems, Inc.
P.O. Box 715
Mechanicsburg, PA 17055
Director Jane G. Pepper President Horticulture
Pennsylvania Horticulture Society
325 Walnut Street
Philadelphia, PA 19106
Director Robert C. Robb, Jr. President, Lewis, Eckert, Robb Financial and
& Company Management
425 One Plymouth Meeting Consultants
Plymouth Meeting, PA 19462
Director James E. Rohr President and C.E.O. Bank Holding
PNC Bank, National Association Company
One PNC Plaza, 30th Floor
Pittsburgh, PA 15265
Director Daniel M. Rooney President, Pittsburgh Steelers Football
Football Club of the National
Football League
300 Stadium Circle
Pittsburgh, PA 15212
Director Seth E. Schofield Chairman, President and C.E.O. Airline
USAir Group, Inc. and USAir, Inc.
2345 Crystal Drive
Arlington, VA 22227
</TABLE>
-18-
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
John E. Alden Senior Vice President
James C. Altman Senior Vice President
Lila M. Bachelier Senior Vice President
R. Perrin Baker Chief Market Counsel, Northwest PA
James R. Bartholomew Senior Vice President
Peter R. Begg Senior Vice President
Donald G. Berdine Senior Vice President
Ben Berzin, Jr. Senior Vice President
James H. Best Senior Vice President
Eva T. Blum Senior Vice President
Susan B. Bohn Senior Vice President
George Brikis Executive Vice President
Michael Brundage Senior Vice President
Anthony J. Cacciatore Senior Vice President
Richard C. Caldwell Executive Vice President
Craig T. Campbell Senior Vice President
J. Richard Carnall Executive Vice President
Edward V. Caruso Executive Vice President
Peter K. Classen President & CEO, PNC Bank, Northeast, Pa
James P. Conley Senior Vice President/Credit Policy
Andra D. Cochran Senior Vice President
Sharon Coghlan Coordinating Market Chief Counsel, Philadelphia
James P. Conley Senior Vice President
C. David Cook Senior Vice President
Alfred F. Cordasco Supervising Counsel, Pittsburgh, PA
Robert Crouse Senior Vice President
Peter M. Crowley Senior Vice President
-19-
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
Keith P. Crytzer Senior Vice President
John J. Daggett Senior Vice President
Peter J. Donchak Senior Vice President
Anuj Dhanda Senior Vice President
Victor M. DiBattista Chief Regional Counsel
Frank H. Dilenschneider Senior Vice President
Thomas C. Dilworth Senior Vice President
Alfred J. DiMatteis Senior Vice President
James Dionise Senior Vice President and C.F.O.
Patrick S. Doran Vice President, Head of Consumer Lending
Robert D. Edwards Senior Vice President
David J. Egan Senior Vice President
J. Lynn Evans Senior Vice President & Controller
William E. Fallon Senior Vice President
James M. Ferguson, III Senior Vice President
Charles J. Ferrero Senior Vice President
Frederick C. Frank, III Executive Vice President
William J. Friel Executive Vice President
John F. Fulgoney Senior Counsel & Corporate Secretary
Brian K. Garlock Senior Vice President
George D. Gonczar Senior Vice President
Richard C. Grace Senior Vice President
James S. Graham Senior Vice President
Michael J. Hannon Senior Vice President
Stephen G. Hardy Senior Vice President
Michael J. Harrington Senior Vice President
Marva H. Harris Senior Vice President
Maurice H. Hartigan, II Executive Vice President
G. Thomas Hewes Senior Vice President
-20-
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
Sylvan M. Holzer Senior Vice President
Bruce C. Iacobucci Senior Vice President
John M. Infield Senior Vice President
Philip C. Jackson Senior Vice President
William J. Johns Controller
William R. Johnson Audit Director
Edward P. Junker, III Vice Chairman
Robert D. Kane Senior Vice President
Michael D. Kelsey Chief Compliance Counsel
Jack Kelly Senior Vice President
Geoffrey R. Kimmel Senior Vice President
Randall C. King Senior Vice President
Christopher M. Knoll Senior Vice President
Richard C. Krauss Senior Vice President
Frank R. Krepp Senior Vice President & Chief Credit Policy
Officer
Kenneth P. Leckey Senior Vice President & Cashier
Marilyn R. Levins Senior Vice President
Carl J. Lisman Executive Vice President
George Lula Senior Vice President
Jane E. Madio Senior Vice President
Nicholas M. Marsini, Jr. Senior Vice President
John A. Martin Senior Vice President
David O. Matthews Senior Vice President
Walter B. McClellan Senior Vice President
James F. McGowan Senior Vice President
Charlotte B. McLaughlin Senior Vice President
James C. Mendelson Senior Vice President
James W. Meighen Senior Vice President
Scott C. Meves Senior Vice President
-21-
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
Ralph S. Michael, III Executive Vice President
J. William Mills Senior Vice President
Barbara A. Misner Senior Vice President
Marlene D. Mosco Senior Vice President
Scott Moss Senior Vice President
Peter F. Moylan Senior Vice President
Michael B. Nelson Executive Vice President
Thomas J. Nist Senior Vice President
Thomas H. O'Brien Chairman
James F. O'Day Senior Vice President
Cynthia G. Osofsky Senior Vice President
Thomas E. Paisley, III Senior Vice President
Barbara Z. Parker Executive Vice President
George R. Partridge Senior Vice President
Daniel J. Panlick Senior Vice President
David M. Payne Senior Vice President
Charles C. Pearson, Jr. President and CEO, PNC Bank, Central PA
Helen P. Pudlin Senior Vice President
Edward V. Randall, Jr. President and CEO, PNC Bank, Pittsburgh
Arthur F. Rodman, III Senior Vice President
Richard C. Rhoades Senior Vice President
Bryan W. Ridley Senior Vice President
James E. Rohr President and Chief Executive Officer
Gary Royer Senior Vice President
Robert T. Saltarelli Senior Vice President
Robert V. Sammartino Senior Vice President
William Sayre, Jr. Senior Vice President
Alfred J. Schiavetti Senior Vice President
David W. Schoffstall Executive Vice President
-22-
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
Seymour Schwartzberg Senior Vice President
Timothy G. Shack Senior Vice President
Douglas E. Shaffer Senior Vice President
Alfred A. Silva Senior Vice President
George R. Simon Senior Vice President
Richard L. Smoot President and CEO of PNC Bank, Philadelphia
Timothy N. Smyth Senior Vice President
Kenneth S. Spatz Senior Vice President
Darcel H. Steber Senior Vice President
Robert L. Tassome Senior Vice President
Jane B. Tompkins Senior Vice President
Robert B. Trempe Senior Vice President
Kevin M. Tucker Senior Vice President
Alan P. Vail Senior Vice President
Frank T. VanGrofski Executive Vice President
Ronald H. Vicari Senior Vice President
William A. Wagner Senior Vice President
Patrick M. Wallace Senior Vice President
Annette M. Ward-Kredel Senior Vice President
Robert S. Wrath Senior Vice President
Arlene M. Yocum Senior Vice President
Carole Yon Senior Vice President
George L. Ziminski, Jr. Senior Vice President
<TABLE>
<CAPTION>
<S> <C>
(1) PNC Bank, National Association, 120 S. 17th Street, Philadelphia, PA 19103
1600 Market Street, Philadelphia, PA 19103
17th and Chestnut Streets, Philadelphia, PA 19103
(2) PNC National Bank, 103 Bellevue Parkway, Wilmington, DE 19809.
(3) PFPC Inc., 103 Bellevue Parkway, Wilmington, DE 19809.
(4) PNC Service Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(5) Provident Capital Management, Inc., 30 S. 17th Street, Suite 1500, Philadelphia, PA
19103.
(6) PNC Investment Corp., Broad and Chestnut Street, 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., 222 Delaware Avenue, 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.
(16) PNC Bank, New Jersey, National Association, Woodland Falls Corporate
Park, 210 Lake Drive East, Cherry Hill, NJ 08002.
(17) PNC Capital Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(18) PNC Holding Corp, 222 Delaware Avenue, P.O. Box 791, Wilmington, DE 19899.
(19) PNC Venture Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(20) PNC Bank, Delaware, 300 Delaware Avenue, Wilmington, DE 19801.
(21) Bank of Delaware Corp., 300 Delaware Avenue, Wilmington, DE 19801.
(22) Del-Vest, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
(23) Marand Corp., 222 Delaware Avenue, Wilmington, DE 19801.
(24) Millsboro Insurance Agency, 300 Delaware Avenue, Wilmington, DE 19801.
(25) Roney-Richards, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
</TABLE>
Item 29. PRINCIPAL UNDERWRITER
(a) Counsellors Securities Inc. (the "Distributor") acts as principal
underwriter for the following investment companies:
Warburg Pincus Cash Reserve Fund
Warburg Pincus New York Tax Exempt Fund
Warburg Pincus New York Intermediate Municipal 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
Warburg Pincus Growth & Income Fund
Warburg Pincus Balanced Fund
Warburg Pincus Emerging Markets Fund
Warburg Pincus Global Post-Venture Capital Fund
-24-
<PAGE>
Warburg Pincus Health Sciences Fund
Warburg Pincus Institutional Fund
Warburg Pincus Japan Growth Fund
Warburg Pincus Post-Venture Capital Fund
Warburg Pincus Small Company Growth Fund
Warburg Pincus Small Company Value Fund
Warburg Pincus Strategic Value Fund
Warburg Pincus Trust
Warburg Pincus Trust II
(b) The information required by this item 29(b) is incorporated by
reference to Form BD (SEC File No. 15-654) filed by the Distributor with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
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, Bellevue Corporate
Center, 103 Bellevue Parkway, Wilmington, Delaware 19809
(records relating to its functions as investment adviser,
sub-adviser and administrator).
(4) PFPC Inc., Bellevue Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809 (records relating to its functions
as transfer agent and dividend disbursing agent).
(5) Drinker Biddle & Reath LLP, Philadelphia National Bank
Building, 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496 (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) Numeric Investors, L.P., 1 Memorial Drive, Cambridge,
Massachusetts 02142 (records relating to its function as
investment adviser).
(8) Boston Partners Asset Management, L.P., One Financial Center,
43rd Floor, Boston, Massachusetts 02111 (records relating to
its function 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.
-25-
<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 No. 49 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 the 1st day of December, 1997.
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 December 1, 1997
- ----------------------
Edward J. Roach Executive Officer) and
Treasurer (Principal
Financial and Accounting
Officer)
*DONALD VAN RODEN Director December 1, 1997
- ----------------------
Donald van Roden
*FRANCIS J. MCKAY Director December 1, 1997
- ----------------------
Francis J. McKay
*MARVIN E. STERNBERG Director December 1, 1997
- ----------------------
Marvin E. Sternberg
*JULIAN A. BRODSKY Director December 1, 1997
- ----------------------
Julian A. Brodsky
*ARNOLD M. REICHMAN Director December 1, 1997
- ----------------------
Arnold M. Reichman
*ROBERT SABLOWSKY Director December 1, 1997
- ----------------------
Robert Sablowsky
-26-
<PAGE>
*By:/S/ EDWARD J. ROACH December 1, 1997
-------------------
Edward J. Roach
Attorney-in-Fact
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Donald van Roden,
hereby constitutes and appoints Edward J. Roach and Michael P. Malloy, his true
and lawful attorneys, to execute in his name, place, and stead, in his capacity
as Director or officer, or both, of the Company, the Registration Statement and
any amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission; and
said attorneys shall have full power and authority to do and perform in his name
and on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as he might or could do in person, said acts of said attorneys being hereby
ratified and approved.
DATED: April 23, 1997
/S/ DONALD VAN RODEN
- --------------------
Donald van Roden
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Marvin E.
Sternberg, hereby constitutes and appoints Edward J. Roach and Michael P.
Malloy, his true and lawful attorneys, to execute in his name, place, and stead,
in his capacity as Director or officer, or both, of the Company, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: April 23, 1997
/S/ MARVIN E. STERNBERG
- -----------------------
Marvin E. Sternberg
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Arnold Reichman,
hereby constitutes and appoints Edward J. Roach and Michael P. Malloy, his true
and lawful attorneys, to execute in his name, place, and stead, in his capacity
as Director or officer, or both, of the Company, the Registration Statement and
any amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission; and
said attorneys shall have full power and authority to do and perform in his name
and on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as he might or could do in person, said acts of said attorneys being hereby
ratified and approved.
DATED: April 23, 1997
/S/ ARNOLD REICHMAN
- -------------------
Arnold Reichman
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Francis J. McKay,
hereby constitutes and appoints Edward J. Roach and Michael P. Malloy, his true
and lawful attorneys, to execute in his name, place, and stead, in his capacity
as Director or officer, or both, of the Company, the Registration Statement and
any amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission; and
said attorneys shall have full power and authority to do and perform in his name
and on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as he might or could do in person, said acts of said attorneys being hereby
ratified and approved.
DATED: April 23, 1997
/S/ FRANCIS J. MCKAY
- --------------------
Francis J. McKay
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Julian Brodsky,
hereby constitutes and appoints Edward J. Roach and Michael P. Malloy, his true
and lawful attorneys, to execute in his name, place, and stead, in his capacity
as Director or officer, or both, of the Company, the Registration Statement and
any amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission; and
said attorneys shall have full power and authority to do and perform in his name
and on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as he might or could do in person, said acts of said attorneys being hereby
ratified and approved.
DATED: April 23, 1997
/S/ JULIAN BRODSKY
- ------------------
Julian Brodsky
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert Sablowsky,
hereby constitutes and appoints Edward J. Roach and Michael P. Malloy, his true
and lawful attorneys, to execute in his name, place, and stead, in his capacity
as Director or officer, or both, of the Company, the Registration Statement and
any amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission; and
said attorneys shall have full power and authority to do and perform in his name
and on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as he might or could do in person, said acts of said attorneys being hereby
ratified and approved.
DATED: April 23, 1997
/S/ ROBERT SABLOWSKY
- --------------------
Robert Sablowsky
<PAGE>
THE RBB FUND, INC.
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
EXHIBITS
--------
<S> <C>
(7) Fund Office Retirement Profit Sharing Plan and Trust Agreement, as
Amended October 15, 1997
(11)(a) Consent of Drinker Biddle & Reath LLP.
(11)(b) Consent of Independent Accountants.
(16) Schedule of Computation of Performance Quotations
(17)(a) Financial Data Schedules with respect to the Money Market (Cash
Preservation Class).
(17)(b) Financial Data Schedules with respect to the Money Market (Sansom Street
Class).
(17)(c) Financial Data Schedules with respect to the Money Market (Janney Class).
(17)(d) Financial Data Schedules with respect to the Money Market (Bedford Class).
(17)(e) Financial Data Schedules with respect to the Municipal Money Market (Cash
Preservation Class).
(17)(f) Financial Data Schedules with respect to the Municipal Money Market (Janney
Class).
(17)(g) Financial Data Schedules with respect to the Municipal Money Market
(Bedford Class).
(17)(h) Financial Data Schedules with respect to the Government Obligations Money
Market (Janney Class).
(17)(i) Financial Data Schedules with respect to the Government Obligations Money
Market (Bedford Class).
(17)(j) Financial Data Schedules with respect to the New York Municipal Money
Market (Janney Class).
(17)(k) Financial Data Schedules with respect to the New York Municipal Money
Market (Bedford Class).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(17)(l) Financial Data Schedules with respect to the Government Securities (RBB
Class).
(17)(m) Financial Data Schedules with respect to the Boston Partners
Large Cap Value (Institutional Class).
(17)(n) Financial Data Schedules with respect to the Boston Partners Large Cap Value
(Investor Class).
(17)(o) Financial Data Schedules with respect to the Boston Partners Mid Cap Value
(Institutional Class).
(17)(p) Financial Data Schedules with respect to the Boston Partners Mid Cap
(Investor Class).
(18) Amended 18f-3 Plan and Multi-Class Structure as of October 15, 1997.
</TABLE>
Exhibit 7
PART II
[ CHESTNUT STREET EXCHANGE FUND ]
-------------------------------
NAME OF ADOPTING EMPLOYER
DEFINED CONTRIBUTION PLAN
(PROFIT-SHARING OR PROFIT-SHARING 401(K))
REGIONAL PROTOTYPE PLAN NUMBER 001
ADOPTION AGREEMENT
DRINKER BIDDLE & REATH LLP
REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND TRUST AGREEMENT
[ FUND OFFICE RETIREMENT PROFIT-SHARING PLAN ]
--------------------------------------------
NAME OF PLAN
(REV. 06/94)
(COPYRIGHT SIGN) DRINKER BIDDLE & REATH LLP 1997
<PAGE>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
DISTRICT DIRECTOR
31 HOPKINS PLAZA
BALTIMORE, MD 21201-0000
Employer Identification Number:
Date: JAN 04, 1993 23-1423089
File Folder Number:
DRINKER BIDDLE & REATH 521006125
PHILADELPHIA NATIONAL BANK BLDG Person to Contact:
C/O HOMER L ELLIOTT ESQUIRE G.N. Wallace
DRINKER BIDDLE & REATH Contact Telephone Number:
1345 CHESTNUT STREET PH NAT BK BLDG (410) 962-2973
PHILADELPHIA, PA 19107-3496 Plan Name:
REGIONAL PROTOTYPE
DEFINED CONTRIBUTION PLAN
Plan Number: 001
Letter Serial Number:
D8520005
Dear Applicant:
The amendment to the form of the plan identified above is acceptable
under section 401(a) or 403(a) of the Internal Revenue Code. This letter relates
only to the amendment to the form of the plan. It is not a determination of any
other amendment or of the form of the plan as a whole, or on the effect of other
federal or local statutes.
You must furnish a copy of this letter and the enclosed publication to
each employer who adopts this plan. You must also send a copy of this letter, a
copy of the approved form of the plan, and any approved amendments and related
documents to each key District Director of the Internal Revenue Service in whose
jurisdiction there are adopting employers.
The acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). To adopt the form of the plan, the employer should apply for a
determination letter by filing an application with the key District Director of
the Internal Revenue Service on Form 5307, Application for Determination for
Adopters of Master or Prototype, Regional Prototype or Volume Submitter Plans.
For purposes of sections 15.02 and 15.03 of Rev. Proc. 89-13, 1989-1
C.B. 801, your application was received before March 31, 1991.
Please advise those adopting the plan to contact you if they have any
questions about the operation of the plan.
We have sent a copy of this letter to your representative as indicated
in your Power of Attorney.
If you have any questions on our processing of this case, please call
the above telephone number. If you write, please provide your telephone number
and the most convenient time for us to call in case we need more information.
Whether you call or write, please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record.
Sincerely yours,
/s/ H.J. Hightower
District Director
Enclosure(s)
Publication 1488 Letter 2026/DO/CG)
A-2
<PAGE>
Department of the Treasury Internal Revenue Service
PUBLICATION 1488
(Rev. February 1991)
FAVORABLE NOTIFICATION LETTER
INTRODUCTION
This publication is issued in conjunction with a favorable notification letter.
It explains the significance of your letter, points out some features that may
affect the qualified status of the plan, and provides information on the
reporting requirements for the plan.
An employee retirement plan qualified under Internal Revenue Code
section 401(a) or 403(a) (qualified plan) is entitled to favorable tax
treatment. For example, contributions made in accordance with the plan document
are generally currently deductible. Participants will not include these
contributions into income until the time they receive a distribution from the
plan, at which time special income averaging rates for lump sum distributions
may serve to reduce the tax liability. In some cases, taxation may be further
deferred by rollover to another qualified plan or individual retirement
arrangement. See Publication 575, Pension and Annuity Income (Including
Simplified General Rule), for further details. Finally, plan earnings may
accumulate free of tax.
Employee retirement plans that fail to satisfy the requirements under
section 401(a) or 403(a) are not entitled to this favorable tax treatment.
Therefore, many employers desire advance assurance that the terms of their plans
satisfy the qualification requirements. The Service provides such advance
assurance for regional prototype plans by issuing favorable notification
letters. However, in some cases, a determination letter is also required for
reliance.
SIGNIFICANCE OF A FAVORABLE NOTIFICATION LETTER
Notification letters are issued by the Service to sponsors of regional prototype
plans. Plan sponsors then make the plan available to employers who may adopt the
plans for the benefit of their employees.
The significance of a favorable notification letter differs for
standardized plans and nonstandardized plans. A standardized plan can be
identified by the number 2, 5, or 7 appearing in the second position of the
letter serial number (the number following the alpha character which appears in
the upper right portion of the letter). A nonstandardized plan may be identified
by the number 3, 6, or 8 appearing in the second position.
STANDARDIZED PLANS. A standardized plan is designed to be automatically
acceptable under any fact pattern, except as indicated below. Therefore, there
is no need to request a determination letter for such plans, provided the
employer does not amend the plan and chooses only those options in the adoption
agreement that were approved by the Service. Although a determination letter is
not requested, the employer must still inform interested parties of the
establishment or amendment of the plan. However, a determination letter is
required for advance assurance that the provisions of the plan satisfy the
qualification requirements if the employer maintains or has maintained another
qualified plan. The Employer is not considered to have maintained another plan
merely because the plan was previously not a standardized plan. Under certain
circumstances, employers who have adopted standardized defined benefit plans may
wish to request a determination letter that their plans prior benefit structure
satisfies the requirements of Internal Revenue Code section 401(a)(26).
Paired plans are standardized plans that are designed to work together.
A paired plan may be recognized by the phrase "other than a specified paired
plan" appearing in the fifth or sixth paragraph of the notification letter. If
the employer maintains and has maintained only paired plans, a determination
letter is not needed.
NONSTANDARDIZED PLANS. It is possible that the unique fact patterns applicable
to a specific employer may cause a nonstandardized plan to fail qualification.
Therefore, to obtain advance assurance that the plan is qualified, the plan must
be submitted for a determination letter. A determination letter is similar to an
insurance policy that will, in many cases, protect the employer and plan
beneficiaries from adverse tax consequences if the plan is later found to be
nonqualified in the absence of a change in law, provided the plan is being
operated in good faith in accordance with plan provisions. This advance
assurance is a service provided by the Internal Revenue Service, and is not
required for qualification. Form 5307, Application for Determination for
Adopters of Master or Prototype Regional Prototype or Volume Submitter Plans, is
used to request a determination letter, along with Form 5302, Employee Census,
Form 8717 (explained later), a copy of the adoption agreement, a copy of the
notification letter, a certification from the plan sponsor that the plan has not
been withdrawn and is still in effect, and a copy of any separate trust or
custodial account document.
USER FEE. There is a charge for requesting a determination letter, but the
charge is significantly reduced for regional prototype plans. Please complete
and attach Form 8717, User Fee for Employee Plan Determination Letter Request,
to Form 5307 when requesting a determination letter.
LAW CHANGES AFFECTING THE PLAN. Plans must be amended to retain their qualified
status if any plan provision fails qualification requirements because of changes
in the law becoming effective subsequent to the issuance of the notification
letter. If the plan is not amended, the plan will become nonqualified without
specific notice from the Service. This will occur even if the employer has
received a favorable determination letter in addition to the notification
letter. The employer and plan participants may be subject to adverse tax
consequences if the plan is nonqualified.
A-3
<PAGE>
The first character of the serial number assigned to the plan indicates
the latest law change for which the plan had been amended. For example, the
letter "D" indicates the plan was amended for the Tax Reform Act of 1986, which
generally became effective for plan years after the 1988 plan year.
A notification letter will not be applicable after a change in
qualification requirements unless the plan sponsor requests a new notification
letter within 12 months after the change. The plan sponsor must provide those
employers for whom the employer is continuing to sponsor the plan with a copy of
the amendments and the new notification letter within 60 days of the receipt of
the new letter. If a change requires modification of the adoption agreement,
employers must execute the new agreement by the later of 6 months after issuance
of the new notification letter, or the end of the period specified in Internal
Revenue Code section 401(b).
If the application for a notification letter was submitted to the Service
within certain time frames, the plan generally need not be amended again unless
required to do so by legislation. The application was submitted to the Service
within these time frames, if the following paragraph appears in the notification
letter: "For purposes of sections 15.02 and 15.03 of Rev. Proc. 89-13, 1989-1
C.B. 801, your application was received timely".
REQUIRED NOTIFICATIONS TO ADOPTING EMPLOYERS. The plan sponsor must provide
adopting employers with annual notifications indicating whether the sponsor
intends to continue to sponsor the plan, and whether amendments have been made
to the plan. The plan sponsor must also notify employers within 60 days if the
plan sponsor discontinues its sponsoring of the plan.
REQUIRED NOTIFICATIONS TO THE INTERNAL REVENUE SERVICE. On each anniversary of
the date of issuance of the notification letter, the plan sponsor must advise
the Service whether the sponsor has made any changes to the plan, and whether
the plan is still being made available for adoption by employers. The plan
sponsor must also provide a listing of adopting employers, and a statement that
the plan sponsor has provided employers with the notification described in the
above paragraph.
REPORTING REQUIREMENTS. Most plan administrators or employers who maintain an
employee benefit plan must file an annual return/report with the Internal
Revenue Service. The following forms should be used for this purpose:
FORM 5500EZ - generally for a "One-Participant Plan," which is a plan that
covers only: (1) an individual, or an individual or his or her spouse who wholly
owns a business, whether incorporated or not, or (2) partner(s) in a partnership
or the partner(s) and their spouse(s). If Form 5500EZ cannot be used, the
one-participant plan should use 5500-C or 5500-R, whichever applies. NOTE: Keogh
(H.R. 10) plans are required to file an annual return even if the only
participants are owner-employees. The term "owner-employee" includes a partner
who owns more than 10% interest in either the capital or the profits of the
partnership. This applies to both defined contribution and defined benefit
plans.
FILING EXCEPTION FOR PLANS THAT HAVE NO MORE THAN $100,000 IN ASSETS. An annual
return is not required to be filed for one participant plans having less than
$100,000 in assets that otherwise qualify for filing Form 5500EZ.
FORM 5500 - for a pension benefit plan with 100 or more participants at the
beginning of the plan year.
FORM 5500-C - for a pension benefit plan with more than one but fewer than 100
participants at the beginning of the plan year.
FORM 5500-R - for a pension benefit plan with more than one but fewer than 100
participants at the start of the plan year for which 5500-C is not filed. NOTE:
For 1989 and subsequent years Form 5500-R is part of the Form 5500C/R package.
Filing only the first two pages of the Form 5500C/R package constitutes the
filing of a Form 5500-R.
WHEN TO FILE. Forms 5500 and 5500EZ must be filed annually. Form 5500-C must be
filed for (i) the initial plan year, (ii) the year a final return/report would
be filed, and (iii) at three-year intervals. Form 5500-R must be filed in the
years when Form 5500-C is not filed (See Note above). However, 5500-C will be
accepted in place of 5500-R.
DISCLOSURE. The Internal Revenue Service will process the returns and provide
the Department of Labor and the Pension Benefit Guarantee Corporation with the
necessary information and copies of the returns on microfilm for disclosure
purposes.
A-4
<PAGE>
PART II
[CHESTNUT STREET EXCHANGE FUND]
-----------------------------
DEFINED CONTRIBUTION PLAN
(PROFIT-SHARING OR PROFIT-SHARING 401(K))
REGIONAL PROTOTYPE PLAN NUMBER 001
ADOPTION AGREEMENT
DRINKER BIDDLE & REATH LLP
REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND TRUST AGREEMENT
----------------------------------------------------------------
NOTES TO ADOPTING EMPLOYERS AND TO ADOPTING AFFILIATED EMPLOYERS:
-----------------------------------------------------------------
THIS ADOPTION AGREEMENT MAY ONLY BE USED WITH THE DRINKER BIDDLE & REATH LLP
REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN.
FAILURE TO PROPERLY FILL OUT THIS ADOPTION AGREEMENT MAY RESULT IN THE
DISQUALIFICATION OF THE PLAN AS ADOPTED BY THE EMPLOYER.
A CASH OR DEFERRED ARRANGEMENT MAY NOT BE ADOPTED BY A TAX EXEMPT OR
GOVERNMENTAL ORGANIZATION WITH THE EXCEPTION OF CERTAIN PRE-EXISTING PLANS.
DRINKER BIDDLE & REATH LLP, THE SPONSORING ORGANIZATION OF THIS PLAN, WILL
INFORM THE ADOPTING EMPLOYER AND/OR ADOPTING AFFILIATED EMPLOYER OF ANY
AMENDMENTS MADE TO THE PLAN OR OF THE DISCONTINUANCE OR ABANDONMENT OF THE PLAN.
DRINKER BIDDLE & REATH LLP IS THE SPONSORING ORGANIZATION OF THIS PLAN. ITS
ADDRESS IS PHILADELPHIA NATIONAL BANK BUILDING, 1345 CHESTNUT STREET,
PHILADELPHIA, PA 19107-3496 AND ITS TELEPHONE NUMBER IS (215) 988-2855.
- --------------------------------------------------------------------------------
(FILL IN BLANKS AND INDICATE SELECTION WHERE REQUIRED)
The undersigned Employer hereby (check applicable box)
[ ] adopts
[ X ] adopts, as an amendment to a predecessor plan and trust
agreement of the Employer,
the DRINKER BIDDLE & REATH LLP REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND
TRUST AGREEMENT, consisting of Part I, the Plan and Trust Agreement, and Part
II, this Adoption Agreement. The Plan and Trust Agreement, as so adopted, shall
be known as the [FUND OFFICE RETIREMENT PROFIT-SHARING PLAN AND TRUST AGREEMENT]
(the "Plan"), a DEFINED CONTRIBUTION PLAN (PROFIT-SHARING OR PROFIT-SHARING
401(K)) AND TRUST AGREEMENT. The Employer and Trustee, by signing this Adoption
Agreement, mutually agree and consent to the terms of the Plan and Trust,
consisting of Part I, the Plan and Trust Agreement, and Part II, this Adoption
Agreement.
(COPYRIGHT SIGN) DRINKER BIDDLE & REATH LLP 1997
A-5
<PAGE>
NAME OF ADOPTING EMPLOYER: [CHESTNUT STREET EXCHANGE FUND]
-----------------------------
ADDRESS OF ADOPTING EMPLOYER: [BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809 ]
ADOPTING EMPLOYER'S EMPLOYER IDENTIFICATION NUMBER: [ 51-0199471 ]
ADOPTING EMPLOYER'S BUSINESS CODE NUMBER: [ 6742 ]
--------------------
TYPE OF ENTITY (check one): [ ] Corporation [ ] S Corporation
[ ] Sole Proprietor [ X ] Partnership [ ] Church
[ ] Tax Exempt Organization [ ] Governmental Organization
[ ] Professional Corporation
[ ] Other (Specify): [ ]
PLACE OF INCORPORATION OR OTHER ORGANIZATION (SPECIFY): [-------------
CALIFORNIA ]
DATE OF INCORPORATION OR DATE BUSINESS BEGAN: [ MARCH 25, 1976 ]
ADMINISTRATIVE COMMITTEE EMPLOYER IDENTIFICATION NUMBER: [23-2118138]
PLAN NAME: [ FUND OFFICE RETIREMENT PROFIT-SHARING PLAN ]
PLAN IDENTIFICATION NUMBER: [ 001 (333 FOR FORM 5500C/R) ]
----------------------------------------
TRUST NAME: [ FUND OFFICE RETIREMENT PROFIT-SHARING PLAN TRUST ]
TRUST EMPLOYER IDENTIFICATION NUMBER (IF ANY): [ 23-2487197 ]
REGIONAL PROTOTYPE (PROFIT-SHARING (401(K)) PLAN NOTIFICATION
LETTER NUMBER: D8520005 (PN:001 JANUARY 4, 1993)
FROZEN PLAN: If the Employer has discontinued all further
contributions to the Plan, check here [ ]. The Employer and the
Trustee shall, however, continue to maintain the Plan and Trust in
accordance with the requirements of the Internal Revenue Code and
the Treasury regulations thereunder.
TYPE PLAN: The Plan, as adopted under this Adoption Agreement, is a
(check one):
[ X ] (A) Profit-Sharing Plan.
[ ] (B) Profit-Sharing 401(k) Plan.
A.1.1 ACCRUAL COMPUTATION PERIOD. The Accrual Computation Period is the
(check one):
[ X ] (A) Plan Year
[ ] (B) (A consecutive 12-month period ending with
or within the Plan Year.) Enter the day and the
month this period begins: [ ](day) [ ](month).
For Employees whose date of hire is less than 12
months before the end of the 12-month period
designated, Compensation will be determined over
the Plan Year.
A.1.4 ADMINISTRATIVE COMMITTEE. The name(s) and address(es) of the
member(s) of the Administrative Committee are:
A-6
<PAGE>
[(A) EDWARD J. ROACH
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
(B)
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
(C)
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
----------------------------------------------------------------]
A.1.10 COMPENSATION. Compensation shall be determined over the
Accrual Computation Period elected in Section A.1.1.
(A) Compensation shall (check one):
[ X ] (1) Include [ ] (2) Not include
--- ---
Employer contributions made pursuant to a salary reduction agreement which
are not includible in the gross income of the Employee under sections 125,
402(e)(3), 402(h)(1)(B) or 403(b) of the Code.
(B) Compensation shall exclude (specify): [
N/A .]
(Note that this exclusion applies only to the manner of determining
contributions to the Plan and for no other purpose; if not applicable,
insert letters N/A in blanks).
A.1.12 CONTROLLED GROUP.
(A) Is the adopting Employer a member of a Controlled
Group (check one)?
[ ] (1) Yes [ X ] (2) No
--- ---
(B) If Section A.1.12(A)(1) is checked, is the
adopting Employer a member of an affiliated service group (check one)?
[ ] (1) Yes [ ] (2) No [ X ] (3) N/A
--- --- ---
If Section A.1.12(A)(1) is checked, list the name and address of each
member in the following blanks (and if Section A.1.12(B)(1) is also
checked, indicate whether the member is an affiliated service group
member): [ N/A
-----------------------------------------------------------------------
-----------------------------------------------------------------------
----------------------------------------------------------------------]
(If Section A.1.12(A)(2) is checked, the letters N/A should be inserted
in these blanks)
A.1.17 CONTRIBUTIONS ON BEHALF OF DISABLED PARTICIPANTS. The
Employer (check one):
[ ] (A) Will [ X ] (B) Will not
--- ---
make contributions on behalf of disabled Participants on the basis of the
compensation each such Participant would have received for the Limitation
Year if the Participant had been paid at the rate of compensation paid
immediately before becoming permanently and totally disabled.
Such imputed compensation for the disabled Participant may be taken into
account only if the Participant is not a Highly Compensated Employee, and
contributions made on behalf of such Participant shall be nonforfeitable
when made.
A-7
<PAGE>
A.1.18 EARLY RETIREMENT DATE.
(A) Shall the Plan provide for an Early Retirement
Date (check one)?
[ ] (1) Yes [ X ] (2) No
--- ---
If Section A.1.18(A)(1) is checked, complete the following:
(B) Early Retirement Date shall mean the (check
one):
[ ] (1) Last day of the Plan Year
[ ] (2) Last day of the month (must coincide
with a Valuation Date)
[ ] (3) [ ] (fill in date) (must
coincide with a Valuation Date)
in which the Participant attains age [ ] (not later than age 64) and
completes [ ] Years of Service for Benefit Accrual with the Employer.
A.1.19 EARNED INCOME. This Section shall apply only if the Plan,
as adopted by the adopting Employer, covers Self-Employed Persons.
A.1.20 EFFECTIVE DATE. If the adoption of this Plan and Trust
Agreement constitutes the adoption of a new plan and trust agreement, check (A)
and fill in blank. If the adoption of this Plan and Trust Agreement constitutes
the restatement of an existing plan and trust agreement (including a prior
version of this Plan and Trust Agreement), check (B) and fill in blanks.
[ ] (A) NEW PLAN. The Effective Date of the Plan and
Trust Agreement is [ ].
[ X ] (B) RESTATED PLAN. The original effective
date of the predecessor plan and trust agreement
was [SEPTEMBER 18, 1981]. Except as otherwise
specifically provided herein, the Effective Date
of the Plan and Trust Agreement, as restated
herein, is [DECEMBER 1, 1997, EXCEPT AS OTHERWISE
INDICATED].
A.1.24 ELIGIBILITY COMPUTATION PERIOD. If Section A.1.33(A)(4) is
checked or if the elapsed time method is checked under Section A.2.2(B)(2),
check here [ ] and do NOT complete the remainder of this Section A.1.24.
Otherwise, the Eligibility Computation Period shall be calculated as follows:
(A) COMPUTATION PERIOD. The Eligibility Computation
Period shall be calculated pursuant to (check (1) or (2)):
[ X ] (1) NORMAL RULE. The Eligibility
Computation Period(s) shall be
determined under Section 1.24(A) of the
Plan.
[ ] (2) ALTERNATE RULE. The Eligibility
Computation Period(s) shall be
determined under Section 1.24(B) of the
Plan.
(B) HOURS OF SERVICE REQUIRED. The number of Hours of Service
which must be completed in order to meet the Eligibility Computation
Period requirements of the Plan is [ 1 ] (fill in blank but not to
exceed 1,000 Hours of Service).
A.1.27 EMPLOYEE PENSION BENEFIT PLAN. Does the Employer or any
member of its Controlled Group maintain or has the Employer or any member of its
Controlled Group maintained any other Employee Pension Benefit Plan (check one)?
[ X ] (A) Yes [ ] (B) No
A-8
<PAGE>
If Section A.1.27(A) is checked, list such Employee Pension Benefit Plan(s)
in the following lines: [CHESTNUT STREET EXCHANGE FUND RETIREMENT PROFIT-
SHARING PLAN; INDEPENDENCE SQUARE INCOME SECURITIES, INC. RETIREMENT
PROFIT- SHARING PLAN; TEMPORARY INVESTMENT FUND, INC. RETIREMENT
PROFIT-SHARING PLAN; AND TRUST FOR SHORT TERM FEDERAL SECURITIES RETIREMENT
PROFIT-SHARING PLAN. ALL OF THE FOREGOING PLANS WERE MERGED INTO THIS PLAN
EFFECTIVE DECEMBER 1, 1987. ]
(If Section A.1.27(B) is checked, the letters N/A should be inserted in
these blanks).
A.1.33 ENTRY DATE. Entry Date shall mean (check (A) or (B)):
[ X ] (A) REGULAR METHOD.
[ ] (1) The first day of the Plan Year (this
option cannot be used unless the maximum
age and service requirements are reduced
by 1/2 year (I.E., age 20 1/2 or less
must be selected in Section
A.2.2(B)(1)(a)(ii) and the service
requirement in Section A.2.2(B)(1)(a)
(i) must be reduced by 1/2 year),
coincident with, or, if the first day of
the Plan Year does not so coincide, the
first day of the Plan Year next
following, the date on which an Employee
meets the eligibility requirements of
Article II of the Plan.
[ ] (2) The first day of the Plan Year or
the date six months after the first day
of the Plan Year (whichever date is
earlier), coincident with, or if such
dates do not so coincide, the first day
of the Plan Year or the date six months
after the first day of the Plan Year
(whichever date is earlier) next
following, the date on which an Employee
meets the eligibility requirements of
Article II of the Plan.
[ ] (3) The first day of the month
coincident with, or if the first day of
the month does not so coincide, the
first day of the month next following,
the date on which an Employee meets the
eligibility requirements of Article II
of the Plan.
[ ] (4) The Employee's date of hire.
[ X ] (5) The date on which the
eligibility requirements of Article II
of the Plan are met.
[ ] (6) The first day of the quarter (in the
the Plan Year) coincident with, or if
the first day of the quarter does not so
coincide, the first day of the quarter
(in the Plan Year) next following, the
date on which an Employee meets the
eligibility requirements of Article II
of the Plan.
[ ] (7) The first day of the Plan Year in
which an Employee meets the eligibility
requirements of Article II of the Plan.
[ ] (B) ELAPSED TIME METHOD. The Employee's first
day of employment or reemployment in accordance
with the rules of Section 1.55(B) of the Plan.
A.1.35 EXCESS COMPENSATION. Excess Compensation shall mean
Compensation in excess of (check applicable block):
[ ] (A) Taxable Wage Base.
[ ] (B) [$---] (if (B) is checked, insert dollar
amount not to exceed the Taxable Wage Base).
A-9
<PAGE>
[ X ] (C) N/A (The Plan is not integrated with Social
Security).
A.1.38 HIGHLY COMPENSATED EMPLOYEE.
(A) CALENDAR YEAR ELECTION. Does the Employer
desire to make the calendar year election provided in Section 1.38 of the
Plan for purposes of determining the look-back year calculation (check
one)?
[ ] (1) Yes [ X ] (2) No
--- ---
IF THIS ELECTION IS MADE, SUCH ELECTION MUST APPLY TO ALL PLANS, ENTITIES AND
ARRANGEMENTS OF THE EMPLOYER.
(B) SIMPLIFIED DEFINITION. If the Employer
maintains significant business activities (and employs Employees) in at
least two significantly separate geographic areas, the Employer may elect
the simplified definition of Highly Compensated Employee in Section 1.38 of
the Plan. Does the Employer desire to make this election (check one):
[ ] (1) Yes [ X ] (2) No [ ] (3) N/A
--- --- ---
A.1.44 INVESTMENT MANAGER. The name and address of the Investment
Manager are: [ N/A
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------]
(If no Investment Manager has been appointed by the Employer, the letters N/A
should be inserted in these blanks).
A.1.46 LEASED EMPLOYEES. Does the Employer have any Lease
Employees (check one)?
[ ] (A) Yes [ X ] (B) No
If Section A.1.46(A) is checked, complete Section A.2.3(H) below.
A.1.47 LIMITATION COMPENSATION. Limitation Compensation shall
mean all of each Participant's (check one):
[ X ] (A) Wages, Tips and Other Compensation as
Reported on Form W-2.
[ ] (B) Code Section 3401(a) Wages.
[ ] (C) Code Section 415 Safe-Harbor Compensation.
A.1.48 LIMITATION YEAR. The Limitation Year is the (check
applicable block):
[ ] (A) Calendar year.
[ X ] (B) Twelve-consecutive month period ending
(insert month and day) [ NOVEMBER 30 ].
A.1.53 NORMAL RETIREMENT AGE. Normal Retirement Age shall mean
(check one):
[ X ] (A) Age [ 65 ] (fill in blank but not earlier
than age 62 and not later than age 65).
[ ] (B) The later of age [ ] fill in blank but not
earlier than age 62 and not later than age 65) or
the [ ] (fill in blank but not to exceed 5th)
anniversary of the first day of the first Plan
Year in which the Participant commenced
participation in the Plan.
A.1.55 ONE-YEAR BREAK IN SERVICE. A One-Year Break In Service
shall be determined by the following method (check one):
A-10
<PAGE>
[ X ] (A) REGULAR METHOD. If this method is
selected, a One- Year Break In Service shall
occur in any Computation Period in which the
Employee completes not more than [ 100] (fill in
blank, but not to exceed 500) Hours of Service.
[ ] (B) ELAPSED TIME METHOD.
A.1.56 OWNER-EMPLOYEES OR SHAREHOLDER-EMPLOYEES.
(A) Does the Plan cover any Owner-Employees, as
defined in Section 1.56 of the Plan (check one)?
[ ] (1) Yes [ ] (2) No
--- ---
[ X ] (3) N/A (This Plan does not cover any
Self-Employed Persons)
If Section A.1.56(A)(1) is checked, see Section 2.4 of the Plan.
(B) Does the Plan cover any shareholder-employees, as
defined in Section 7.11(A)(7) of the Plan (check one)?
[ ] (1) Yes [ ] (2) No
--- ---
[ X ] (3) N/A (The Employer is not an
electing S corporation)
If Section A.1.56(B)(1) is checked, see Section 7.11(A)(7) of the Plan.
A.1.63 PLAN SPONSOR. The name(s) and address(es) of the Plan
Sponsor(s) are: [ CHESTNUT STREET EXCHANGE FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809 ]
A.1.64 PLAN YEAR. The Plan Year shall be the Computation Period
ending (insert month and day) [ NOVEMBER 30 ].
A.1.72 QUALIFYING EMPLOYER SECURITIES. If this Adoption Agreement
provides for investments in Qualifying Employer Securities, the Employer may
restrict the types of Employer Securities so qualifying by indicating the
restrictions in the following blanks: [ NO RESTRICTIONS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------]
(If investment in Qualifying Employer Securities is not restricted to type,
insert in the blanks the words "No Restrictions"; if investment in Qualifying
Employer Securities is not permitted, insert the letters N/A in the blanks).
A.1.78 SELF-EMPLOYED PERSONS. Does the Plan cover Self-Employed
Persons (check one)?
[ ] (A) Yes [ X ] (B) No
A.1.79 SERVICE.
(A) If not otherwise required by the Plan, shall
service with predecessor employer(s) (to the extent specified in
Section A.1.79 (B) and (C)) be treated as Service with the Employer
(check one)?
[ ] (1) Yes [ ] (2) No
--- ---
[ X ] (3) N/A (No predecessor employer)
(B) If Section A.1.79(A)(1) is checked, service
with the predecessor employer(s) specified in Section A.1.79 (C) shall
be treated as Service with the Employer for purposes of (check
applicable blank(s)):
A-11
<PAGE>
[ ] (1) Eligibility for Participation
[ ] (2) Vesting
[ X ] (3) N/A
(C) If Section A.1.79(A)(1) is checked, indicate
the name of the predecessor employer(s) in the following blanks:
[ N/A ]
----------------------------------------------------------------------
(If Section A.1.79(A)(2) or (3) is checked, insert the letters N/A in
the blanks).
(D) If Section A.18.17(A) is checked, and the
Prior Plan credited service under the elapsed time method, indicate
the equivalency (if any) which is to be used to credit service in the
Computation Period in which the amendment is effective, if the
effective date of the amendment is other than the first day of the
Computation Period (check one):
[ ] Daily [ ] Monthly
[ ] Weekly [ X ] N/A
[ ] Semi-Monthly
A.1.83 TAXABLE YEAR. The Employer's Taxable Year is the year
ending (insert month and day) [ DECEMBER 31 ].
A.1.85 TOP-HEAVY RATIO. For purposes of establishing present value
to compute the Top-Heavy Ratios of Section 1.85 of the Plan, any benefit shall
be discounted only for mortality and interest based on the following:
(A) INTEREST RATE (check one):
[ X ] (1) APPLICABLE INTEREST RATE (For
purposes of this Section A.1.85,
"Applicable Interest Rate" shall mean
the interest rate or rates which would
be used, as of the date distribution
commences under a Defined Benefit Plan,
by the Pension Benefit Guaranty
Corporation for purposes of determining
the present value of a participant's
benefits under such Defined Benefit Plan
if such Defined Benefit Plan had
terminated on the date distribution
commences with insufficient assets to
provide benefits guaranteed by the
Pension Benefit Guaranty Corporation on
that date. For purposes of this
provision, the "date distribution
commences" shall mean the Top-Heavy
Valuation Date).
[ ] (2) OTHER (specify) [ ]%
(B) MORTALITY TABLE: [1984 UNISEX MORTALITY
TABLE]
A.1.86 TOP-HEAVY VALUATION DATE. The Top-Heavy Valuation Date, for
purposes of calculating the Top-Heavy Ratios shall be (fill in blank) [ THE LAST
DAY ] of each Plan Year.
A.1.91 TRUSTEE(S). The name(s) and address(es) of the Trustee(s)
are:
[(A) ROBERT R. FORTUNE
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
(B) EDWARD J. ROACH
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
A-12
<PAGE>
(C)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------]
A.1.93 VALUATION DATE. Valuation Date shall mean:
(A) For purposes of determining a Participant's
Accrued Benefit which is distributable in accordance with Article VII
of the Plan (check one):
[ ] (1) Last day of Plan Year.
[ X ] (2) Last day of Plan Year and [ THE
LAST DAY OF EVERY OTHER CALENDAR MONTH
DURING THE PLAN YEAR
-----------------] (insert date(s)).
(B) For purposes of determining the fair market
value of assets in the Trust Fund and allocating the increase or
decrease in the assets in accordance with Sections 5.3 and 5.4 of the
Plan (check one):
[ X ] (1) The date(s) specified in Section
A.1.93(A).
[ ] (2) Last day of Plan Year and [ ]
(insert date(s)).
A.1.97 YEAR OF SERVICE FOR BENEFIT ACCRUAL.
(A) GENERAL. A Year of Service for Benefit
Accrual shall be determined by the following method (check one):
[ X ] (1) REGULAR METHOD. (This method
must be selected if Section A.1.55(A) is
checked). In order for a Participant to
have a Year of Service for Benefit
Accrual for any Plan Year, the
Participant must complete the number of
Hours of Service indicated (check either
(a) and fill in blank or (b)):
[ X ] (a) The number of Hours of
Service which must be completed
with the Employer in order for
a Participant to have a Year of
Service for Benefit Accrual is
[ 200 ] (fill in blank but not
to exceed 1,000 Hours of
Service).
[ ] (b) The number of Hours of
Service which must be completed
with the Employer in order for
a Participant to have a Year of
Service for Benefit Accrual for
a Plan Year is 501 if the
Participant is not an active
Employee on the last day of the
Plan Year; if the Participant
is an active Employee on the
last day of the Plan Year, only
one Hour of Service with the
Employer must be completed in
order for the Participant to
have a Year of Service for
Benefit Accrual for such Plan
Year.
NOTE: UNDER PROPOSED TREAS. REG. SS.SS. 1.410(B) AND
1.401(A)(26), IT MAY BE NECESSARY TO PROVIDE THAT NO
MORE THAN 501 HOURS OF SERVICE ARE REQUIRED FOR A
YEAR OF SERVICE FOR BENEFIT ACCRUAL FOR ANY
PARTICIPANT WHO HAS TERMINATED EMPLOYMENT AND IS NOT
AN ACTIVE EMPLOYEE ON THE LAST DAY OF THE PLAN YEAR
AND THAT NO MORE THAN ONE HOUR OF SERVICE IS
REQUIRED FOR A YEAR OF SERVICE FOR BENEFIT ACCRUAL
FOR ANY PARTICIPANT WHO IS AN ACTIVE EMPLOYEE ON THE
LAST DAY OF THE PLAN YEAR. (PROPOSED TREAS. REG.
SS.SS. 1.410(B)-3(C) AND 1.401(A)(26)-3(B)(8)).
[ ] (2) ELAPSED TIME METHOD. (This method
must be selected if Section A.1.55(B) is
checked).
A-13
<PAGE>
(B) ELECTIVE DEFERRAL CONTRIBUTIONS. If Elective
Deferral Contributions are provided for under Section A.3.4 of the
Adoption Agreement, the number of Hours of Service which a Participant
must complete in a Year of Service for Benefit Accrual is [ N/A] (fill
in blank but not to exceed 1,000 Hours of Service unless Section
A.1.97(A)(2) is checked, in which case insert letters "ET" and the
elapsed time rules apply; if there are no Elective Deferral
Contributions, insert letters "N/A") in order for the Participant to
have Elective Deferral Contributions made on his behalf under the
Plan.
(C) MATCHING CONTRIBUTIONS. If Matching
Contributions by the Employer are provided for under Section A.3.5 of
the Adoption Agreement, the number of Hours of Service which a
Participant must complete in a Year of Service for Benefit Accrual is
[ N/A ] (fill in blank (if there are no Matching Contributions, insert
letters "N/A") but not to exceed 1,000 Hours of Service unless Section
A.1.97(A)(2) is checked, in which case insert letters "ET" and the
elapsed time rules apply) in order for the Employer to match
Participant Contributions or Elective Deferral Contributions of such
Participant under Section A.3.5 of the Adoption Agreement.
Except as provided in Sections A.1.97(B) and A.1.97(C), a Year of
Service for Benefit Accrual shall be determined under Section
A.1.97(A).
A.1.98 YEAR OF SERVICE FOR ELIGIBILITY. The number of Hours of
Service which must be completed in order for an Employee to have a Year of
Service for Eligibility is [ 1 ] (fill in blank, but not to exceed 1,000 Hours
of Service; insert letters N/A if Section A.1.33(A)(4) is checked or if the
elapsed time method is selected under Section A.2.2.(B)(2).
A.1.99 YEAR OF SERVICE FOR VESTING. A Year of Service for Vesting
shall be determined by the following method (check one):
[ X ] (A) REGULAR METHOD. (This method must be
selected if Section A.1.55(A) is checked). The
number of Hours of Service which must be
completed in order for a Participant to have a
Year of Service for Vesting is [ 200 ] (fill in
blank but not to exceed 1,000 Hours of Service).
[ ] (B) ELAPSED TIME METHOD. (This method must be
selected if Section A.1.55(B) is checked).
[ ] (C) N/A (Plan provides 100% immediate vesting).
A.2.2 ELIGIBILITY REQUIREMENTS.
(A) ELIGIBLE CLASSES OF EMPLOYEES:
(1) Except as provided in (2) below, the
following Employees are or shall be
eligible to participate in the Plan
(check one):
[ X ] (a) All Employees
[ ] (b) Salaried Employees only
(as defined in Section 1.77 of
the Plan)
[ ] (c) Hourly Employees only (as
defined in Section 1.40 of the
Plan)
[ ] (d) All Employees except
(specify class or classes of
Employees to be excluded): [
]
(2) The following Employees shall not be
eligible to participate in the Plan
(check block(s) if such Employees are to
be excluded):
A-14
<PAGE>
[ X ] (a) Union Employees (as defined
in Section 1.92 of the Plan)
[ X ] (b) Non-Resident Aliens (as
defined in Section 1.52 of the
Plan)
(B) LENGTH OF SERVICE; MINIMUM AGE:
Participation in the Plan shall be determined under either the regular
method or the elapsed time method (check (1) or (2)):
[ X ] (1) REGULAR METHOD. If the regular
method is selected, check (a) or (b):
[ ] (a) SERVICE AND AGE REQUIREMENT.
In order to participate in the
Plan, an Employee shall meet the
following requirements (complete
blanks):
(i) SERVICE.
(AA) ELECTIVE DEFERRAL
CONTRIBUTIONS. An Employee
shall have completed [ ]
Year of Service for
Eligibility (not more than
one Year of Service for
Eligibility) to be
eligible to make Elective
Deferral Contributions.
(BB) MATCHING
CONTRIBUTIONS. An Employee
shall have completed [ ]
Year(s) of Service for
Eligibility (not more than
two Years of Service for
Eligibility) to be
eligible for Matching
Contributions.
(CC) EMPLOYER
CONTRIBUTIONS AND ALL
OTHER PURPOSES. An
Employee shall have
completed [ ] Year(s) of
Service for Eligibility
(not more than two Years
of Service for
Eligibility) for Employer
Contributions and for all
other purposes of the
Plan.
Note that in Section
A.2.2(B)(1)(a)(i)(BB) and (CC)
not more than one Year of
Service for Eligibility may be
selected, if the option under
Section A.7.6(B)(1)(a) is not
elected nor more than two Years
of Service for Eligibility if
the option under Section
A.7.6(B)(1)(a) is elected. For
purposes of this Section
A.2.2(B)(1)(a)(i), Service
includes service with a
predecessor employer if the
Employer adopting the Plan is
maintaining the plan of a
predecessor employer. Such
Service also includes
predecessor service to the
extent required by the
Secretary of the Treasury or
his delegate.
Service for purposes of
eligibility also includes
service with a predecessor
employer if such service is not
otherwise required to be
included under Sections 1.79
and 2.2 of the Plan to the
extent provided in Section
A.1.79.
(ii) AGE. An Employee shall
have attained [ ] years of age
(not more than age 21).
[ X ] (b) NO SERVICE OR AGE
REQUIREMENT. The Plan shall
cover Employees in eligible
classes
A-15
<PAGE>
effective on the first Entry
Date coinciding with, or next
following, their date of hire.
[ ] (2) ELAPSED TIME METHOD. The Employee
shall be eligible to participate in the
Plan on his first day of employment or
reemployment in accordance with the
rules of Section 1.55(B) of the Plan.
A.2.3 ADDITIONAL RULES.
(A)-(F) RESERVED.
(G) ALLOCATIONS TO PARTICIPANTS. Except as
otherwise provided below, a Participant shall share in Employer
contributions in any Plan Year if the Participant completes a Year of
Service for Benefit Accrual during such Plan Year. Notwithstanding any
other provision of the Plan or this Adoption Agreement, any Participant
making Elective Deferral or Participant Contributions to the Plan for
any Plan Year shall be entitled to such Elective Deferral or
Participant Contributions.
(1) EMPLOYER CONTRIBUTIONS. This
provision shall only apply if Section
A.1.97(A)(1) is checked and then only to
the extent permitted by Section 3.11 of
the Plan.
(a) SEPARATION FROM SERVICE FOR
REASONS OTHER THAN DISABILITY,
DEATH OR RETIREMENT.
(i) Shall Participants who
separate from the service of the
Employer (for reasons other than
Disability, death or retirement)
before the end of the Plan Year
even if they have completed a
Year of Service for Benefit
Accrual share in Employer
contributions for such Plan Year
(check one)?
[ X ] (AA) Yes [ ] (BB) No
[ ] (CC) N/A (Section
A.1.97(A)(2) checked)
NOTE THAT SECTION A.2.3(G)(1)(A)(I)(AA) MUST BE
CHECKED IF SECTION A.1.97(A)(1)(B) IS CHECKED.
(ii) If Section
A.2.3(G)(1)(a)(i)(AA) is checked,
shall such Participant share in
Employer contributions for such
Plan Year if such Participant has
not completed a Year of Service
for Benefit Accrual (check one)?
[ X ] (AA) Yes [ ] (BB) No
[ ] (CC) N/A (Section A.2.3
(G)(1) (a)(i)(AA) not
checked)
(b) DISABILITY, DEATH OR RETIREMENT.
(i) Shall Participants who
separate from the service of the
Employer because of Disability,
death or retirement before the
end of the Plan Year even if they
have completed a Year of Service
for Benefit Accrual share in
Employer contributions for such
Plan Year (check one)?
[ X ] (AA) Yes [ ] (BB) No
[ ] (CC) N/A (Section
A.1.97(A)(2) checked)
A-16
<PAGE>
NOTE THAT SECTION A.2.3(G)(1)(B)(I)(AA) MUST BE CHECKED
IF SECTION A.1.97(A)(1)(B) IS CHECKED.
(ii) If Section
A.2.3(G)(1)(b)(i)(AA) is checked,
shall such Participant share in
Employer contributions for such
Plan Year if such Participant has
not completed a Year of Service
for Benefit Accrual (check one)?
[ X ] (AA) Yes [ ] (BB) No
[ ] (CC) N/A (Section
A.2.3(G)(1)(b) (i)(AA) not
checked)
(2) MATCHING CONTRIBUTIONS. This
provision shall only apply if Section
A.1.97(A)(1) is checked.
(a) SEPARATION FROM SERVICE FOR
REASONS OTHER THAN DISABILITY, DEATH
OR RETIREMENT.
(i) Shall Participants who
separate from the service
of the Employer (for
reasons other than
Disability, death or
retirement) before the end
of the (check one) [ ] (aa)
month [ ] (bb) quarter [ ]
(cc) Plan Year for which
the Matching Contribution
is being made even if they
have completed a Year of
Service for Benefit Accrual
share in Matching
Contributions for such
period (check one)?
[ ] (AA) Yes [ ] (BB) No
[ X ] (CC) N/A (No Matching
Contributions or Section
A.1.97(A)(2) checked)
NOTE THAT SECTION A.2.3(G)(2)(A)(I)(AA) MUST BE
CHECKED IF SECTION A.1.97 (A)(1)(B) IS CHECKED.
(ii) If Section
A.2.3(G)(2)(a)(i) (AA) is
checked, shall such
Participant share in
Matching Contributions for
such (check one) [ ] (aa)
month [ ] (bb) quarter [ ]
(cc) Plan Year if such
Participant has not
completed a Year of Service
for Benefit Accrual (check
one)?
[ ] (AA) Yes [ ] (BB) No
[ X ] (CC) N/A (Section
A.2.3(G)(2)(a)(i) (AA) not
checked)
(b) DISABILITY, DEATH OR
RETIREMENT.
(i) Shall Participants who
separate from the service
of the Employer because of
Disability, death or
retirement before the end
of the (check one) [ ] (aa)
month [ ] (bb) quarter [ ]
(cc) Plan Year for which
the Matching Contribution
is being made even if they
have completed a Year of
Service for Benefit Accrual
share in Matching
Contributions for such
period (check one)?
[ ] (AA) Yes [ ] (BB) No
A-17
<PAGE>
[ X ] (CC) N/A (no Matching
Contributions or Section
A.1.97(A)(2) checked)
NOTE THAT SECTION A.2.3(G)(2)(B)(I)(AA) MUST BE
CHECKED IF SECTION A.1.97(A)(1)(B) IS CHECKED.
(ii) If Section
A.2.3(G)(2)(b) (i)(AA) is
checked, shall such
Participant share in
Matching Contributions for
such (check one) [ ] (aa)
month [ ] (bb) quarter [ ]
(cc) Plan Year if such
Participant has not
completed a Year of Service
for Benefit Accrual (check
one):
[ ] (AA) Yes [ ] (BB) No
[ X ] (CC) N/A (Section
A.2.3(G)(2)(b)(i)(AA) not
checked.
(H) LEASED EMPLOYEES. Shall Leased Employees be
eligible to participate in the Plan (check applicable block)?
[ ] (1) Yes [ ] (2) No [ X ] (3) N/A --- --- ---
If Section A.2.3(H)(1) is checked, describe Leased Employees to be covered
by the Plan and conditions and other limitations on such coverage in the
following lines: [ N/A
---------------------------------------------------------------------------
--------------------------------------------------------------------------]
(If not applicable, insert letters N/A in these blanks)
A.2.4 PLANS COVERING OWNER-EMPLOYEES. Section 2.4 of the Plan does
not apply unless Section A.1.56(A) is checked.
A.3.1 EMPLOYER CONTRIBUTIONS.
(A) EMPLOYER CONTRIBUTIONS.
(1) GENERAL. Shall the Employer, in its
sole discretion, be permitted to make
Employer Contributions to the Plan
(check one)?
[ X ] (a) Yes [ ] (b) No
If Section A.3.1(A)(1)(a) is checked,
such Employer Contributions shall be
allocated under Section A.5.1(A).
(2) PROFIT REQUIREMENTS. Shall Profits
be required for Employer Contributions
to the Plan (check one)?
[ ] (a) Yes [ X ] (b) No
(B) QUALIFIED NONELECTIVE CONTRIBUTIONS.
(1) ELECTION. May the Employer be
permitted to make, in its sole
discretion, Qualified Nonelective
Contributions to the Plan (check one)?
[ ] (a) Yes [ ] (b) No
[ X ] (c) N/A (No Elective Deferral or
Participant Contributions)
(2) AMOUNT. If the Employer does make
such contributions to the Plan, then the
amount of such contributions for each
Plan Year shall be (check one):
A-18
<PAGE>
[ ] (a) [ ] percent (not to exceed
15 percent) of the Compensation
of all Participants eligible to
share in the allocation.
[ ] (b) [ ] percent of the Profits,
but in no event more than [$ ]
for any Plan Year.
[ ] (c) An amount determined by the
Employer.
[ X ] (d) N/A (Qualified Nonelective
contributions not permitted).
(3) PARTICIPANTS ELIGIBLE FOR
ALLOCATION. Allocation of Qualified
Nonelective Contributions shall be made
to the accounts of (check one):
[ ] (a) All Participants
[ ] (b) Only Participants who are
Non-Highly Compensated
Employees
[ ] (c) Only Participants who are
Non-Highly Compensated
Employees and who are (specify
group to which allocations are
to be made) [------------------
-------------------------------
------------------------------]
[ X ] (d) N/A (Qualified
Nonelective Contributions not
permitted)
(4) MANNER OF ALLOCATION. Allocation of
Qualified Nonelective Contributions
shall be made (check one):
[ ] (a) In the ratio which each
affected Participant's
Compensation for the Plan Year
bears to the total Compensation
of all affected Participants
for such Plan Year.
[ ] (b) In the ratio which each
affected Participant's
Compensation not in excess of
[$ ] for the Plan Year bears to
the total Compensation of all
affected Participants not in
excess of [$ ] for such Plan
Year.
[ X ] (c) N/A (Qualified Nonelective
Contributions not permitted).
(C) QUALIFIED MATCHING CONTRIBUTIONS.
(1) ELECTION. May the Employer be
permitted to make Qualified Matching
Contributions to the Plan?
[ ] (a) Yes [ ] (b) No
[ X ] (c) N/A (No Elective Deferrals
or Participant Contributions)
(2) ALLOCATION. The Employer shall, in
its sole discretion, make Qualified
Matching Contributions to the Plan on
behalf of (check one):
[ ] (a) All Participants
[ ] (b) All Participants who are
Non-Highly Compensated Employees
A-19
<PAGE>
[ ] (c) All Participants who are
Non-Highly Compensated
Employees and who are (specify
group to which allocations are
to be made) [------------------
------------------------------]
[ X ] (d) N/A (No Qualified Matching
Contributions)
If Section A.3.1(C)(2)(a), (b) or (c) is
checked, the allocation shall be made to
applicable Participants who make (check
(i) and/or (ii) or (iii)):
[ ] (i) Elective Deferral
Contributions
[ ] (ii) Participant
Contributions
[ X ] (iii) N/A (No
Qualified Matching
Contributions)
(3) AMOUNT. The Employer shall
contribute and allocate to each
Participant's Qualified Matching
Contribution account an amount
determined as follows (check applicable
block(s)):
[ ] (a) ELECTIVE DEFERRAL
CONTRIBUTIONS. The Employer
shall contribute an amount
equal to (check one):
[ ] (i) [ ] percent of
the Participant's
Elective Deferral
Contributions; or
[ ] (ii) that percent of
the Participant's
Elective Deferral
Contributions, as
determined by the
Employer, in its sole
discretion, for the
Plan Year.
[ ] (b) PARTICIPANT CONTRIBUTIONS.
The Employer shall contribute
an amount equal to (check one):
[ ] (i) [ ] percent of
of the Participant's
Participant Contributions; or
[ ] (ii) that percent of
the Participant's Participant
Contributions, as determined
by the Employer, in its sole
discretion, for the Plan
Year.
[ X ] (c) N/A (No Qualified Matching
Contributions).
The Employer shall not match amounts provided above in excess of
[$ N/A ], or in excess of [N/A] percent of the Participant's
Compensation (if there are no limitations or if this provision is
not otherwise applicable, insert letters N/A in blank(s)).
A-20
<PAGE>
A.3.2 PARTICIPANT CONTRIBUTIONS.
(A) PERMISSIBILITY. Participant Contributions shall
(check (1), (2) or (3)):
[ X ] (1) Not be permitted under the Plan (NOTE:
(NOTE: THIS BLOCK MUST BE CHECKED
UNLESS THE PLAN HAS A CODA AS INDICATED
BY CHECKING SECTION A.3.4(A)(2)).
[ ] (2) Be permitted (but not required) in
the amounts provided by Section 3.2 of
the Plan but subject to the limitations
of Section 3.8 of the Plan.
[ ] (3) Be required in order for an Employee to
participate in the Plan. Such
Participant Contributions shall be made
by payroll deduction and shall equal no
less than [ ] percent but shall not
exceed [ ] percent (not to exceed 6
percent) of the Participant's
Compensation for the Plan Year. The
Employee shall enter into an agreement
with the Employer providing for
Participant Contributions in any amount
from [ ] percent to [ ] percent (not to
exceed 6 percent) of the Participant's
Compensation for the Plan Year. In
addition, the Employee may, but is not
required to, make voluntary Participant
Contributions in the amounts provided
for in Section 3.2 of the Plan subject
to the limitations of Section 3.8 of
the Plan.
(B) PAYROLL DEDUCTION. Participant Contributions by
payroll deduction (check (1), (2) or (3)):
[ ] (1) Shall not be permitted.
[ ] (2) Shall be permitted.
[ X ] (3) Are N/A (No Participant
Contributions).
A.3.4 ELECTIVE DEFERRAL CONTRIBUTIONS.
(A) ELECTION. Elective Deferral Contributions shall
(check (1) or (2)):
[ X ] (1) Not be permitted under the Plan.
[ ] (2) Be permitted in accordance with
the provisions of Section 3.4 of the
Plan.
If Section A.3.4(A)(2) is checked, a salary reduction agreement must be
completed and filed by the Participant with the Administrative Committee
prior to the date the Elective Deferral Contributions are made.
(B) ELECTION CHANGES. If Section A.3.4(A)(2) is
checked, the Participant shall be permitted to enter into a new salary
reduction agreement (check one):
[ ] (1) Monthly [ ] (2) Quarterly
--- ---
[ ] (3) Semi-Annually [ ] (4) Annually
--- ---
[ ] (5) Other (Specify): [---------------]
[ X ] (6) N/A
A salary reduction agreement shall remain in effect until revoked or
changed.
(C) REVOCATION OF ELECTION. A Participant shall be permitted to
revoke his salary reduction agreement (check one):
A-21
<PAGE>
[ ] (1) Only as permitted under Section
A.3.4(B).
[ ] (2) Upon 15 days' written notice to
the Administrative Committee on the
Appropriate Form.
[ X ] (3) N/A.
(D) INCLUSION OF QUALIFIED MATCHING AND QUALIFIED NONELECTIVE
CONTRIBUTIONS. Qualified Matching Contributions and Qualified Nonelective
Contributions may be taken into account as Elective Deferral Contributions
for purposes of calculating the "Actual Deferral Percentages." In
determining Elective Deferral Contributions for the purpose of the ADP
test, the Employer shall include, under the Plan or any other plan of the
Employer as provided by Treasury regulations under the Code, (check one):
[ ] (1) Qualified Matching Contributions.
[ ] (2) Qualified Nonelective Contributions.
[ X ] (3) N/A (Elective Deferral
Contributions are not permitted or
Employer does not desire to make this
election or no Qualified Matching or
Qualified Nonelective Contributions are
permitted).
(E) QUALIFIED MATCHING CONTRIBUTIONS - AMOUNT. The amount of
Qualified Matching Contributions made under Sections 3.1 of the Plan and
A.3.1 of this Adoption Agreement and taken into account as Elective
Deferral Contributions for purposes of calculating the "Actual Deferral
Percentages," subject to such other requirements as may be prescribed by
the Secretary of the Treasury, shall be (check one):
[ ] (1) All such Qualified Matching
Contributions.
[ ] (2) Such Qualified Matching
Contributions that are needed to meet
the "Actual Deferral Percentage" test
stated in Section 3.4(B)(2) of the Plan.
[ X ] (3) N/A (Elective Deferral
Contributions not permitted and/or
Qualified Matching Contributions not
permitted).
(F) QUALIFIED NONELECTIVE CONTRIBUTIONS - AMOUNT. The amount of
Qualified Nonelective Contributions made under Sections 3.1 of the Plan and
A.3.1 of this Adoption Agreement and taken into account as Elective
Deferral Contributions for purposes of calculating the "Actual Deferral
Percentages," subject to such other requirements as may be prescribed by
the Secretary of the Treasury, shall be (check one):
[ ] (1) All such Qualified Nonelective
Contributions.
[ ] (2) Such Qualified Nonelective
Contributions that are needed to meet
the Actual Deferral Percentage test
stated in Section 3.4(B)(2) of the Plan.
[ X ] (3) N/A (Elective Deferral
Contributions and/or Qualified
Nonelective Contributions not
permitted).
A.3.5 MATCHING CONTRIBUTIONS.
(A) ELECTION. Matching Contributions by the
Employer (check (1), (2) or (3)):
[ ] (1) Shall not be permitted under the Plan.
[ ] (2) Shall be permitted in accordance
with the provisions of Section 3.5 of
the Plan and Section A.3.5(B) of the
Adoption Agreement.
A-22
<PAGE>
[ X ] (3) Are N/A (No Elective Deferral or
Participant Contributions).
If Section A.3.5(A)(2) is checked, the Employer may, in its sole
discretion, match, in accordance with Section A.3.5(B), the
Elective Deferral Contributions of a Participant made pursuant to
Section A.3.4 or Participant Contributions made pursuant to
Section A.3.2.
(B) ALLOCATION OF MATCHING CONTRIBUTIONS.
(1) AMOUNT. If Section A.3.5(A)(2) is
checked, Matching Contributions for the
Plan Year shall be allocated to the
Matching Account of each Participant, on
whose behalf Elective Deferral
Contributions for the Plan Year are
being made, in an amount equal to (check
one):
[ ] (a) [ ] (insert percentage)
percent of the (check
applicable block): (i) [ ]
Elective Deferral Contribution;
(ii)[ ] Participant
Contribution made on behalf of
each Participant for such Plan
Year; or
[ ] (b) that percent of the
(check applicable block): (i)
[ ] Elective Deferral
Contribution; (ii) [ ]
Participant Contribution made
on behalf of each Participant
for such Plan Year as
determined by the Employer, in
its sole discretion, for such
Plan Year.
[ X ] (c) N/A (No Matching
Contributions).
In no event shall such Matching
Contribution exceed the lesser of (aaa)
(insert percentage) [ ] percent of such
Participant's Compensation for such Plan
Year or (bbb) (insert amount, if any, of
dollar limitation) [$ ].
(2) ALLOCATION DATE. Shall Matching
Contributions be allocated effective as
of a date or dates other than the last
day of the Plan Year (check one)?
[ ] (a) Yes [ ] (b) No [ X ](c) N/A
--- --- ---
(aaa) If Section
A.3.5(B)(2)(a) is checked,
list the date(s) (month and
day) in each Plan Year as
of which Matching
Contributions shall be
allocated: [---------------
---------------------------
---------------------------
-------------------------].
(bbb) If Section
A.3.5(B)(2)(a) is checked,
a Participant who is
employed as of a date
specified for the
allocation of Matching
Contributions and on whose
behalf Elective Deferral
Contributions or
Participant Contributions
are being made shall
receive an allocation of
Matching Contributions as
of such date regardless of
the number of Hours of
Service credited to the
Participant for purposes of
a Year of Service for
Benefit Accrual as of such
date, notwithstanding
anything in the Plan to the
contrary.
(C) VESTING. Matching Contributions shall be
vested in accordance with the following schedule (check one):
A-23
<PAGE>
[ ] (1) Nonforfeitable when made.
[ ] (2) The Plan's general vesting
schedule, other than that for Elective
Deferral Contributions.
[ ] (3) [The sponsor may add elections for
one or more of the vesting schedules
that comply with section 411(a)(2) of
the Code: [ ].
[ X ] (4) N/A (No Matching Contributions).
(D) "AVERAGE CONTRIBUTION PERCENTAGE" COMPUTATIONS.
(1) In computing the "Average
Contribution Percentage" with respect to
Participant Contributions and Matching
Contributions, the Employer shall take
into account, under this Plan or any
other plan of the Employer, as provided
by Treasury regulations, and include as
"Contribution Percentage Amounts" (check
applicable block or blocks):
[ ] (a) Elective Deferral
Contributions.
[ ] (b) Qualified Nonelective
Contributions.
[ X ] (c) N/A (There are no
Participant or Matching
Contributions, or Employer does
not desire to make this
election).
(2) The amount of Qualified Nonelective
Contributions that are made under
Section 3.1 of the Plan and Section
A.3.1 and taken into account as
"Contribution Percentage Amounts" for
purposes of calculating the "Average
Contribution Percentage," subject to
such other requirements as may be
prescribed by the Secretary of the
Treasury, shall be (check one):
[ ] (a) All such Qualified
Nonelective Contributions.
[ ] (b) Such Qualified
Nonelective Contributions that
are needed to meet the "Average
Contribution Percentage" test
stated in Section 3.2 of the
Plan.
[ X ] (c) N/A (No Participant or
Matching Contributions or
Employer does not desire to
make this election).
(3) The amount of Elective Deferral
Contributions made under Section 3.4 of
the Plan and Section A.3.4 and taken
into account as "Contribution Percentage
Amounts" for purposes of calculating the
"Average Contribution Percentage",
subject to such other requirements as
may be prescribed by the Secretary of
the Treasury, shall be:
[ ] (a) All such Elective Deferral
Contributions.
[ ] (b) Such Elective Deferral
Contributions that are needed
to meet the "Average
Contribution Percentage" test
stated in Section 3.2 of the
Plan.
A-24
<PAGE>
[ X ] (c) N/A (There are no
Elective Deferral Contributions
under the Plan or Employer did
not make election under Section
A.3.5(D)(1)).
(4) To the extent forfeitable,
forfeitures of "Excess Aggregate
Contributions" shall be:
[ ] (a) Applied to reduce
Employer contributions.
[ ] (b) Allocated, after all other
forfeitures under the Plan, to
each Participant's Matching
Account in the ratio which each
Participant's Compensation for
the Plan Year bears to the
total Compensation of all
Participants for such Plan
Year. Such forfeitures shall
not be allocated to the account
of any Highly Compensated
Employee.
[ X ] (c) N/A (No Matching
Contributions).
A.3.8 LIMITATIONS ON ALLOCATIONS.
(A) GENERAL RULES. If the Employer maintains or ever maintained
another qualified plan (other than a paired defined contribution regional
prototype plan) in which any Participant in this Plan is (or was) a
participant or could become a participant, the Employer must complete this
Section A.3.8. The Employer must also complete this Section A.3.8 if it
maintains a Welfare Benefit Fund or an individual medical benefit account,
as defined in section 415(l)(2) of the Code, under which amounts are
treated as "Annual Additions" with respect to any Participant in this Plan.
Does the Employer maintain or has the Employer maintained any such plan(s)
(check one):
[ ] (1) Yes [ X ] (2) No
--- ---
If Section A.3.8(A)(1) is checked, complete Section A.3.8(B) and/or
(C).
(B) MAINTENANCE OF OTHER DEFINED CONTRIBUTION PLAN. If the
Participant is covered under another qualified Defined Contribution Plan
maintained by the Employer, other than a regional prototype plan (check
applicable provisions as necessary):
[ ] (1) The provisions of Section 3.8(B)
of the Plan shall apply as if the
other plan were a regional prototype
plan.
[ ] (2) Provide the method under which the
plans will limit the total "Annual
Additions" to the "Maximum
Permissible Amount", and will
properly reduce any "Excess
Amounts", in a manner that precludes
Employer discretion: [--------------
------------------------------------
----------------------------------].
[ X ] (3) N/A (No other qualified Defined
Contribution Plan (other than a
regional prototype plan), Defined
Benefit Plan, Welfare Benefit Fund
or individual medical benefit
account maintained).
(C) MAINTENANCE OF A DEFINED BENEFIT PLAN. If a Participant is or
has ever been a participant in a Defined Benefit Plan maintained by the
Employer, check either (1) or (2) and complete as necessary:
[ ] (1) The limitations set forth in
Section 3.8(C)(2) through (4) of
the Plan shall apply.
A-25
<PAGE>
[ ] (2) Provide the method under which the
Plan will satisfy the 1.0 limitation
of section 415(e) of the Code (such
language must preclude employer
discretion; see Treas. Reg. ss.
1.415-1 for guidance) in the
following blanks: [------------------
-------------------------------------
-----------------------------------].
IF ADDITIONAL SPACE IS REQUIRED THE EMPLOYER IS TO INSERT
APPLICABLE LIMITATIONS IN AN ATTACHMENT TO THIS ADOPTION
AGREEMENT. SUCH ATTACHMENT SHALL BE ADDED TO, AND MADE A
PART OF, THIS ADOPTION AGREEMENT.
A.3.9 ROLLOVERS.
(A) PARTICIPANT ROLLOVERS. May Participants be
permitted to make Rollover Contributions to the Plan (check one)?
[ X ] (1) Yes [ ] (2) No
--- --
(B) NON-PARTICIPANT ROLLOVERS. May Employees
other than Participants be permitted to make Rollover Contributions to the
Plan (check one)?
[ ] (1) Yes [ X ] (2) No
--- ---
A.3.10 TRANSFERS.
(A) PARTICIPANT DIRECT TRANSFERS. May
Participants be permitted to have direct transfers made on their behalf to
the Plan (check one)?
[ X ] (1) Yes [ ] (2) No
--- --
(B) NON-PARTICIPANT DIRECT TRANSFERS. May
Employees other than Participants be permitted to have direct transfers
made on their behalf to the Plan (check one)?
[ ] (1) Yes [ X ] (2) No
--- ---
(C) TRANSFERS OF ACCOUNTS. Are assets being
transferred to this Plan from a qualified plan covering Key Employees in a
Top-Heavy Plan or five-percent owners (within the meaning of section
416(i)(1) of the Code) (check one)?
[ ] (1) Yes [ X ] (2) No
--- ---
If such assets are transferred, the restrictions of Section 3.10(B) of the
Plan apply.
A.3.11 TOP-HEAVY PROVISIONS.
(A) APPLICATION OF PROVISIONS AND ADJUSTMENTS.
(1) APPLICATION. Is the Plan a Top-Heavy
Plan on the Effective Date (check one):
[ ] (a) Yes [ ] (b) No
[ X ] (c) Uncertain (Note that if this
this box is checked and the
Plan is a Top-Heavy Plan, the
Top-Heavy Plan provisions as
set forth herein shall apply)
(2) ADJUSTMENTS. If the Employer
maintains more than one plan in a
Permissive or Required Aggregation
Group, set forth here any adjustments to
be made for Employer contributions or
benefits attributable to Employer
contributions under such
A-26
<PAGE>
other plan(s) in determining the amount
of contributions to be made under the
Top-Heavy provisions of this Plan (if
not applicable, insert
letters N/A)): [ N/A
----------------------------------------
----------------------------------------
---------------------------------------]
(B) VESTING. The nonforfeitable interest of each
Employee in his account balance attributable to Employer contributions
shall be determined on the basis of the following (check either (1) or (2)
and fill in blank(s):
[ ] (1) 100% vesting after [ ] (not
to exceed 3) Years of Service
for Vesting;
[ X ] (2) [ 10 ]% (no minimum) vesting
after 1 Year of Service for
Vesting;
[ 25 ]% (not less than 20)
vesting after 2 Years of
Service for Vesting;
[ 50 ]% (not less than 40)
vesting after 3 Years of
Service for Vesting;
[ 75 ]% (not less than 60)
vesting after 4 Years of
Service for Vesting;
[ 100 ]% (not less than 80)
vesting after 5 Years of
Service for Vesting;
100% vesting after 6 Years of
Service for Vesting.
If the vesting schedule under the Plan shifts in or out of the above
schedule for any Plan Year because of the Plan's top-heavy status, such
shift is an amendment to the vesting schedule and the election in
Section 15.2(G) of the Plan applies.
A.5.1 ALLOCATIONS. If Section A.3.1(A)(1)(a) is checked, complete
the following:
(A) ALLOCATION OF EMPLOYER CONTRIBUTIONS.
(1) METHOD. Shall Employer Contributions
(if any) to the Employer Accounts of
Participants be integrated with Social
Security contributions, subject to the
overall permitted disparity limits set
forth below (check (a) if integrated,
(b) if not integrated)?
[ ] (a) Yes
The annual Employer Contribution shall
not exceed the limitations set forth in
Section A.5.1(A)(2). In any Plan Year in
which there are Employer Contributions,
such Employer Contributions shall,
subject to the Top-Heavy Plan
provisions, be allocated to each
Participant's Employer Account as
follows:
(i) ALLOCATION OF EMPLOYER
CONTRIBUTIONS FOR PLAN
YEARS IN WHICH PLAN IS A
TOP-HEAVY PLAN. If the Plan
is a Top-Heavy Plan for the
Plan Year, the Employer
Contribution for such Plan
Year shall be allocated to
each Participant's Employer
Account as follows:
A-27
<PAGE>
(aa) "BASE CONTRIBUTION
PERCENTAGE". First, (check
either (aaa) or (bbb))(percent
in either (aaa) or (bbb) must
not be less than the "Minimum
Top- Heavy Rate"):
[ ] (aaa) [ ] (insert
percent), or
[ ] (bbb) that percent
determined by the Employer
for the Plan Year
of the Participant's "Base
Compensation" for such Plan Year
shall be allocated to the
Employer Account of such
Participant;
(bb) "EXCESS CONTRIBUTION
PERCENTAGE". Second, (check
either (aaa) or (bbb))(percent
in either (aaa) or (bbb) must
not be less than the "Minimum
Top- Heavy Rate" and must not
exceed the "Maximum Excess
Allowance"):
[ ] (aaa)[ ] (insert
percent) percent, or
[ ] (bbb) that percent
determined by the Employer
for the Plan Year
of the Participant's Excess
Compensation for such Plan Year
shall be allocated to the
Employer Account of such
Participant (for purposes of
this allocation, forfeitures
allocated to a Participant in
the Plan Year shall be treated
as Employer Contributions);
however, in the case of any
Participant who has exceeded the
cumulative permitted disparity
limit described below, the
Employer shall contribute for
such Participant an amount equal
to the "Excess Contribution
Percentage" multiplied by the
Participant's total Compensation
for the Plan Year; and
(cc) "ADDITIONAL
CONTRIBUTION PERCENTAGE".
Lastly, any excess over
(aa) and (bb) shall be
allocated to each
Participant's Employer
Account in the same ratio
as his Compensation for
such Plan Year bears to the
Compensation of all
Participants for such Plan
Year.
(ii) ALLOCATION OF EMPLOYER
CONTRIBUTIONS FOR PLAN YEARS IN
WHICH PLAN IS NOT A TOP- HEAVY
PLAN. The Employer Contribution
for the Plan Year, if the Plan
is not a Top- Heavy Plan for the
Plan Year, shall be allocated as
follows:
(aa) "BASE CONTRIBUTION
PERCENTAGE". First, (check
either (aaa) or (bbb)):
[ ] (aaa)[ ] (insert
percent) percent, or
[ ] (bbb) that percent
determined by the Employer
for the Plan Year
A-28
<PAGE>
of the Participant's "Base
Compensation" for such Plan Year
shall be allocated to the
Employer Account of such
Participant;
(bb) "EXCESS CONTRIBUTION
PERCENTAGE". Second, (check
either (aaa) or (bbb))(percent
in either (aaa) or (bbb) must
not exceed the "Maximum Excess
Allowance"):
[ ] (aaa)[ ] (insert percent)
percent, or
[ ] (bbb) that percent
determined by the Employer for
the Plan Year
of the Participant's Excess
Compensation for such Plan Year
shall be allocated to the
Employer Account of such
Participant (for purposes of
this allocation, forfeitures
allocated to a Participant in
the Plan Year shall be treated
as Employer Contributions);
however, in the case of any
Participant who has exceeded the
cumulative permitted disparity
limit described below, the
Employer shall contribute for
such Participant an amount equal
to the "Excess Contribution
Percentage" multiplied by the
Participant's total Compensation
for the Plan Year; and
(cc) "ADDITIONAL CONTRIBUTION
PERCENTAGE". Lastly, any excess
over (aa) and (bb) shall be
allocated to each Participant's
Employer Account in the same
ratio as his Compensation for
such Plan Year bears to the
Compensation of all Participants
for such Plan Year.
With respect to any Employee who is a Participant in
the Plan for only a portion of the Plan Year for
which the Employer Contribution is made, the
allocation to such Employee of the Employer
Contribution (other than the Top-Heavy portion, if
the Plan is a Top-Heavy Plan), shall be (check one):
[ ] (AA) Based only upon the amount
of "Base Compensation", Excess
Compensation and/or Compensation
earned by such Employee and all
other Employees during the portion
of the Plan Year in which they are
or were Plan Participants.
[ ] (BB) Based upon the amount of
"Base Compensation", Excess
Compensation and/or Compensation
earned by such Employee and all
other Employees during the entire
Plan Year.
NOTE THAT THIS PLAN MAY NOT PROVIDE FOR PERMITTED DISPARITY IF THE EMPLOYER
MAINTAINS ANY OTHER PLAN THAT PROVIDES FOR PERMITTED DISPARITY AND BENEFITS
ANY OF THE SAME PARTICIPANTS.
[ X ] (b) No
The annual Employer Contributions (if any) shall be
determined by the Employer for each Plan Year but
shall not exceed the limitations of Section
A.5.1(A)(2). In any Plan Year in which
A-29
<PAGE>
there are Employer Contributions, such Employer
Contributions shall, subject to the Top-Heavy Plan
provisions, be allocated to such Participant's
Employer Account as follows:
(i) ALLOCATION OF EMPLOYER
CONTRIBUTIONS FOR PLAN YEARS IN
WHICH PLAN IS A TOP-HEAVY PLAN. If
the Plan is a Top-Heavy Plan for the
Plan Year, the Employer Contribution
for such Plan Year shall be first
allocated to each Participant's
Employer Account in the same ratio
as his Compensation for such Plan
Year bears to the Compensation of
all Participants for such Plan Year,
in an amount which is not less than
the "Minimum Top-Heavy Rate". The
balance of the Employer Contribution
for such Plan Year shall be
allocated to each Participant's
Employer Account as follows (check
one):
[ ] (aa) In the same ratio as
his Compensation for such Plan
Year bears to the Compensation of
all Participants for such Plan
Year.
[ X ] (bb) In the same ratio as
his Compensation for the portion
of the Plan Year in which he was a
Participant bears to the
Compensation of all Participants
for the portion of the Plan Year
in which they were Participants.
(ii) ALLOCATION OF EMPLOYER
CONTRIBUTIONS FOR PLAN YEARS IN
WHICH PLAN IS NOT A TOP- HEAVY PLAN.
The Employer Contribution for the
Plan Year, if the Plan is not a Top-
Heavy Plan for the Plan Year, shall
be allocated to each Participant's
Employer Account as follows (check
one):
[ ] (aa) In the same ratio as
his Compensation for such Plan
Year bears to the Compensation of
all Participants for such Plan
Year.
[ X ] (bb) In the same ratio as
his Compensation for the portion
of the Plan Year in which he was a
Participant bears to the
Compensation of all Participants
for the portion of the Plan Year
in which they were Participants.
[ ] (c) N/A (Section A.3.1(A)(1)(b)
checked)
(2) LIMITATIONS ON EMPLOYER
CONTRIBUTIONS. The following
limitations on Employer Contributions
apply:
(a) DEDUCTION LIMITATIONS. The
annual Employer, Matching, and
Elective Deferral Contributions and
any other Employer contribution
shall, in the aggregate, not exceed
the greater of:
(i) the Employer's "Primary
Limitation" (as defined below) for
the Taxable Year which ends with
or within the Plan Year for which
the Employer, Matching, and/or
A-30
<PAGE>
Elective Deferral Contribution and/or
other Employer contribution is being
made: or
(ii) the Employer's "Secondary
Limitation" (as defined below) for the
Taxable Year which ends with or within
the Plan Year for which the Employer,
Matching, and/or Elective Deferral
Contribution and/or other Employer
contribution is being made.
(b) CODE SECTION 415 LIMITATION. The
allocation of the Employer contributions for
the Plan Year shall be further limited by
Section 3.8 of the Plan (Limitations on
Allocations).
(c) OVERALL PERMITTED DISPARITY LIMITS.
(i) ANNUAL OVERALL PERMITTED DISPARITY
LIMIT. Notwithstanding the preceding
paragraphs, for any Plan Year this Plan
"Benefits" any Participant who "Benefits"
under another qualified plan or simplified
employee pension, as defined in section
408(k) of the Code, maintained by the
Employer that provides for permitted
disparity (or imputes disparity), Employer
contributions and forfeitures shall be
allocated to the account of every
Participant otherwise eligible to receive
an allocation in the ratio that such
Participant's total Compensation bears to
the total Compensation of all
Participants.
(ii) CUMULATIVE PERMITTED DISPARITY LIMIT.
Effective for Plan Years beginning on or
after January 1, 1995, the cumulative
permitted disparity limit for a
Participant is 35 total cumulative
permitted disparity years. Total
cumulative permitted years means the
number of years credited to the
Participant for allocation or accrual
purposes under this Plan, any other
qualified plan or simplified employee
pension plan (whether or not terminated)
ever maintained by the Employer. For
purposes of determining the Participant's
cumulative permitted disparity limit, all
years ending in the same calendar year are
treated as the same year. If the
Participant has not "Benefitted" under a
defined benefit or target benefit plan for
any year beginning on or after January 1,
1994, the Participant has no cumulative
disparity limit.
(3) DEFINITIONS. For purposes of this Section
A.5.1(A), the following definitions apply:
(a) "BASE CONTRIBUTION PERCENTAGE" means,
for any Plan Year, the percentage of
Compensation contributed under the Plan
with respect to that portion of each
Participant's Compensation up to the
"Integration Level" (I.E., with respect to
such Participant's "Base Compensation")
specified in the Plan for such Plan Year.
A-31
<PAGE>
(b) "BASE COMPENSATION" means, for any
Plan Year, Compensation up to the
"Integration Level" for such Plan Year.
(c) "BENEFIT" OR" BENEFITING" means, with
respect to a Participant, that such
Participant is treated as benefiting under
the Plan for any Plan Year during which
the Participant received or is deemed to
receive an allocation in accordance with
Treas. Reg. ss. 1.410(b)-3(a).
(d) "EXCESS CONTRIBUTION PERCENTAGE"
means, for any Plan Year, the percentage
of Compensation which is contributed under
the Plan with respect to that portion of
each Participant's Compensation in excess
of the "Integration Level" (I.E., with
respect to such Participant's Excess
Compensation) specified in the Plan for
such Plan Year.
(e) "INTEGRATION LEVEL" means the amount
of Compensation specified in the Plan at
or below which the rate of contributions
(expressed as a percentage of such
Compensation) provided under the Plan is
less than the rate of contributions
(expressed as a percentage of
Compensation) provided under the Plan with
respect to Compensation above such level.
The "Integration Level" for any Plan Year
may in no event exceed the Taxable Wage
Base as in effect on the first day of such
Plan Year.
(f) "MAXIMUM EXCESS ALLOWANCE" means, for
any Plan Year beginning before January 1,
1989, the "Base Contribution Percentage"
plus 5.7% and for any Plan Year beginning
after December 31, 1988, the percentage
determined under either (i) or (ii):
(i) If the "Integration Level" for such
Plan Year is equal to the Taxable Wage
Base, in effect on the first day of such
Plan Year, or if the "Integration Level"
is a uniform dollar amount for all
Participants which is no greater than
the greater of $10,000 or 1/5 of the
Taxable Wage Base in effect on the first
day of such Plan Year, then the "Maximum
Excess Allowance" for such Plan Year is
the lesser of:
(aa) The "Base Contribution
Percentage", or
(bb) The greater of (AA) 5.7% or (BB)
the percentage equal to the rate of
tax under section 3111(a) of the Code
(in effect on the first day of the
Plan Year) which is attributable to
the old age insurance portion of the
Old Age, Survivors and Disability
Insurance provisions of the Social
Security Act.
(ii) If the "Integration Level" for such
Plan Year is greater than the greater of
$10,000 or 1/5 of the Taxable Wage Base
in effect on the first day of such Plan
Year but less than the Taxable Wage Base
in
A-32
<PAGE>
effect on the first day of such Plan
Year then the "Maximum Excess
Allowance" shall be determined as
follows:
----------------------------------------------------
IF THE "INTEGRATION LEVEL" THE "MAXIMUM EXCESS
IS MORE THAN BUT NOT MORE THAN ALLOWANCE" IS
-------------------------------- ------------------
(1) X* 80% OF TAXABLE
WAGE BASE 4.3%
(2) 80% OF Y**
TAXABLE
WAGE BASE 5.4%
---------------------------------------------------
* x=The greater of $10,000 or 1/5
of Taxable Wage Base
**y=Any amount more than 80% of
Taxable Wage Base but less
than 100% of Taxable Wage
Base.
(g) "MINIMUM TOP-HEAVY RATE" means a
rate of at least three percent (unless
the total Employer contribution to the
Plan is less than three percent), or,
in certain cases where a Defined
Benefit Plan is maintained, five
percent or seven and one-half percent
(whichever is applicable) of each
Participant's Compensation for such
Plan Year; if the Plan is integrated
with Social Security, the "Base
Contribution Percentage" plus the
"Excess Contribution Percentage" plus
the "Additional Contribution
Percentage" (if any) must be no less
than the "Minimum Top- Heavy Rate" as
set forth in the preceding clause.
(h) "PRIMARY LIMITATION" means 15
percent of the Compensation otherwise
paid or accrued by the Employer during
such Taxable Year to, or for, the
Participants in the Plan.
(i) "SECONDARY LIMITATION" means the
lesser of:
(i) 25 percent of the Participants'
Compensation for the Taxable Year
which ends with or within the Plan
Year for which the Employer,
Matching, and/or Elective Deferral
Contribution or other Employer
contribution is being made, or
(ii) Any excess of (aa) the
aggregate of the "Primary
Limitations" for all Taxable Years
beginning before January 1, 1987,
over (bb) the aggregate of the
deductions allowed or allowable (for
Employer, Matching, and Elective
Deferral Contributions or other
Employer contributions paid or
deemed paid to the Plan) under
section 404(a)(3)(A) of the Code for
all Taxable Years beginning before
January 1, 1987, which excess is
available as a carryforward to the
current Taxable Year from such prior
Taxable Year(s) under said section
404(a)(3)(A).
A-33
<PAGE>
(B) OTHER ALLOCATIONS. Other contributions shall
be allocated in accordance with the Plan document.
A.5.4 ALLOCATION OF INCREASES AND DECREASES. Allocation of
increases or decreases in the fair market value of assets described in Section
5.4 of the Plan shall be made on the basis of the amounts in the Accounts under
the Plan (as adjusted under Section 5.4 of the Plan) as determined on (check
either (A) or (B)):
[ X ] (A) First day of the period in which the
Valuation Date occurs (except that the last day
of the period shall be used for the initial
allocation).
[ ] (B) Last day of the period in which the Valuation
Date occurs.
A.5.5 ALLOCATION OF FORFEITURES.
(A) Shall forfeitures be allocated in accordance
with Section 5.5 of the Plan (check one)?
[ X ] (1) Yes [ ] (2) No
--- ---
[ ] (3) N/A (No forfeitures)
If Section A.5.5(A)(1) is checked, such allocation shall be effected as of
the last day of the (check one): [ ] (a) month [ ] (b) quarter [ X ] (c)
Plan Year in which the forfeiture occurs under Section 7.6(c) of the Plan,
in proportion to the Employer and/or Matching Contributions (as applicable)
allocated to the remaining Participants for the period for which the
allocation is effected.
(B) If Section A.5.5(A)(2) is checked,
forfeitures shall be allocated as follows (check applicable block):
[ ] (1) Matching Account forfeitures shall
be used to reduce Matching Contributions
for the Plan Year in which such
forfeitures occur but otherwise the
provisions of Section 5.5 of the Plan
shall apply.
[ ] (2) All Matching and mployer Account
forfeitures shall be used to reduce
Matching and Employer Contributions for
the Plan Year in which such forfeitures
occur.
[ X ] (3) N/A (Forfeitures shall be
allocated under Section 5.5 of Plan or
no forfeitures).
A.6.1 INVESTMENT OF ACCOUNTS.
(A) INVESTMENT POWER. Investment of Trust assets
shall be directed as follows (check (1), (2) or (3)):
[ X ] (1) Subject to the terms of the
Plan, the Trustee shall, subject to any
limitations indicated below, have the
sole power and authority to direct
investment of Trust assets.
[ ] (2) Subject to the terms of the Plan,
the Investment Manager shall, subject to
any limitations indicated below, have
the sole power and authority to direct
investment of Trust assets held in
(check applicable block(s)):
[ ] Employer Accounts [ ] Matching Accounts
[ ] Participant Accounts [ ] Elective Deferral
Accounts
A-34
<PAGE>
[ ] QVEC Accounts [ ] Rollover Accounts
[ ] Transfer Accounts [ ] Other Accounts
Subject to the terms of the Plan, the Trustee shall have
the sole power and authority to direct investment of Trust
assets not committed to the direction of the Investment
Manager.
[ ] (3) Subject to the terms of the Plan,
each Plan Participant or Beneficiary
shall, subject to any limitations
indicated below, have the sole power and
authority to direct investment of the
Trust assets held in (check applicable
block(s)):
[ ] Employer Accounts [ ] Matching Accounts
[ ] Participant Accounts [ ] Elective Deferral
Accounts
[ ] QVEC Accounts [ ] Rollover Accounts
[ ] Transfer Accounts [ ] Other Accounts
The investments which the Participant or Beneficiary may
select are any one or more of the following (specify
investment selections available): [-----------------------
----------------------------------------------------------
---------------------------------------------------------]
Investment instructions shall be given by the Participant
or Beneficiary on the Appropriate Form to the
Administrative Committee not later than (fill in blank) [
] days before the Valuation Date preceding the effective
date of the investment direction. The Administrative
Committee shall deliver such instructions to the Trustee.
Such investment instructions shall be effected by the
Trustee not later than (fill in blank) [ ] days following
the Valuation Date coincident with or next following the
date on which the investment instructions are delivered to
the Administrative Committee.
Subject to the terms of the Plan, the Trustee shall have
the sole power and authority to direct investment of Trust
assets not committed to the direction of the Participant
or Beneficiary.
(B) LIMITATIONS. List any limitations on types of investments
and transitional investment rules (if none, write "none"): [
NONE
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
--------------------------------------------------------------------------]
(C) QUALIFYING EMPLOYER SECURITIES. May Plan
assets be invested in Qualifying Employer Securities (check one)?
[ X ] (1) Yes [ ] (2) No
--- ---
In no event may Employer, Participant, Elective Deferral, Matching,
Rollover or Qualified Voluntary Employee Contributions or other Employer
contributions or direct transfers or Employer, Participant, Elective
Deferral, Matching, Rollover, Transfer or QVEC Accounts or other accounts
be invested in Qualifying Employer Securities unless such investment is in
compliance with applicable Federal and state securities laws (including any
necessary filings under such Federal and state securities laws) and the
requirements of the Plan.
If such investment is in compliance with such laws (including any required
filings) and Plan requirements, the prohibition on investment of Plan
assets in Qualifying Employer Securities does not apply and up to [ 100 ]
(insert percentage; if not applicable, insert letters N/A in blank) percent
of Plan assets may be so invested.
A-35
<PAGE>
If any such required filings have not been made, only Employer
Contributions and Employer Accounts not subject to Participant or
Beneficiary directed investment may be invested in Qualifying Employer
Securities. In such case, indicate the percentage of Employer Contributions
and Employer Accounts which may be invested in Qualifying Employer
Securities in the following blank: [ 100 ] percent (insert percentage; if
not applicable, insert letters N/A in blank).
A.7.6 SEPARATION FROM SERVICE.
(A) DISTRIBUTION OF ACCRUED BENEFITS UPON SEPARATION FROM
SERVICE.
(1) NORMAL RULES. Upon separation of a Participant from the
service of his Employer under Section 7.6(A) of the Plan,
distribution of such Participant's Vested Accrued Benefit
shall be made (check only one block (I.E., (a), (b) or
(c)):
[ ] (a) Upon the request of the Participant in writing
on the Appropriate Form, within 60 days
following the last day of the Plan Year in
which such Participant incurs five consecutive
One-Year Breaks In Service but if distribution
is not so requested by the Participant,
distribution shall be made on the date the
Participant would have attained his Normal
Retirement Age had he remained in the employ
of the Employer;
[ X ] (b) Upon the request of the Participant in writing
writing on the Appropriate Form, at any time
following the first Valuation Date coincident
with or next following the date such
Participant separates from the service of the
Employer; however, if distribution is not so
requested by the Participant earlier,
distribution shall be made no later than 60
days following the date the Participant would
have attained his Normal Retirement Age had he
remained in the employ of the Employer; or
[ ] (c) Within 60 days following the date the
Participant would have attained his Normal
Retirement Age had he remained in the employ
of the Employer.
Notwithstanding any other provision in the Plan or Adoption
Agreement, if the Plan provides for distribution on an Early
Retirement Date and if a separated Participant met the service but
not the age requirement for such Early Retirement Date on the date
of his separation from the service of his Employer, upon meeting
such age requirement after separation, such Participant, if he so
requests in writing on the Appropriate Form, shall commence
receiving his deferred Vested Accrued Benefit no later than the
date which would have been his Early Retirement Date had he
continued in the service of the Employer. If no such request is
made, distribution shall be made in accordance with Section
A.7.6(A)(1)(a), (b) or (c), as elected by the Employer in this
Adoption Agreement. All requests for payment under this Section
A.7.6(A) shall be made within the 90-day period preceding the date
payment is to commence.
(2) EXCEPTION. If a Participant separates from the service
of the Employer and the value of the Participant's Vested
Accrued Benefit does not exceed and at the time of any
prior distribution did not exceed $3,500, the Participant
shall automatically, whether or not he requests
distribution, receive, in one lump sum, a distribution of
his entire Vested Accrued Benefit (and if the Vested
Accrued Benefit
A-36
<PAGE>
is $-0-, he shall be deemed to have
received such Vested Accrued Benefit)
within 60 days following the first
Valuation Date coincident with or next
following the date such Participant
separates from the service of the
Employer.
This provision shall only apply if this block is checked [ X ].
If the above block is not checked or if the value of the
Participant's Vested Accrued Benefit exceeds or at the time of a
prior distribution exceeded $3,500, the election made under
Section A.7.6(A)(1) shall apply to the distribution of the
Participant's Vested Accrued Benefit under the Plan.
(B) VESTING UPON SEPARATION FROM SERVICE.
(1) Except as otherwise provided in the Plan and in
Sections A.3.5 and A.3.11, the interest of each
Participant in his Employer Account and Matching
Account shall vest as follows (check one and
complete applicable blanks):
[ ] (a) 100 percent vesting immediately. (This
alternative must be chosen if a period of
more than one year has been designated in
Section A.2.2(B)(1)(a)(i)).
[ ] (b) [ ] percent for each Year of Service for
Vesting (not less than 20 percent for
each Year of Service for Vesting, but not
more than 100 percent).
[ ] (c) Nothing for the first five Years of
Service for Vesting and 100 percent
thereafter.
[ ] (d) Nothing for the first [ ] Years of Service
for Vesting, then [ ] percent for each
Year of Service for Vesting thereafter,
but not more than 100 percent. (Full
vesting must occur after five Years of
Service for Vesting).
[ ] (e) In accordance with the following table:
IF YEARS OF SERVICE
FOR VESTING THEN THE VESTED
EQUAL OR EXCEED - PERCENTAGE IS
3.............................20
4.............................40
5.............................60
6.............................80
7 or more....................100
[ X ] (f) [Other. (This alternative, if chosen,
must provide a percentage of vesting
which is not less than the percentage
that would be provided under options (c)
or (e) used consistently) - Specify:
IF YEARS OF SERVICE
FOR VESTING THEN THE VESTED
EQUAL OR EXCEED - PERCENTAGE IS
1.............................10
2.............................25
3.............................50
4.............................75
5 OR MORE....................100
A-37
<PAGE>
(2) For purposes of Section A.7.6(B)(1) above and for
purposes of Section A.3.5 and Section 3.11(B) of the
Plan, Years of Service for Vesting attributable to the
following shall be disregarded (check applicable
blocks):
[ ] (a) Service prior to the attainment of
age 18, exclusive of the year within
which the Employee attained age 18.
[ ] (b) Service during any period for which
the Employer did not maintain this
Plan or a predecessor trust or plan.
[ ] (c) Service before January 1, 1971, unless
the Employee has had at least three
years of credited service after
December 31, 1970, determined without
application of paragraphs (a), (b),
(d) and (e) hereof if selected by the
Employer.
[X] (d) If an Employee is reemployed by the
Employer following a One-Year Break In
Service, service before such One-Year
Break In Service, if the Employee has
not completed a Year of Service for
Vesting after such One- Year Break In
Service, for the purpose of
determining the vested percentage in
his Employer-derived Accrued Benefit
which accrues after such One-Year
Break In Service.
[X] (e) If an Employee is reemployed by the
Employer following five consecutive
One-Year Breaks In Service (check only
(i) or (ii) whichever is to apply):
[ ] (i) Service after such five
consecutive One-Year Breaks In
Service, for the purpose of
determining the vested
percentage in his
Employer-derived Accrued
Benefit which accrued before
such five consecutive One-Year
Breaks In Service but both
pre-Break and post- Break
service will count for purposes
of determining the vested
percentage in his
Employer-derived Accrued
Benefit which accrued after
such Break.
[X] (ii) Service after such five
consecutive One-Year Breaks In
Service, for the purpose of
determining the vested
percentage in his
Employer-derived Accrued
Benefit which accrued before
such five consecutive One-Year
Breaks In Service and, if the
Employee had no vested interest
in his Employer- derived
Accrued Benefit prior to such
Break(s) and the number of
consecutive One-Year Breaks In
Service equals or exceeds the
aggregate Years of Service for
Vesting, service before such
five consecutive One-Year
Breaks In Service for the
purpose of determining the
vested percentage in his
Employer-derived Accrued
Benefit which accrues after
such five
A-38
<PAGE>
consecutive One-Year Breaks In
Service.
To the extent required by the Plan, separate accounts
shall be maintained for the Participant's pre-Break and
post- Break Employer-derived account balances.
(3) Except as otherwise provided in Section 7.6(C) of
the Plan relating to benefits accruing before a
separation from service, if a Participant separates
from service and thereafter returns to employment with
the Employer without incurring five consecutive
One-Year Breaks In Service, he shall continue to vest
in his Accrued Benefit.
(4) In the event that an Employee who is not a member
of the eligible class of Employees becomes a member of
the eligible class, such Employee shall, subject to
any applicable limitation set forth in this Section
A.7.6, receive credit, for vesting purposes, for
Service with the Employer while such Employee was not
a member of the eligible class.
(5) Service, for purposes of Section A.7.6(B)(1),
includes service with a predecessor employer if the
Employer adopting the Plan is maintaining the Plan as
a plan of a predecessor employer.
Service, for purposes of Section A.7.6(B)(1), also includes
service with a predecessor employer whose plan is not being
continued by the Employer to the extent provided in Section
A.1.79.
(C) FORFEITURES. If the provisions of Section 7.6(C)(1)(b) of the
Plan are to apply, check this block [ X ]; otherwise the provisions of
Section 7.6(C)(1)(a) of the Plan shall apply.
A.7.9 COMMENCEMENT OF PAYMENTS; DEFERRAL OF PAYMENTS; MINIMUM
DISTRIBUTION REQUIREMENTS.
(A) DATE PAYMENTS TO COMMENCE. This provision is contained in the
Plan.
(B) DEFERRAL OF PAYMENTS. Shall a Participant, to the extent
permitted by the Plan, be permitted to defer payment of benefits under
Sections 7.3, 7.4, 7.5 and 7.7 of the Plan (check one)?
[ X ] (1) Yes [ ] (2) No
--- ---
(C) MINIMUM DISTRIBUTION REQUIREMENTS. This provision is contained
in the Plan.
A.7.10 WITHDRAWALS DURING EMPLOYMENT.
(A) WITHDRAWALS FROM PARTICIPANT ACCOUNTS. Shall withdrawals of
Participant Accounts (other than the portion of such Participant Accounts
attributable to required Participant Contributions and to Participant
Contributions which are matched by the Employer) be permitted (check one)?
[ ] (1) Yes [ ] (2) No [ X ] (3) N/A
--- --- ---
(B) WITHDRAWALS FROM QVEC ACCOUNTS. Shall withdrawals of QVEC
Accounts be permitted (check one)?
[ ] (1) Yes [ ] (2) No [ X ] (3) N/A
--- --- ---
(C) WITHDRAWALS FROM ROLLOVER ACCOUNTS. Shall withdrawals of
Rollover Accounts be permitted (check one)?
[ ] (1) Yes [ X ] (2) No [ ] (3) N/A
--- --- ---
A-39
<PAGE>
(D) HARDSHIP AND POST - 59 1/2 WITHDRAWALS FROM ELECTIVE DEFERRAL
ACCOUNTS. Shall withdrawals of Elective Deferral Accounts be permitted (if
such withdrawals are to be permitted, check either (1) or (2) or both) [ ]
(1) on account of hardship [ ] (2) after reaching age 59-1/2 (check one)?
[ ] (a) Yes [ ] (b) No [ X ] (c) N/A
--- --- ---
(E) HARDSHIP AND POST - 59 1/2 WITHDRAWALS FROM EMPLOYER,
PARTICIPANT, ROLLOVER AND TRANSFER ACCOUNTS. Shall withdrawals of Employer,
Participant, Rollover and Transfer Accounts be permitted (if such
withdrawals are to be permitted, check either (1) or (2) or both) [ ] (1)
on account of hardship [ ] (2) after reaching age 59-1/2 (check one)?
[ ] (a) Yes [ X ] (b) No
(F) HARDSHIP AND POST - 59 1/2 WITHDRAWALS FROM MATCHING ACCOUNTS.
Shall hardship and post - age 59 1/2 withdrawals of Matching Accounts be
permitted (if such withdrawals are to be permitted, check either (1) or (2)
or both) [ ] (1) on account of hardship [ ] (2) after reaching age 59-1/2
(check one)?
[ ] (a) Yes [ ] (b) No [ X ] (c) N/A
--- --- ---
(G) OTHER PRE-59-1/2 IN-SERVICE WITHDRAWALS. Shall withdrawals of
a Participant's Vested Accrued Benefit attributable to Participant
Contributions, Employer Contributions, and Matching Contributions after
such Participant completes five Years of Service for
Benefit Accrual but before he attains age 59 1/2 be permitted (check one)?
[ ] (1) Yes [ X ] (2) No
--- ---
WITHDRAWALS SHALL ONLY BE MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION
7.10 OF THE PLAN.
A.7.11 LOANS.
(A) Shall loans to Participants and Beneficiaries if such
Beneficiaries are parties-in-interest (as defined in the Plan) be permitted
(check one)?
[ X ] (1) Yes [ ] (2) No
--- ---
NOTE: NO LOANS MAY BE MADE TO OWNER-EMPLOYEES OR TO SHAREHOLDER
EMPLOYEES (AS DEFINED IN SECTION 7.11(A)(7) OF THE PLAN).
(B) The interest rate shall be determined as follows: [ THE
INTEREST RATE SHALL EQUAL ONE PERCENTAGE POINT ABOVE THE PRIME INTEREST
RATE AS PUBLISHED IN THE WALL STREET JOURNAL ON THE FIRST BUSINESS DAY OF
THE WEEK IN WHICH THE LOAN IS MADE. ]
(C) Shall the exception to the 50% of Vested Accrued Benefit
limitation on loans not in excess of $10,000 apply?
[ ] (1) Yes [ X ] (2) No
--- ---
[ ] (3) N/A (No loans permitted)
If the exception is to apply, note that only 50% of the Vested Accrued
Benefit may be used as security for the loan. Additional security must
be provided by the Participant or Beneficiary. Specify the type of
additional collateral which will be used to secure the remainder of the
loan: [ N/A
-----------------------------------------------------------------------
-----------------------------------------------------------------------
----------------------------------------------------------------------]
(D) Specify the types of collateral to be used to secure loans
under the Plan: [ ONE HALF OF THE PRESENT VALUE OF THE PARTICIPANT'S OR
BENEFICIARY'S VESTED ACCRUED BENEFIT UNDER THE PLAN. ]
A-40
<PAGE>
(E) If Section A.7.11(A)(1) is checked, indicate any additional
limitations to be placed on loans (if none, so state; if not applicable,
insert letters N/A):[ LOANS FROM THE PLAN WILL BE PERMITTED ONLY IN THE
EVENT OF A PERSONAL EMERGENCY OR FINANCIAL HARDSHIP IN ACCORDANCE WITH THE
GUIDELINES SET FORTH IN SECTION 7.10(C)(3) OF THE PLAN. ]
(F) Shall loans to a Participant be treated as an investment by
such Participant for his Accounts only (check one)?
[ X ] (1) Yes [ ] (2) No
--- ---
[ ] (3) N/A (No loans permitted)
A.7.14 JOINT AND SURVIVOR ANNUITY. The provisions of Section 7.14 of
the Plan shall not apply to the Plan, as adopted under this Adoption
Agreement.
A.8.2 SPECIAL PROVISION WITH RESPECT TO QUALIFIED DOMESTIC RELATIONS
ORDERS. Shall the special provision of Section 8.2 of the Plan with respect
to Qualified Domestic Relations Orders apply to the Plan as adopted by the
Employer (check one)?
[ X ] (A) Yes [ ] (B) No
A.15.1 AMENDMENT. THE CHANGES MADE BY THIS AMENDMENT AND RESTATEMENT
SHALL BE DEEMED ADOPTED BY EACH ADOPTING EMPLOYER ON THE DATE THE
NOTIFICATION LETTER IS ISSUED BY THE DISTRICT OFFICE OF THE INTERNAL
REVENUE SERVICE WITHOUT FURTHER ACTION ON THE PART OF THE ADOPTING EMPLOYER
EXCEPT THAT SUCH ADOPTING EMPLOYER MUST SEND A NOTICE TO INTERESTED PARTIES
INFORMING SUCH INTERESTED PARTIES THAT THE PLAN HAS BEEN AMENDED. SUCH
NOTICE MUST BE GIVEN IN ACCORDANCE WITH THE RULES OF SECTION 15.1(C) OF THE
PLAN. SEE SECTION 15.1(C) OF THE PLAN FOR FURTHER INFORMATION.
A.18.4 AGENT FOR SERVICE OF LEGAL PROCESS. The name(s) and address(es)
of the agent(s) for service of legal process under the Plan are:
[ ADMINISTRATIVE COMMITTEE, FUND OFFICE RETIREMENT PROFIT-SHARING PLAN
C/O CHESTNUT STREET EXCHANGE FUND
BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
A.18.17 RESTATEMENT.
(A) RESTATEMENT OF EXISTING PLAN. The Employer may adopt the Plan
as an amendment and restatement of any Prior Plan (including a prior
version of this Plan and Trust Agreement). Adoption shall not require
termination of the Prior Plan, except that amendment and restatement of an
existing Defined Benefit Plan into the Plan shall be deemed to be a
termination of such Prior Plan for the purposes of Title IV of ERISA. Upon
adoption of this Plan, the assets of the Prior Plan shall be invested in
accordance with the provisions of this Plan. Check if applicable:
[ X ] This is an amendment and restatement of the [ FUND
OFFICE RETIREMENT PROFIT-SHARING ] PLAN, an existing qualified
[ PROFIT- SHARING ] plan, which was adopted effective as of [
SEPTEMBER 18, 1981].
(B) LIMITATIONS APPLICABLE TO PLAN PROVISIONS. Except as otherwise
provided in Section 3.11 of the Plan, the participation and/or vesting
provisions of the Plan, as adopted by the Employer, shall apply as follows
(check applicable block or blocks; to the extent not checked, the Plan
shall apply in accordance with the terms set forth herein):
[ ] (1) The participation provisions of
this Plan, as adopted by the Employer,
shall apply only to Employees hired on
or after the date the Plan is adopted by
the Employer. The participation
provisions of the Prior Plan shall
otherwise apply.
A-41
<PAGE>
[ ] (2) The vesting provisions of this
Plan, as adopted by the Employer, shall
apply only to Employees hired on or
after the date the Plan is adopted by
the Employer. The vesting provisions of
the Prior Plan shall otherwise apply.
[ X ] (3) N/A.
(C) INCORPORATION OF APPLICABLE PRIOR PLAN PROVISIONS AND
TRANSITIONAL RULES. If the Employer checked A.18.17(A), such Employer shall
insert here any Prior Plan provisions and any transitional rules which such
Employer desires or is required to make applicable to this Plan (if none,
write the word "none"):
[ (1) MERGER OF PLANS. EFFECTIVE DECEMBER 1, 1987, THE CHESTNUT STREET
EXCHANGE FUND RETIREMENT PROFIT-SHARING PLAN, THE INDEPENDENCE SQUARE INCOME
SECURITIES, INC. RETIREMENT PROFIT-SHARING PLAN, THE TEMPORARY INVESTMENT FUND,
INC. RETIREMENT PROFIT-SHARING PLAN, AND THE TRUST FOR SHORT-TERM FEDERAL
SECURITIES RETIREMENT PROFIT-SHARING PLAN WERE MERGED INTO, AND THEIR ASSETS
TRANSFERRED INTO, THE PLAN.
(2) CHANGE IN ACCRUAL COMPUTATION PERIODS, LIMITATION YEARS, PLAN YEARS
AND VESTING COMPUTATION PERIODS. AS A RESULT OF THE MERGER AND TRANSFER OF
ASSETS, THE ACCRUAL COMPUTATION PERIODS, LIMITATION YEARS, PLAN YEARS AND
VESTING COMPUTATION PERIODS FOR THE CHESTNUT STREET EXCHANGE FUND, INDEPENDENCE
SQUARE INCOME SECURITIES, INC., TEMPORARY INVESTMENT FUND, INC., AND TRUST FOR
FEDERAL SECURITIES RETIREMENT PROFIT-SHARING PLANS WERE CHANGED AS FOLLOWS:
PLAN OLD (UNDER OLD PLAN) NEW (UNDER THIS PLAN)
CHESTNUT STREET EX-
CHANGE FUND 1/1 TO 12/31 12/1 TO 11/30
INDEPENDENCE SQUARE
INCOME SECURITIES,
INC. 1/1 TO 12/31 12/1 TO 11/30
TEMPORARY INVESTMENT
FUND, INC. 10/1 TO 9/30 12/1 TO 11/30
TRUST FOR FEDERAL
SECURITIES 11/1 TO 10/31 12/1 TO 11/30
THIS RESULTED IN THE FOLLOWING SHORT ACCRUAL COMPUTATION PERIODS,
LIMITATION YEARS, PLAN YEARS AND VESTING COMPUTATION PERIODS:
PLAN SHORT PERIOD/YEAR
CHESTNUT STREET 1/1/87 TO 11/30/87
INDEPENDENCE SQUARE INCOME SECURITIES, INC. 1/1/87 TO 11/30/87
TEMPORARY INVESTMENT FUND, INC. 10/1/87 TO 11/30/87
TRUST FOR FEDERAL SECURITIES 11/1/87 TO 11/30/87
(a) CHANGE IN VESTING COMPUTATION PERIODS. EACH PARTICIPANT IN THE
ABOVE LISTED PLANS RECEIVED VESTING CREDIT FOR TWO YEARS OF
SERVICE FOR VESTING PROVIDED SUCH PARTICIPANT COMPLETED 200 OR
MORE HOURS OF SERVICE IN BOTH THE OLD VESTING COMPUTATION
PERIOD AND THE NEW VESTING COMPUTATION PERIOD AS SET FORTH
ABOVE.
(b) CHANGE IN ACCRUAL COMPUTATION PERIODS. ANY PARTICIPANT IN THE
ABOVE LISTED PLANS WHO COMPLETED 200 HOURS OF SERVICE
MULTIPLIED BY THE NUMBER OF MONTHS IN THE SHORT ACCRUAL
COMPUTATION PERIOD DIVIDED BY TWELVE RECEIVED HIS
PROPORTIONATE SHARE OF EMPLOYER CONTRIBUTIONS DURING THE SHORT
ACCRUAL COMPUTATION PERIOD SET FORTH ABOVE.
(c) CHANGE IN LIMITATION YEARS. FOR THE SHORT LIMITATION YEARS,
THE DOLLAR LIMITATIONS UNDER SECTION 415(C)(1)(A) OF THE CODE
WERE ADJUSTED AS PROVIDED UNDER TREAS. REG. SS. 1.415-2(B)(4).
THE ABOVE CHANGES WERE MADE PURSUANT TO THE AUTOMATIC APPROVAL
PROVISIONS OF REV. PROC. 87-27, 1987-25 I.R.B. 41. ]
A-42
<PAGE>
A.18.18 INDIVIDUAL PROVISIONS. Any provisions applicable to the
adopting Employer only should be inserted here (if none, write the word "none"):
[ (A) EMPLOYER AMENDMENT OF PLAN AND/OR TRUST. ANY EMPLOYER AMENDMENT OF THE
PLAN AND/OR TRUST PERMITTED BY SECTION 15.1 OF THE PLAN AND TRUST AGREEMENT
SHALL BE EFFECTED BY RESOLUTION OF THE EMPLOYER'S BOARD OF DIRECTORS ADOPTED AT
A DULY HELD MEETING OF SAID BOARD OR BY UNANIMOUS WRITTEN CONSENT OF SAID BOARD,
IF THE EMPLOYER IS INCORPORATED AND OTHERWISE BY APPROPRIATE WRITTEN ACTION OF
EMPLOYER'S OWNER OR OTHER GOVERNING ENTITY UNDER STATE LAW. A CERTIFIED COPY OF
SUCH RESOLUTIONS OR OTHER WRITTEN ACTION SHALL BE DELIVERED TO THE
ADMINISTRATIVE COMMITTEE AND THE TRUSTEE.
(B) TERMINATION OR PARTIAL TERMINATION OF PLAN AND/OR TRUST. TERMINATION OR
PARTIAL TERMINATION OF THE PLAN AND/OR TRUST UNDER ARTICLE XVI OF THE PLAN AND
TRUST AGREEMENT SHALL BE EFFECTED BY RESOLUTION OF THE EMPLOYER'S BOARD OF
DIRECTORS ADOPTED AT A DULY HELD MEETING OF SAID BOARD OR BY UNANIMOUS WRITTEN
CONSENT OF SAID BOARD, IF SUCH EMPLOYER IS INCORPORATED AND OTHERWISE BY
APPROPRIATE WRITTEN ACTION OF THE EMPLOYER'S OWNER OR OTHER GOVERNING ENTITY
UNDER STATE LAW. A CERTIFIED COPY OF SUCH RESOLUTIONS OR OTHER WRITTEN ACTION
SHALL BE DELIVERED TO THE ADMINISTRATIVE COMMITTEE AND THE TRUSTEE.
(C) SMALL BUSINESS JOB PROTECTION ACT OF 1996 AND TAXPAYER RELIEF ACT OF
1997 CHANGES.
(1) DEFINITION OF HIGHLY COMPENSATED EMPLOYEE. NOTWITHSTANDING SECTION
1.38 OF THE PLAN, EFFECTIVE FOR PLAN YEARS BEGINNING ON AND AFTER JANUARY 1,
1997, "HIGHLY COMPENSATED EMPLOYEE" SHALL MEAN ANY EMPLOYEE OF THE EMPLOYER WHO:
(a) WAS A FIVE PERCENT OWNER (WITHIN THE MEANING OF SECTION
414(Q)(2) OF THE CODE) OF THE EMPLOYER AT ANY TIME DURING THE DETERMINATION
YEAR OR THE LOOK BACK YEAR; OR
(b) FOR THE PRECEDING PLAN YEAR:
(i) HAD COMPENSATION FROM THE EMPLOYER IN EXCESS OF $80,000
(AS ADJUSTED IN ACCORDANCE WITH SECTION 414(Q)(1) OF THE CODE);
(ii) IF THE EMPLOYER ELECTS THE APPLICATION OF THIS SECTION
18.18(C)(2)(B) FOR SUCH LOOK BACK YEAR, WAS A MEMBER OF THE TOP-PAID
GROUP FOR SUCH LOOK BACK YEAR.
ANY CALENDAR YEAR ELECTION SHALL BE MADE IN ACCORDANCE WITH NOTICE
97-45.
(2) RESTRICTIONS ON MANDATORY DISTRIBUTIONS. SECTIONS 7.1, 7.3, 7.4,
7.5, 7.6 AND 7.7 OF THE PLAN ARE AMENDED BY STRIKING $3,500 EACH PLACE IT
APPEARS IN SAID SECTIONS AND INSERTING $5,000.
(D) UNPAID FAMILY AND MEDICAL LEAVE ACT OF 1993. NOTWITHSTANDING ANY
PROVISION IN THE PLAN TO THE CONTRARY, AND EFFECTIVE WITH RESPECT TO AN EMPLOYEE
WHOSE ABSENCE AFTER APRIL 5, 1993 IS GOVERNED BY THE FAMILY AND MEDICAL LEAVE
ACT OF 1993 ("FMLA"), ANY PERIOD OF UNPAID FMLA LEAVE SHALL NOT BE TREATED AS,
OR COUNTED TOWARD, A ONE-YEAR BREAK IN SERVICE FOR PURPOSES OF VESTING OR
ELIGIBILITY TO PARTICIPATE. HOWEVER, UNPAID FMLA LEAVE PERIODS SHALL NOT BE
TREATED AS CREDITED SERVICE FOR PURPOSES OF BENEFIT ACCRUAL, VESTING AND
ELIGIBILITY TO PARTICIPATE. THE PLAN SHALL BE ADMINISTERED IN ACCORDANCE WITH
THE REQUIREMENTS OF THE FMLA AND THE DEPARTMENT OF LABOR REGULATIONS THEREUNDER.
(E) USERRA AMENDMENT. EFFECTIVE DECEMBER 12, 1994, NOTWITHSTANDING ANY
PROVISION OF THIS PLAN TO THE CONTRARY, CONTRIBUTIONS, BENEFITS AND SERVICE
CREDIT WITH RESPECT TO QUALIFIED MILITARY SERVICE WILL BE PROVIDED IN ACCORDANCE
WITH SECTION 414(U) OF THE INTERNAL REVENUE CODE. LOAN REPAYMENTS WILL BE
SUSPENDED UNDER THIS PLAN AS PERMITTED UNDER SECTION 414(U)(4) OF THE INTERNAL
REVENUE CODE.
(F) ADOPTION OF PLAN BY OTHER EMPLOYERS.
(1) EFFECTIVE DATE. THIS SECTION A.18.18(F) SHALL BE EFFECTIVE AS OF
DECEMBER 1, 1989.
A-43
<PAGE>
(2) ADOPTION OF PLAN AND TRUST. ANY OTHER EMPLOYER MAY ADOPT THE TERMS
OF THIS PLAN AS ADOPTED BY THE ADOPTING EMPLOYER, AND THEREBY BECOME A
"PARTICIPATING EMPLOYER," PROVIDED:
(a) THE BOARD OF DIRECTORS OR OTHER GOVERNING ENTITY OF THE
ADOPTING EMPLOYER CONSENTS TO SUCH ADOPTION;
(b) THE BOARD OF DIRECTORS OR OTHER GOVERNING ENTITY OF THE
ADOPTING PARTICIPATING EMPLOYER ADOPTS THIS PLAN BY APPROPRIATE ACTION;
(c) THE ADOPTING PARTICIPATING EMPLOYER EXECUTES THE ADOPTION
AGREEMENT; AND
(d) THE ADOPTING PARTICIPATING EMPLOYER EXECUTES SUCH OTHER
DOCUMENTS AS MAY BE REQUIRED TO MAKE SUCH ADOPTING PARTICIPATING
EMPLOYER A PARTY TO THE PLAN AND TRUST AS A PARTICIPATING EMPLOYER
(EXCEPT AS PROVIDED BELOW).
A PARTICIPATING EMPLOYER WHICH ADOPTS THE PLAN AND TRUST AGREEMENT IS
THEREAFTER AN EMPLOYER WITH RESPECT TO ITS EMPLOYEES FOR PURPOSES OF THE
PLAN, THE TRUST AGREEMENT AND THIS ADOPTION AGREEMENT EXCEPT THAT SUCH
PARTICIPATING EMPLOYER DELEGATES TO THE ADOPTING EMPLOYER THE POWER TO
AMEND THE ADOPTION AGREEMENT ON ITS BEHALF AND ON BEHALF OF THE ADOPTING
EMPLOYER AND EACH OTHER PARTICIPATING EMPLOYER, PROVIDED SUCH AMENDMENT
DOES NOT MATERIALLY AFFECT THE SUBSTANCE OF THE PLAN WITH RESPECT TO THE
ADOPTING EMPLOYER OR ANY PARTICIPATING EMPLOYER OR MATERIALLY AFFECT THE
COSTS OF THE ADOPTING EMPLOYER OR ANY PARTICIPATING EMPLOYER. A
PARTICIPATING EMPLOYER RESERVES THE POWER TO WITHDRAW FROM THE PLAN, AS
PROVIDED IN SECTION A.18.18(F)(3), AND TO TERMINATE THE PLAN AND TRUST
AGREEMENT WITH RESPECT TO SUCH PARTICIPATING EMPLOYER, AS PROVIDED IN
SECTION A.18.18(F)(5).
(3) WITHDRAWAL FROM PLAN. SUBJECT TO THE REQUIREMENTS OF ARTICLE XVII,
ANY PARTICIPATING EMPLOYER MAY, AT ANY TIME, WITHDRAW FROM THE PLAN UPON
GIVING THE BOARD OF DIRECTORS OR OTHER GOVERNING ENTITY OF THE ADOPTING
EMPLOYER, THE ADMINISTRATIVE COMMITTEE AND THE TRUSTEE AT LEAST 30 DAYS
NOTICE IN WRITING OF ITS INTENTION TO WITHDRAW. UPON THE WITHDRAWAL OF A
PARTICIPATING EMPLOYER PURSUANT TO THIS SECTION A.18.18(F)(3), THE TRUSTEE
SHALL SEGREGATE A PORTION OF THE ASSETS IN THE TRUST AS SET FORTH BELOW,
THE VALUE OF WHICH SHALL EQUAL THE TOTAL AMOUNT CREDITED TO THE ACCOUNTS OF
PARTICIPANTS EMPLOYED BY THE WITHDRAWING PARTICIPATING EMPLOYER. SUBJECT TO
THE REQUIREMENTS OF ARTICLE XVII, THE DETERMINATION OF WHICH ASSETS ARE TO
BE SO SEGREGATED SHALL BE MADE BY THE TRUSTEE IN ITS SOLE DISCRETION AS SET
FORTH BELOW.
THE ADMINISTRATIVE COMMITTEE MAY, AT ANY TIME, DIRECT THE TRUSTEE TO
SEGREGATE FROM THE TRUST SUCH PART THEREOF AS THE ADMINISTRATIVE COMMITTEE
SHALL DETERMINE TO BE HELD FOR THE BENEFIT OF THE EMPLOYEES OF A
PARTICIPATING EMPLOYER, AND SHALL GIVE A COPY OF SUCH DIRECTIONS TO THE
ADOPTING EMPLOYER AND EACH PARTICIPATING EMPLOYER. SUCH DIRECTIONS SHALL
SPECIFY THE ASSETS OF THE TRUST TO BE SEGREGATED. UNLESS THE ADOPTING
EMPLOYER OR ANY PARTICIPATING EMPLOYER FILES WITH THE TRUSTEE A WRITTEN
PROTEST WITHIN 30 DAYS AFTER DELIVERY OF SUCH DIRECTIONS TO THE TRUSTEE,
SUCH DIRECTIONS SHALL CONCLUSIVELY ESTABLISH THAT THE ASSETS SPECIFIED
THEREIN REPRESENT THE PART OF THE TRUST HELD FOR THE BENEFIT OF THE
EMPLOYEES OF THE ADOPTING EMPLOYER AND OF EACH PARTICIPATING EMPLOYER.
AFTER THE EXPIRATION OF SUCH 30 DAY PERIOD, AND AFTER SETTLEMENT OF ANY
SUCH PROTEST, THE TRUSTEE SHALL FOLLOW THE ADMINISTRATIVE COMMITTEE'S
DIRECTIONS, INCLUDING ANY MODIFICATION THEREOF ADOPTED IN SETTLEMENT OF ANY
PROTEST. ANY PART OF THE TRUST SEGREGATED PURSUANT TO SUCH DIRECTIONS SHALL
THEREAFTER BE HELD IN A SEPARATE TRUST IDENTICAL IN TERMS TO THE TRUST
HEREBY ESTABLISHED OR MAINTAINED, EXCEPT THAT, WITH RESPECT TO SUCH
SEPARATE TRUST, THIS PLAN AND TRUST AGREEMENT SHALL BE CONSTRUED AS IF SUCH
PARTICIPATING EMPLOYER WERE THE ADOPTING EMPLOYER AND ALL POWERS AND
AUTHORITY CONFERRED UPON THE ADOPTING EMPLOYER OR ITS BOARD OR OTHER
GOVERNING ENTITY AND THE ADMINISTRATIVE COMMITTEE SHALL DEVOLVE UPON SUCH
PARTICIPATING EMPLOYER OR ITS BOARD OF DIRECTORS OR OTHER GOVERNING ENTITY.
AT ANY TIME THEREAFTER, SUCH PARTICIPATING EMPLOYER AND THE TRUSTEE MAY
(BUT THEY SHALL NOT BE REQUIRED TO) ENTER INTO A SEPARATE AGREEMENT STATING
THE TERMS OF SUCH SEPARATE PLAN AND TRUST AGREEMENT WHICH MAY BE THE
DRINKER BIDDLE & REATH LLP REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND
TRUST AGREEMENT. IF THE
A-44
<PAGE>
DRINKER BIDDLE & REATH LLP REGIONAL PROTOTYPE DEFINED CONTRIBUTION PLAN AND
TRUST AGREEMENT IS NOT SO ADOPTED, THE PLAN AND TRUST AGREEMENT WITH
RESPECT TO THE WITHDRAWING PARTICIPATING EMPLOYER SHALL BE CONSIDERED AN
INDIVIDUALLY DESIGNED PLAN.
(4) EXCLUSIVE PURPOSE OF TRUST. NEITHER THE SEGREGATION AND TRANSFER OF
THE TRUST ASSETS UPON THE WITHDRAWAL OF A PARTICIPATING EMPLOYER NOR THE
EXECUTION OF A NEW PLAN AND TRUST AGREEMENT BY SUCH WITHDRAWING
PARTICIPATING EMPLOYER SHALL OPERATE TO PERMIT ANY PART OF THE TRUST TO BE
USED FOR, OR DIVERTED TO, PURPOSES OTHER THAN FOR THE EXCLUSIVE BENEFIT OF
THE PARTICIPANTS OR THEIR BENEFICIARIES.
(5) APPLICATION OF WITHDRAWAL PROVISIONS. THE WITHDRAWAL PROVISIONS
CONTAINED IN SECTION A.18.18(G)(3) AND (4) SHALL BE APPLICABLE ONLY IF THE
WITHDRAWING PARTICIPATING EMPLOYER CONTINUES TO COVER ITS PARTICIPANTS AND
ELIGIBLE EMPLOYEES IN ANOTHER PLAN AND TRUST QUALIFIED UNDER SECTIONS 401
AND 501 OF THE CODE. OTHERWISE, THE TERMINATION PROVISIONS OF THE PLAN AND
TRUST AGREEMENT SHALL APPLY WITH RESPECT TO THE WITHDRAWING PARTICIPATING
EMPLOYER.
(6) SINGLE PLAN. NOTWITHSTANDING ANY OTHER PROVISION SET FORTH HEREIN,
THE PLAN, AS ADOPTED PURSUANT TO THIS SECTION A.18.18(F) BY THE ADOPTING
EMPLOYER AND EACH PARTICIPATING EMPLOYER, SHALL CONSTITUTE A SINGLE PLAN,
AS SUCH TERM IS DEFINED IN TREAS. REG. SS. 1.414(1)-1(B)(1), AS TO THE
ADOPTING EMPLOYER AND EACH PARTICIPATING EMPLOYER.
(7) QUALIFYING EMPLOYER SECURITIES. FOR PURPOSES OF SECTIONS A.1.72 AND
A.6.1(B), AND FOR ALL OTHER PURPOSES OF THE PLAN AND TRUST AGREEMENT, THE
STOCK OF ANY ADOPTING EMPLOYER AND ANY PARTICIPATING EMPLOYER SHALL BE
TREATED AS QUALIFYING EMPLOYER SECURITIES.
(8) ADOPTING EMPLOYER APPOINTED AGENT OF PARTICIPATING EMPLOYERS. EACH
PARTICIPATING EMPLOYER APPOINTS THE BOARD OF DIRECTORS OR OTHER GOVERNING
ENTITY OF THE ADOPTING EMPLOYER AS ITS AGENT TO EXERCISE ON ITS BEHALF ALL
OF THE ADMINISTRATIVE POWER AND AUTHORITY CONFERRED UPON THE ADOPTING
EMPLOYER BY THIS PLAN AND TRUST AGREEMENT, INCLUDING THE POWER TO AMEND THE
ADOPTION AGREEMENT ON ITS BEHALF AND ON BEHALF OF THE ADOPTING EMPLOYER AND
EACH OTHER PARTICIPATING EMPLOYER AS SET FORTH IN ARTICLE XV, PROVIDED SUCH
AMENDMENT DOES NOT MATERIALLY AFFECT THE SUBSTANCE OF THE PLAN WITH RESPECT
TO THE ADOPTING EMPLOYER OR ANY PARTICIPATING EMPLOYER OR MATERIALLY AFFECT
THE COST OF THE ADOPTING EMPLOYER OR ANY PARTICIPATING EMPLOYER. THE
AUTHORITY OF THE BOARD OF DIRECTORS OR OTHER GOVERNING ENTITY OF THE
ADOPTING EMPLOYER TO ACT AS AGENT OF ANY PARTICIPATING EMPLOYER, IN
ACCORDANCE WITH SECTIONS A.18.18(F)(2) AND A.18.18(F)(8), SHALL TERMINATE
ONLY IF THE PART OF THE PLAN'S ASSETS HELD FOR THE BENEFIT OF THE EMPLOYEES
OF SUCH PARTICIPATING EMPLOYER SHALL BE SEGREGATED IN A SEPARATE TRUST AS
PROVIDED IN SECTION A.18.18(F)(3) AND SUCH PARTICIPATING EMPLOYER THEREUPON
WITHDRAWS FROM THE PLAN IN ACCORDANCE WITH SECTION A.18.18(F)(3). ANY
MATERIAL AMENDMENT (I.E., ANY AMENDMENT MATERIALLY AFFECTING THE SUBSTANCE
OF THE PLAN WITH RESPECT TO THE ADOPTING EMPLOYER OR ANY PARTICIPATING
EMPLOYER OR MATERIALLY AFFECTING THE COSTS OF THE ADOPTING EMPLOYER OR ANY
PARTICIPATING EMPLOYER) CAN ONLY BE ADOPTED BY THE ADOPTING EMPLOYER AND
ALL PARTICIPATING EMPLOYERS. EACH PARTICIPATING EMPLOYER EXCLUSIVELY
RESERVES THE POWER TO TERMINATE THIS PLAN AND/OR THE TRUST AGREEMENT AS SET
FORTH IN ARTICLE XVI WITH RESPECT TO SUCH PARTICIPATING EMPLOYER. THE
COMPLETE TERMINATION OF THE PLAN CAN ONLY BE EFFECTED BY ACTION OF THE
ADOPTING EMPLOYER AND ALL PARTICIPATING EMPLOYERS.
(9) NAME OF ADOPTING EMPLOYER. THE CHESTNUT STREET EXCHANGE FUND IS THE
ADOPTING EMPLOYER.
(10) PARTICIPATING EMPLOYERS. THE NAMES AND PERTINENT DATA FOR THE
PARTICIPATING EMPLOYERS ARE AS FOLLOWS:
(a) THE RBB FUND, INC.:
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:51-0312196
A-45
<PAGE>
TAXABLE YEAR: SEPTEMBER 1 - AUGUST 31
--------------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: CORPORATION
PLACE OF ORGANIZATION: MARYLAND
(b) INDEPENDENCE SQUARE INCOME SECURITIES, INC.:
ADDRESS: ONE ALDWYN CENTER
VILLANOVA, PA 19085
EMPLOYER IDENTIFICATION NUMBER:23-1861553
TAXABLE YEAR: JANUARY 1 - DECEMBER 31
--------------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: CORPORATION
PLACE OF ORGANIZATION: MARYLAND
(c) TEMPORARY INVESTMENT FUND, INC.: (CEASED PARTICIPATION IN
THE PLAN EFFECTIVE DECEMBER 31, 1997)
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:52-0983343
TAXABLE YEAR: OCTOBER 1 - SEPTEMBER 30
---------------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: CORPORATION
PLACE OF ORGANIZATION: MARYLAND
(d) TRUST FOR FEDERAL SECURITIES (CEASED PARTICIPATION IN THE
PLAN EFFECTIVE DECEMBER 31, 1997):
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:52-1036683
TAXABLE YEAR: NOVEMBER 1 - OCTOBER 31
--------------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: BUSINESS TRUST
PLACE OF ORGANIZATION: PENNSYLVANIA
(e) MUNICIPAL FUND FOR CALIFORNIA INVESTORS, INC. (CEASED
PARTICIPATION IN THE PLAN EFFECTIVE DECEMBER 31, 1997):
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:51-0266273
TAXABLE YEAR: FEBRUARY 1 - JANUARY 31
--------------------------------------
BUSINESS CODE NUMBER: 6742
A-46
<PAGE>
TYPE OF ENTITY: CORPORATION
PLACE OF ORGANIZATION: MARYLAND
(f) MUNICIPAL FUND FOR NEW YORK INVESTORS, INC. (CEASED
PARTICIPATION THE PLAN EFFECTIVE DECEMBER 31, 1997):
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:51-0270312
TAXABLE YEAR: AUGUST 1 - JULY 31
---------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: CORPORATION
PLACE OF ORGANIZATION: MARYLAND
(g) MUNICIPAL FUND FOR TEMPORARY INVESTMENT (CEASED
PARTICIPATION IN THE PLAN EFFECTIVE DECEMBER 31, 1997:
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER: 51-0241021
TAXABLE YEAR: DECEMBER 1 - NOVEMBER 30
---------------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: BUSINESS TRUST
PLACE OF ORGANIZATION: PENNSYLVANIA
(h) PORTFOLIOS FOR DIVERSIFIED INVESTMENT (CEASED
PARTICIPATION IN THE PLAN EFFECTIVE NOVEMBER 14, 1995):
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:51-0300345
TAXABLE YEAR: JULY 1 - JUNE 30
-------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: BUSINESS TRUST
PLACE OF ORGANIZATION: MARYLAND
(i) THE PNC(R) FUND (CEASED PARTICIPATION IN THE PLAN
EFFECTIVE MARCH 31, 1996):
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:51-0318674
TAXABLE YEAR: OCTOBER 1 - SEPTEMBER 30
---------------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: BUSINESS TRUST
A-47
<PAGE>
PLACE OF ORGANIZATION: MASSACHUSETTS
(j) PROVIDENT INSTITUTIONAL FUNDS, INC. (BECAME A PARTICIPATING
EMPLOYER IN THE PLAN EFFECTIVE FEBRUARY 16, 1995 AND CEASED
PARTICIPATION IN THE PLAN EFFECTIVE JUNE 24, 1996):
ADDRESS: BELLEVUE PARK CORPORATE CENTER
400 BELLEVUE PARKWAY, SUITE 100
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:41-1769812
TAXABLE YEAR: JANUARY 1 - DECEMBER 31
--------------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: CORPORATION
PLACE OF ORGANIZATION: MARYLAND
(k) THE INTERNATIONAL FUND FOR INSTITUTIONS (CEASED PARTICIPATION
IN THE PLAN EFFECTIVE DECEMBER 1992):
ADDRESS: BELLEVUE PARK CORPORATE CENTER
103 BELLEVUE PARKWAY, SUITE 152
WILMINGTON, DE 19809
EMPLOYER IDENTIFICATION NUMBER:51-0273019
TAXABLE YEAR: FEBRUARY 1 - JANUARY 31
--------------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: BUSINESS TRUST
PLACE OF ORGANIZATION: MARYLAND
(l) CHESTNUT STREET CASH FUND, INC. (CEASED PARTICIPATION IN THE
PLAN EFFECTIVE AUGUST 1991):
ADDRESS: 3 RADNOR CORPORATE CENTER
100 MATSONFORD ROAD
RADNOR, PA 19087
EMPLOYER IDENTIFICATION NUMBER: 51-0263360
TAXABLE YEAR: JUNE 1 - MAY 31
------------------------------
BUSINESS CODE NUMBER: 6742
TYPE OF ENTITY: CORPORATION
PLACE OF ORGANIZATION: MARYLAND
A.19.1 ADOPTION OF PLAN AND TRUST BY AFFILIATED EMPLOYERS. Shall
Article XIX of the Plan apply (check one)?
[ ] (A) Yes [ ] (B) No
[ X ] (C) N/A (No Affiliated Employers adopting Plan)
If Section A.19.1(A) is checked, fill in the following blanks:
Name of Adopting Employer: [----------------------------------------------]
Name(s), Address(es), Type of Entity and Tax Identification
Number(s) of Adopting Affiliated Employer(s):[-----------------------------
---------------------------------------------------------------------------
A-48
<PAGE>
- ------------------------------------------------------------------------------ ]
The adopting Employer and each adopting Affiliated Employer MUST adopt the Plan
and execute the Adoption Agreement upon the initial adoption by an adopting
Affiliated Employer of the Plan. Thereafter the adopting Affiliated Employer,
pursuant to Article XIX of the Plan, authorizes the adopting Employer to take
all further action including, but not limited to, the amendment and/or
termination of the Plan, on behalf of the adopting Affiliated Employer under the
Plan (unless such adopting Affiliated Employer withdraws from the Plan pursuant
to Article XIX of the Plan) and such adopting Affiliated Employer need not be a
party to this Adoption Agreement with respect to any such subsequent action
relating to the Plan and Trust Agreement and/or Adoption Agreement.
THE ADOPTING EMPLOYER OR ADOPTING AFFILIATED EMPLOYER MAY NOT RELY ON THE
NOTIFICATION LETTER ISSUED BY THE NATIONAL OR DISTRICT DIRECTOR OF THE INTERNAL
REVENUE SERVICE AS EVIDENCE THAT THE PLAN IS QUALIFIED UNDER SECTION 401 OF THE
INTERNAL REVENUE CODE. IN ORDER TO OBTAIN RELIANCE WITH RESPECT TO PLAN
QUALIFICATION, THE ADOPTING EMPLOYER AND/OR ADOPTING AFFILIATED EMPLOYER MUST
APPLY TO THE APPROPRIATE KEY DISTRICT OFFICE FOR A DETERMINATION LETTER.
Executed at [WILMINGTON ], [ DELAWARE ], on this the [ ] day
of [--------------------], 19[97].
ADOPTING EMPLOYER:
ATTEST: CHESTNUT STREET EXCHANGE FUND
[SEAL] NAME OF ADOPTING EMPLOYER
- ---------------------------------- By:--------------------------------
Morgan R. Jones, Secretary G. Willing Pepper, President
PARTICIPATING EMPLOYERS:
ATTEST: THE RBB FUND
Name of Participating Employer
[SEAL]
- ---------------------------------- By:--------------------------------
Morgan R. Jones, Secretary Edward J. Roach, President
ATTEST: INDEPENDENCE SQUARE INCOME
SECURITIES, INC.
[SEAL] Name of Participating Employer
- ---------------------------------- By:--------------------------------
Gary M. Gardner, Secretary Robert R. Fortune, President
The undersigned hereby agree(s) to serve as the Trustee(s) under the Plan and
Trust Agreement.
EDWARD J. ROACH ROBERT R. FORTUNE
- ---------------------------------- ------------------------------------
Name of Trustee Name of Trustee
- ---------------------------------- ------------------------------------
Witness Signature
- ---------------------------------- ------------------------------------
Witness Signature
092497
A-49
Exhibit 11(a)
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Prospectuses and the caption
"Miscellaneous-Counsel" in the Statements of Additional Information included in
Post-Effective Amendment No. 49 to the Registration Statement (File No.
33-20827; and File No. 811-5518) on Form N-1A under the Securities Act of 1933
and the Investment Company Act of 1940, as amended, of The RBB Fund, Inc. This
consent does not constitute a consent under Section 7 of the Securities Act of
1933, and in consenting to the use of our name and the references to our Firm
under such caption we have not certified any part of the Registration Statement
and do not otherwise come within the categories of persons whose consent is
required under said Section 7 or the rules and regulations of the Securities and
Exchange Commission thereunder.
/S/ DRINKER BIDDLE & REATH LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
December 1, 1997
EXHIBIT 11(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to Post-Effective Amendment No. 49 to
the Registration Statement under the Securities Act of 1933 on Form N-1A (File
No. 33-20827) of The RBB Fund, Inc.:
(BULLET) The incorporation by reference of our reports dated
October 17, 1997 on our audit of the 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, Boston Partners
Large Cap Value Fund and Boston Partners Mid Cap Value
Fund of The RBB Fund, Inc., for the period ended August
31, 1997, into the Statement of Additional Information.
(BULLET) The reference to our Firm under the heading "Financial
Highlights" in the Prospectus and under the heading
"Miscellaneous-Independent Accountants" in the Statement of
Additional Information.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 1, 1997
EXHIBIT 16(A)
THE RBB FUND, INC.
MONEY MARKET AND BOSTON PARTNERS PORTFOLIOS
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
TOTAL RETURN
AGGREGATE TOTAL RETURN = (ENDING REDEEMABLE VALUE/INITIAL
PAYMENT) - 1 OF $10,000
FOR THE FISCAL PERIOD ENDED AUGUST 31, 1997:
RBB MONEY MARKET
Bedford Class aggregate total return = 4.72%
4.72% = (10,471.90/10,000) - 1
Sansom Street Class aggregate total return = 5.22%
5.22% = (10,522.20/10,000) - 1
Cash Preservation Class aggregate total return = 4.74%
4.74% = (10,474.00/10,000) - 1
Janney Montgomery Scott Class aggregate total return = 4.69%
4.69% = (10,468.60/10,000) - 1
RBB MUNICIPAL MONEY MARKET
Bedford Class aggregate total return = 2.88%
2.88% = (10,288.40/10,000) - 1
Cash Preservation Class total return = 2.76%
2.76% = (10,275.50/10,000) - 1
Janney Montgomery Scott Class aggregate total return = 2.89%
2.89% = (10,468.60/10,000) - 1
RBB GOVERNMENT OBLIGATIONS MONEY MARKET
Bedford Class aggregate total return = 4.59%
4.59% = (10,458.60/10,000) - 1
Janney Montgomery Scott Class aggregate total return = 4.56%
4.56% = (10,456.10/10,000) - 1
RBB NEW YORK MUNICIPAL MONEY MARKET
Bedford Class aggregate total return = 2.80%
2.80% = (10,279.70/10,000) - 1
<PAGE>
Janney Montgomery Scott Class aggregate total return = 2.80%
2.80% = (10,279.60/10,000) - 1
RBB GOVERNMENT SECURITIES
RBB Class aggregate total return = 4.20%*
4.20% = (10,419.90/10,000) - 1
BOSTON PARTNERS LARGE CAP VALUE FUND
Institutional Class aggregate total return = 24.60%**
24.60% = (12,460/10,000) - 1
Investor Class aggregate total return = 22.06%***
22.06% = (12,205.88/10,000) - 1
BOSTON PARTNERS MID CAP VALUE FUND
Institutional Class aggregate total return = 10.10%****
10.10% = (11,010/10,000) - 1
Investor Class aggregate total return = 10.10%****
10.10% = (11,010/10,000) - 1
* Includes sales load.
** Commenced operations on January 3, 1997.
*** Commenced operations on January 16, 1997.
**** Commenced operations on June 3, 1997.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 051
<NAME> MONEY MARKET PORTFOLIO - CASH PRESERVATION CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 2691010394
<INVESTMENTS-AT-VALUE> 2691010394
<RECEIVABLES> 14832135
<ASSETS-OTHER> 121657
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2705964186
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5938557
<TOTAL-LIABILITIES> 5938557
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2700036813
<SHARES-COMMON-STOCK> 2700036813
<SHARES-COMMON-PRIOR> 2195856952
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11184)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2700025629
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 137348046
<OTHER-INCOME> 0
<EXPENSES-NET> 21260914
<NET-INVESTMENT-INCOME> 116087132
<REALIZED-GAINS-CURRENT> 22330
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 116109462
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116087132)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9566261580
<NUMBER-OF-SHARES-REDEEMED> 9168296535
<SHARES-REINVESTED> 106214816
<NET-CHANGE-IN-ASSETS> 504202191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (33514)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8969561
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21260914
<AVERAGE-NET-ASSETS> 232607
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 052
<NAME> MONEY MARKET PORTFOLIO - SANSOM STREET CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 2691010394
<INVESTMENTS-AT-VALUE> 2691010394
<RECEIVABLES> 14832135
<ASSETS-OTHER> 121657
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2705964186
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5938557
<TOTAL-LIABILITIES> 5938557
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2700036813
<SHARES-COMMON-STOCK> 2700036813
<SHARES-COMMON-PRIOR> 2195856952
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11184)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2700025629
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 137348046
<OTHER-INCOME> 0
<EXPENSES-NET> 21260914
<NET-INVESTMENT-INCOME> 116087132
<REALIZED-GAINS-CURRENT> 22330
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 116109462
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116087132)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9566261580
<NUMBER-OF-SHARES-REDEEMED> 9168296535
<SHARES-REINVESTED> 106214816
<NET-CHANGE-IN-ASSETS> 504202191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (33514)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8969561
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21260914
<AVERAGE-NET-ASSETS> 570268711
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .051
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .051
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 053
<NAME> MONEY MARKET PORTFOLIO - JANNEY MONTGOMERY SCOTT CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 2691010394
<INVESTMENTS-AT-VALUE> 2691010394
<RECEIVABLES> 14832135
<ASSETS-OTHER> 121657
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2705964186
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5938557
<TOTAL-LIABILITIES> 5938557
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2700036813
<SHARES-COMMON-STOCK> 2700036813
<SHARES-COMMON-PRIOR> 2195856952
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11184)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2700025629
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 137348046
<OTHER-INCOME> 0
<EXPENSES-NET> 21260914
<NET-INVESTMENT-INCOME> 116087132
<REALIZED-GAINS-CURRENT> 22330
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 116109462
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116087132)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9566261580
<NUMBER-OF-SHARES-REDEEMED> 9168296535
<SHARES-REINVESTED> 106214816
<NET-CHANGE-IN-ASSETS> 504202191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (33514)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8969561
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21260914
<AVERAGE-NET-ASSETS> 649966574
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 054
<NAME> MONEY MARKET PORTFOLIO - BEDFORD CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 2691010394
<INVESTMENTS-AT-VALUE> 2691010394
<RECEIVABLES> 14832135
<ASSETS-OTHER> 121657
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2705964186
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5938557
<TOTAL-LIABILITIES> 5938557
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2700036813
<SHARES-COMMON-STOCK> 2700036813
<SHARES-COMMON-PRIOR> 2195856952
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11184)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2700025629
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 137348046
<OTHER-INCOME> 0
<EXPENSES-NET> 21260914
<NET-INVESTMENT-INCOME> 116087132
<REALIZED-GAINS-CURRENT> 22330
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 116109462
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116087132)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9566261580
<NUMBER-OF-SHARES-REDEEMED> 9168296535
<SHARES-REINVESTED> 106214816
<NET-CHANGE-IN-ASSETS> 504202191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (33514)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8969561
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21260914
<AVERAGE-NET-ASSETS> 1228287749
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 061
<NAME> MUNICIPAL MONEY MARKET PORTFOLIO-CASH PRESERVATION CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 485624154
<INVESTMENTS-AT-VALUE> 485624154
<RECEIVABLES> 2304091
<ASSETS-OTHER> 763097
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 488691342
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 645527
<TOTAL-LIABILITIES> 645527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 488117457
<SHARES-COMMON-STOCK> 488117457
<SHARES-COMMON-PRIOR> 420956071
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (71642)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 488045815
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16569667
<OTHER-INCOME> 0
<EXPENSES-NET> 3828541
<NET-INVESTMENT-INCOME> 12741126
<REALIZED-GAINS-CURRENT> (3917)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12737209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12741126
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2069106140
<NUMBER-OF-SHARES-REDEEMED> 2014481004
<SHARES-REINVESTED> 12536250
<NET-CHANGE-IN-ASSETS> 67157469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (67725)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1470648
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5123442
<AVERAGE-NET-ASSETS> 91417
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .027
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .027
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 063
<NAME> MUNI. M. M. PORT.-JANNEY MONTGOMERY SCOTT CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 485624154
<INVESTMENTS-AT-VALUE> 485624154
<RECEIVABLES> 2304091
<ASSETS-OTHER> 763097
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 488691342
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 645527
<TOTAL-LIABILITIES> 645527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 488117457
<SHARES-COMMON-STOCK> 488117457
<SHARES-COMMON-PRIOR> 420956071
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (71642)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 488045815
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16569667
<OTHER-INCOME> 0
<EXPENSES-NET> 3828541
<NET-INVESTMENT-INCOME> 12741126
<REALIZED-GAINS-CURRENT> (3917)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12737209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12741126
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2069106140
<NUMBER-OF-SHARES-REDEEMED> 2014481004
<SHARES-REINVESTED> 12536250
<NET-CHANGE-IN-ASSETS> 67157469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (67725)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1470648
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5123442
<AVERAGE-NET-ASSETS> 99698340
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .029
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .029
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 064
<NAME> MUNICIPAL MONEY MARKET PORTFOLIO-BEDFORD CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 485624154
<INVESTMENTS-AT-VALUE> 485624154
<RECEIVABLES> 2304091
<ASSETS-OTHER> 763097
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 488691342
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 645527
<TOTAL-LIABILITIES> 645527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 488117457
<SHARES-COMMON-STOCK> 488117457
<SHARES-COMMON-PRIOR> 420956071
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (71642)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 488045815
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16569667
<OTHER-INCOME> 0
<EXPENSES-NET> 3828541
<NET-INVESTMENT-INCOME> 12741126
<REALIZED-GAINS-CURRENT> (3917)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12737209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12741126
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2069106140
<NUMBER-OF-SHARES-REDEEMED> 2014481004
<SHARES-REINVESTED> 12536250
<NET-CHANGE-IN-ASSETS> 67157469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (67725)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1470648
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5123442
<AVERAGE-NET-ASSETS> 202748440
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .029
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .029
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 072
<NAME> GOV. OBLI. M. M.-JANNEY MONTGOMERY SCOTT CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 612663310
<INVESTMENTS-AT-VALUE> 612663310
<RECEIVABLES> 3117165
<ASSETS-OTHER> 18945
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 615799420
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1567209
<TOTAL-LIABILITIES> 1567209
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 614245777
<SHARES-COMMON-STOCK> 614245777
<SHARES-COMMON-PRIOR> 556559280
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13566)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 614232211
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31972074
<OTHER-INCOME> 0
<EXPENSES-NET> 5784555
<NET-INVESTMENT-INCOME> 26187519
<REALIZED-GAINS-CURRENT> (1291)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 26186228
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26187519
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2011140488
<NUMBER-OF-SHARES-REDEEMED> 1979386744
<SHARES-REINVESTED> 25932753
<NET-CHANGE-IN-ASSETS> 57685206
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (12275)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2421186
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6835811
<AVERAGE-NET-ASSETS> 336636491
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .045
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .045
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 073
<NAME> GOVERNMENT OBLIGATIONS MONEY MARKET-BEDFORD CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 612663310
<INVESTMENTS-AT-VALUE> 612663310
<RECEIVABLES> 3117165
<ASSETS-OTHER> 18945
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 615799420
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1567209
<TOTAL-LIABILITIES> 1567209
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 614245777
<SHARES-COMMON-STOCK> 614245777
<SHARES-COMMON-PRIOR> 556559280
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13566)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 614232211
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31972074
<OTHER-INCOME> 0
<EXPENSES-NET> 5784555
<NET-INVESTMENT-INCOME> 26187519
<REALIZED-GAINS-CURRENT> (1291)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 26186228
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26187519
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2011140488
<NUMBER-OF-SHARES-REDEEMED> 1979386744
<SHARES-REINVESTED> 25932753
<NET-CHANGE-IN-ASSETS> 57685206
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (12275)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2421186
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6835811
<AVERAGE-NET-ASSETS> 201577994
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .045
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .045
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .975
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 081
<NAME> N. Y. MUNI. M. M.-JANNEY MONTGOMERY SCOTT CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 109111856
<INVESTMENTS-AT-VALUE> 109111856
<RECEIVABLES> 596316
<ASSETS-OTHER> 63841
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 109772013
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 183886
<TOTAL-LIABILITIES> 183886
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109600738
<SHARES-COMMON-STOCK> 109600738
<SHARES-COMMON-PRIOR> 88161424
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12611)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 109588127
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3526188
<OTHER-INCOME> 0
<EXPENSES-NET> 790949
<NET-INVESTMENT-INCOME> 2735239
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2735239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2735239
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 437940340
<NUMBER-OF-SHARES-REDEEMED> 419193671
<SHARES-REINVESTED> 2692645
<NET-CHANGE-IN-ASSETS> 21439314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (12611)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 346748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1115866
<AVERAGE-NET-ASSETS> 30090223
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .028
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .028
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 082
<NAME> NEW YORK MUNICIPAL MONEY MARKET-BEDFORD CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 109111856
<INVESTMENTS-AT-VALUE> 109111856
<RECEIVABLES> 596316
<ASSETS-OTHER> 63841
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 109772013
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 183886
<TOTAL-LIABILITIES> 183886
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109600738
<SHARES-COMMON-STOCK> 109600738
<SHARES-COMMON-PRIOR> 88161424
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12611)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 109588127
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3526188
<OTHER-INCOME> 0
<EXPENSES-NET> 790949
<NET-INVESTMENT-INCOME> 2735239
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2735239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2735239
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 437940340
<NUMBER-OF-SHARES-REDEEMED> 419193671
<SHARES-REINVESTED> 2692645
<NET-CHANGE-IN-ASSETS> 21439314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (12611)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 346748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1115866
<AVERAGE-NET-ASSETS> 68980579
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .028
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .028
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 10
<NAME> GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 6359707
<INVESTMENTS-AT-VALUE> 6694982
<RECEIVABLES> 96785
<ASSETS-OTHER> 7305
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6799072
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61706
<TOTAL-LIABILITIES> 61706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10873612
<SHARES-COMMON-STOCK> 759958
<SHARES-COMMON-PRIOR> 971541
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4471520)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 335274
<NET-ASSETS> 6737366
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 518995
<OTHER-INCOME> 0
<EXPENSES-NET> 52992
<NET-INVESTMENT-INCOME> 466003
<REALIZED-GAINS-CURRENT> (9496)
<APPREC-INCREASE-CURRENT> 145182
<NET-CHANGE-FROM-OPS> 601689
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 470300
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 258039
<NUMBER-OF-SHARES-SOLD> 60974
<NUMBER-OF-SHARES-REDEEMED> 2423578
<SHARES-REINVESTED> 441918
<NET-CHANGE-IN-ASSETS> (2047336)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4462706)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30188
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 162372
<AVERAGE-NET-ASSETS> 7536102
<PER-SHARE-NAV-BEGIN> 9.04
<PER-SHARE-NII> .874
<PER-SHARE-GAIN-APPREC> (.51)
<PER-SHARE-DIVIDEND> .874
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .34
<PER-SHARE-NAV-END> 8.87
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 231
<NAME> BOSTON PARTNERS LARGE CAP VALUE-INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 23541995
<INVESTMENTS-AT-VALUE> 25518327
<RECEIVABLES> 35175
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25553502
<PAYABLE-FOR-SECURITIES> 252348
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15619
<TOTAL-LIABILITIES> 267967
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22575844
<SHARES-COMMON-STOCK> 2028866
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 100151
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1072821
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1536719
<NET-ASSETS> 25285535
<DIVIDEND-INCOME> 159188
<INTEREST-INCOME> 25634
<OTHER-INCOME> 0
<EXPENSES-NET> (84671)
<NET-INVESTMENT-INCOME> 100151
<REALIZED-GAINS-CURRENT> 1072821
<APPREC-INCREASE-CURRENT> 1536718
<NET-CHANGE-FROM-OPS> 2709690
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23342289
<NUMBER-OF-SHARES-REDEEMED> 766445
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25285535
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (63387)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (223880)
<AVERAGE-NET-ASSETS> 12528261
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 2.41
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.46
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 232
<NAME> BOSTON PARTNERS LARGE CAP VALUE-INVESTOR CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 23541995
<INVESTMENTS-AT-VALUE> 25518327
<RECEIVABLES> 35175
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25553502
<PAYABLE-FOR-SECURITIES> 252348
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15619
<TOTAL-LIABILITIES> 267967
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22575844
<SHARES-COMMON-STOCK> 2028866
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 100151
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1072821
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1536719
<NET-ASSETS> 25285535
<DIVIDEND-INCOME> 159188
<INTEREST-INCOME> 25634
<OTHER-INCOME> 0
<EXPENSES-NET> (84671)
<NET-INVESTMENT-INCOME> 100151
<REALIZED-GAINS-CURRENT> 1072821
<APPREC-INCREASE-CURRENT> 1536718
<NET-CHANGE-FROM-OPS> 2709690
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23342289
<NUMBER-OF-SHARES-REDEEMED> 766445
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25285535
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (63387)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (223880)
<AVERAGE-NET-ASSETS> 232458
<PER-SHARE-NAV-BEGIN> 10.20
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 2.23
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.45
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 241
<NAME> BOSTON PARTNERS MID CAP VALUE-INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 4145818
<INVESTMENTS-AT-VALUE> 4356337
<RECEIVABLES> 46393
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4402730
<PAYABLE-FOR-SECURITIES> 30758
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23879
<TOTAL-LIABILITIES> 54637
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4251818
<SHARES-COMMON-STOCK> 394764
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4850
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 37984
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53442
<NET-ASSETS> 4348094
<DIVIDEND-INCOME> 5928
<INTEREST-INCOME> 3807
<OTHER-INCOME> 0
<EXPENSES-NET> 4885
<NET-INVESTMENT-INCOME> 4850
<REALIZED-GAINS-CURRENT> 37984
<APPREC-INCREASE-CURRENT> 53442
<NET-CHANGE-FROM-OPS> 96276
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4270106
<NUMBER-OF-SHARES-REDEEMED> 18289
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4348094
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59772
<AVERAGE-NET-ASSETS> 1621085
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.01
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831114
<NAME> THE RBB FUND, INC.
<SERIES>
<NUMBER> 242
<NAME> BOSTON PARTNERS MID CAP VALUE-INVESTOR CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 4145818
<INVESTMENTS-AT-VALUE> 4356337
<RECEIVABLES> 46393
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4402730
<PAYABLE-FOR-SECURITIES> 30758
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23879
<TOTAL-LIABILITIES> 54637
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4251818
<SHARES-COMMON-STOCK> 394764
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4850
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 37984
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53442
<NET-ASSETS> 4348094
<DIVIDEND-INCOME> 5928
<INTEREST-INCOME> 3807
<OTHER-INCOME> 0
<EXPENSES-NET> 4885
<NET-INVESTMENT-INCOME> 4850
<REALIZED-GAINS-CURRENT> 37984
<APPREC-INCREASE-CURRENT> 53442
<NET-CHANGE-FROM-OPS> 96276
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4270106
<NUMBER-OF-SHARES-REDEEMED> 18289
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4348094
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59772
<AVERAGE-NET-ASSETS> 310955
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.01
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Exhibit 18
RULE 18F-3 PLAN
RULE 18F-3 PLAN
1. A Portfolio of the Fund ("Portfolio") may issue more than one class
of voting stock ("Class"), provided that:
(a) Each such Class:
(1) (i) Shall have a different arrangement for
shareholder services or the distribution of securities or both, and
shall pay all of the expenses of that arrangement; and
(ii) May pay a different share of other expenses, not
including advisory or custodial fees or other expenses related to the
management of the Portfolio's assets, if those expenses are actually
incurred in a different amount by that Class, or if the Class receives
services of a different kind or to a different degree than other
Classes;
(2) Shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement;
(3) Shall have separate voting rights on any matter
submitted to shareholders in which the interests of one Class differ
from the interests of any other Class; and
(4) Shall have in all other respects the same rights
and obligations as each other class.
(b) Expenses may be waived or reimbursed by the Portfolio's
adviser, underwriter, or any other provider of services to the
Portfolio.
(c) (1) Any payments made under paragraph (a)(1)(i) of this
Plan shall conform to Appendix A to this Plan, as such Appendix A shall
be amended from time to time by the Board.
(2) Before any vote on the Plan or the Appendix, the
Directors shall be provided, and any agreement relating to a Class
arrangement shall require the parties thereto to furnish, such
information as may be reasonably necessary to evaluate the Plan.
<PAGE>
(3) The provisions of the Plan in Appendix A are
severable for each Class, and whenever any action is to be taken with
respect to the Plan in Appendix A, that action will be taken separately
for each Class.
(d) A Portfolio may offer a Class with an exchange privilege
providing that securities of the Class may be exchanged for certain
securities of another Portfolio. Such exchange privileges are
summarized in Appendix B, as may be modified by the Board from time to
time, and are set forth in greater detail in the prospectuses of each
of the Classes.
<PAGE>
APPENDIX A
RBB FUND
CURRENT DISTRIBUTION FEE LEVELS
SEPTEMBER 10, 1997
A. MONEY MARKET PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. Sansom Street (Class I) fee 0.05% 4/10/91
Shareholder Service Fee 0.10% 8/16/88
2. Bedford (Class L) fee 0.60% 11/17/94
3. Cash Preservation (Class G) fee 0.40% 4/10/91
4. RBB Family (Class E) fee 0.40% 4/10/91
5. Janney (Class Alpha 1) fee 0.60% 2/l/95
B. MUNICIPAL MONEY MARKET PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. Sansom Street (Class J) fee 0.05% 4/10/91
Shareholder Service Fee 0.10% 8/16/88
2. Bedford (Class M) fee 0.60% 11/17/94
3. Bradford (Class R) fee 0.60% 11/17/94
4. Cash Preservation (Class H) fee 0.40% 4/10/91
5. RBB Family (Class F) fee 0.40% 4/10/91
6. Janney (Class Alpha 2) fee 0.60% 2/l/95
<PAGE>
C. GOVERNMENT OBLIGATION MONEY MARKET PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. Sansom Street (Class K) fee 0.05% 4/10/91
Shareholder Service Fee 0.10% 8/16/88
2. Bedford (Class N) fee 0.60% 11/17/94
3. Bradford (Class S) fee 0.60% 11/17/94
4. Janney (Class Alpha 3) fee 0.60% 2/l/95
D. GOVERNMENT SECURITIES PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. RBB Family (Class P) fee 0.40% 4/10/91
E. NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. Bedford (Class O) fee 0.60% 11/17/94
2. Janney (Class Alpha 4) fee 0.60% 2/l/95
F. BEA INTERNATIONAL EQUITY PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional(Class T) None None
2. BEA Investor (Class II) fee .50% 7/10/96
3. BEA Advisor (Class MM) fee .25% 7/10/96
G. BEA EMERGING MARKETS PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional(Class V) None None
2. BEA Investor (Class JJ) fee .50% 7/10/96
3. BEA Advisor (Class NN) fee .25% 7/10/96
<PAGE>
H. BEA HIGH YIELD PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional(Class U) None None
2. BEA Investor (Class KK) fee .50% 7/10/96
3. BEA Advisor (Class OO) fee .25% 7/10/96
I. BEA U.S. CORE EQUITY PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional (Class X) None None
J. BEA U.S. CORE FIXED INCOME PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional (Class Y) None None
K. BEA STRATEGIC GLOBAL FIXED INCOME PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional (Class Z) None None
L. BEA MUNICIPAL BOND FUND
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional (Class AA) None None
M. BEA SHORT DURATION PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional (Class BB) None None
<PAGE>
N. BEA BALANCED PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Institutional (Class CC) None None
O. BEA GLOBAL TELECOMMUNICATIONS PORTFOLIO
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. BEA Investor (Class LL) fee .50% 7/10/96
2. BEA Advisor (Class PP) fee .25% 7/10/96
P. BOSTON PARTNERS LARGE CAP VALUE FUND
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. Institutional Class (Class QQ) fee 0.04% 10/16/96
2. Advisor Class (Class SS) fee 0.50% 10/16/96
3. Investor Class (Class RR) fee 0.25% 10/16/96
Q. BOSTON PARTNERS MID CAP VALUE FUND
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. Institutional Class (Class TT) fee 0.04% 6/1/97
2. Investor Class (Class UU) fee 0.25% 6/1/97
R. BOSTON PARTNERS BOND FUND
CURRENT DISTRIBUTION
CLASS FEE LEVEL EFFECTIVE DATE
----- -------------------- --------------
1. Institutional Class (Class VV) fee 0.04% __________
2. Investor Class (Class WW) fee 0.25% __________
<PAGE>
APPENDIX B
EXCHANGE PRIVILEGES OF THE PORTFOLIOS
OF THE RBB FUND, INC.
<TABLE>
<CAPTION>
================================================================================================================================
FAMILY EACH PORTFOLIO (CLASS) . . . MAY BE EXCHANGED FOR ANY OF
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BEA (Institutional Classes) International Equity (T) International Equity (T)
High Yield (U) Strategic Fixed Income (U)
Emerging Markets Equity (V) Emerging Markets Equity (V)
U.S. Core Equity (X) U.S. Core Equity (X)
U.S. Core Fixed Income (Y) U.S. Core Fixed Income (Y)
Strategic Global Fixed Income (Z) Global Fixed Income (Z)
Municipal Bond Fund (AA) Municipal Bond Fund (AA)
Balanced Fund (BB) Balanced Fund (BB)
Short Duration Fund (CC) Short Duration Fund (CC)
- --------------------------------------------------------------------------------------------------------------------------------
BEA (Investor Classes) International Equity (II) International Equity (II)
Emerging Markets Equity (JJ) Emerging Markets Equity (JJ)
High Yield (KK) High Yield (KK)
Global Telecommunications (LL) Global Telecommunications (LL)
Investor Shares of other non-RBB funds Investor Shares of other non-RBB funds
advised by BEA Associates Advised by BEA Associates
- --------------------------------------------------------------------------------------------------------------------------------
BEA (Advisor Classes) International Equity (MM) International Equity (MM)
Emerging Markets Equity (NN) Emerging Markets Equity (NN)
High Yield (OO) High Yield (OO)
Global Telecommunications (PP) Global Telecommunications (PP)
Advisor Shares of other non-RBB funds Advisor Shares of other non-RBB funds
advised by BEA Associates advised by BEA Associates
- --------------------------------------------------------------------------------------------------------------------------------
Cash Preservation Money Market (G) Money Market (G)
Municipal Money Market (H) Municipal Money Market (H)
- --------------------------------------------------------------------------------------------------------------------------------
RBB Money Market (E) Money Market (E)
Municipal Money Market (F) Municipal Money Market (F)
Government Securities (P) Government Securities (P)
- --------------------------------------------------------------------------------------------------------------------------------
Bedford (Bear Stearns) Money Market (L) Common Shares of other non-RBB funds
advised or sponsored by Bear, Stearns &
Co. Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Bedford (Valley Forge) Money Market (L) Common Shares of other non-RBB funds
advised or sponsored by Valley Forge
Capital Holdings, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
n/i Micro Cap (FF) Growth & Value (HH)
Growth (GG) Larger Cap Value (XX)
Growth & Value (HH)
Larger Cap Value (XX)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
FAMILY EACH PORTFOLIO (CLASS) . . . MAY BE EXCHANGED FOR ANY OF
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Boston Partners (Institutional Classes) Mid Cap Value (TT) Mid Cap Value (TT)
Large Cap Value (QQ) Large Cap Value (QQ)
Bond (VV) Bond (VV)
- --------------------------------------------------------------------------------------------------------------------------------
Boston Partners (Investor Classes) Mid Cap Value (UU) Mid Cap Value (UU)
Large Cap Value (RR) Large Cap Value (RR)
Bond (WW) Bond (WW)
================================================================================================================================
</TABLE>
