THE PRINCIPAL CLASS
OF
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
This Prospectus offers shares of the Principal class of common stock of The
RBB Fund, Inc. (the "Fund"). The Principal class represents interests in the
Money Market Portfolio (the "Portfolio"), which is a taxable money market
portfolio of the Fund.
The investment objective of the Portfolio is to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND THE SHARES
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN SHARES OF THE
PORTFOLIO INVOLVES 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.
BlackRock Institutional Management Corporation ("BIMC") serves as
investment adviser for the Portfolio, PNC Bank, National Association ("PNC
Bank") serves as custodian for the Portfolio and PFPC Inc. ("PFPC") serves as
administrator and the transfer and dividend disbursing agent for the Portfolio.
Provident Distributors, Inc. (the "Distributor") acts as distributor for the
Portfolio.
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 (as revised October 28, 1998),
has been filed with the Securities and Exchange Commission and is incorporated
by reference to this Prospectus. It may be obtained upon request free of charge
from the Fund's distributor by calling (800) 888-9723.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PROSPECTUS DECEMBER 1, 1997
(AS REVISED OCTOBER 28, 1998)
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INTRODUCTION
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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 seventeen separate
investment portfolios. The shares (the "Principal Shares" or "Shares") offered
by this Prospectus represent interests in the Principal class (the "Principal
Class") of the 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 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.
An investor may purchase and redeem Principal Shares through his
broker or by direct purchases or redemptions. See "Purchase and Redemption of
Shares."
An investment in the Principal Shares is subject to certain risks, as
set forth in detail under "Investment Objective and Policies." The Portfolio 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
Objective and Policies."
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (PRINCIPAL CLASS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
The Fee Table below contains a summary of the annual operating expenses
of the Principal Class of the Portfolio based on expenses expected to be
incurred for the fiscal year ended August 31, 1999, as a percentage of average
daily net assets. An example based on the summary is also shown.
MONEY MARKET
PORTFOLIO
Management Fees (after waivers)(1)........................... .23%
12b-1 Fees .................................................. .40%
Other Expenses (after waivers)(1) ........................... .17%
----
Total Fund Operating Expenses (Principal Class)
(after waivers)(1)......................................... .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
Principal Class, Management Fees would be .37%, other expenses would be
.21% and Total Fund Operating Expenses would be .98%.
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EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------ ---------
Money Market Portfolio - Principal Class*.... $8 $26 $44 $99
* Other classes of the 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 (Principal 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 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 Principal Class of the
Portfolio will bear directly or indirectly. (For more complete descriptions of
the various costs and expenses, see "Management -- Investment 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 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 Portfolio advertises its "yield" and "effective
yield." BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "yield" of the Portfolio refers to the
income generated by an investment in the Portfolio over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
The yield of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses. The yield on
Principal 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 Principal Shares are not reflected in the yields
of Principal Shares, and such fees, if charged, will reduce the actual return
received by shareholders on their investments. The yield on Principal Shares may
differ from yields on shares of other classes that also represent interests in
the Portfolio depending on the allocation of expenses to each of the classes.
See "Expenses."
INVESTMENT OBJECTIVE AND POLICIES
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The 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. Obligations held by the Portfolio have remaining
maturities of 397 calendar days or less (exclusive of securities subject to
repurchase agreements). The Portfolio is 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 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
Portfolio invests.
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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-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 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
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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 the 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 the 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
repurchase price which the Portfolio is obligated to pay. 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.
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
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securities. For a more complete description of eligible securities, see
"Investment Objective 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 supervision of the Board of
Directors. See "Investment Objective and Policies -- Illiquid Securities" in the
Statement of Additional Information.
YEAR 2000. The services provided to the Fund by BIMC and others depend
in large part upon the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
or calculated. The capability of these systems to recognize the year 2000 could
have a negative impact on BIMC's provision of investment advisory services,
including the handling of securities trades pricing. Both BIMC and PFPC have
advised the Fund that they have been reviewing all of their computer systems,
are actively working on necessary changes to those systems to prepare for the
year 2000 and expect that given the extensive testing which they are
undertaking, their systems will be year 2000 compliant before such date. There
can, however, be no assurance that BIMC or any other service provider will be
successful in achieving year 2000 compliance, or that interaction with other
non-complying systems will not impair services to the Fund at that time.
INVESTMENT LIMITATIONS
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The 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 its 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 Objective and Policies.")
The 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 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
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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.
3. 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.
4. 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
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 (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.
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
GENERAL. Principal Shares are sold without a sales load on a continuous
basis by the Distributor. The Distributor is located at Four Falls Corporate
Center, Conshohocken, Pennsylvania 19428. Investors may purchase Principal
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 $25,000 and the minimum subsequent investment is
$2,500. The Fund in its sole discretion may accept or reject any order for
purchases of Principal Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. The brokerage firm which carries the Account (the "Broker") 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 and
the Fund's custodian has Federal Funds immediately available to it. In those
cases
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where payment is made by check, Federal Funds will generally become available
two Business Days after the check is received by the Broker. 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. The minimum initial
and subsequent investment in Shares are determined by your 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 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 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 Principal 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 Principal
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 Principal Shares through any Broker that has entered into a dealer
agreement with the Distributor (a "Dealer"). An investor also may make an
initial investment in Principal Shares by mail by fully completing and signing
an application obtained from a Dealer (the "Application"), specifying the Money
Market Portfolio, and mailing it, together with a check payable to "THE
PRINCIPAL CLASS" to THE PRINCIPAL CLASS, 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 $5,000, an investor may also
purchase Principal 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
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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, specify the
Principal Class, 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: (Money Market 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. Principal 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
Principal Shares through an Account may redeem Principal Shares in his Account
in accordance with instructions and limitations pertaining to his Account by
contacting his Broker. It is the responsibility of the Broker to transmit
purchase and redemption orders to PFPC and to 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.
A Broker may also redeem each day a sufficient number of Shares of the
Primary 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 Broker reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
-9-
<PAGE>
REDEMPTION OF SHARES OWNED DIRECTLY. A direct investor may redeem any
number of Shares by sending a written request to THE PRINCIPAL CLASS 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 calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolio, 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 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 $5,000. 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
-10-
<PAGE>
redemption. The Fund or PNC Bank may terminate this redemption service at any
time, and neither shall incur any liability for honoring checks, for effecting
redemptions to pay checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
equaling the amount being redeemed by check until such time as the check is
presented to PNC Bank. 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 to obtain 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 the Principal Class involuntarily, on thirty
days' notice, if such account falls below $1,500 and during such 30-day notice
period the amount invested in such account is not increased to at least $1,500.
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 Principal 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 on which the NYSE is closed as well as Veterans' Day and Columbus Day.
The net asset value per share of the Principal Class of the Portfolio 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 Principal 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.
-11-
<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 seventeen investment portfolios. The Principal
Class represents interests in the Money Market Portfolio.
INVESTMENT ADVISER
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for the Portfolio. BIMC has its principal offices at Bellevue
Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809. BIMC
and its predecessors have been in the business of managing the investments of
fiduciary and other accounts in the Philadelphia area since 1847. BIMC currently
manages over $46.7 billion of assets, of which approximately $33.7 billion are
mutual funds.
As investment adviser to the Portfolio, BIMC manages the Portfolio and
is responsible for all purchases and sales of portfolio securities. BIMC also
provides research and credit analysis. In entering into Portfolio transactions
for the Portfolio with a broker, BIMC may take into account the sale by such
broker of shares of the Portfolio, subject to the requirements of best
execution. The agreement between BIMC and RBB with respect to the Money Market
Portfolio provides for BIMC to also assist generally in supervising the
operations of the Portfolio, and to maintain the Portfolio's financial accounts
and records. These administrative responsibilities have been delegated to PFPC,
as further described below.
For the services provided to and expenses assumed by it for the benefit
of the Portfolio, BIMC 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.
For the Fund's fiscal year ended August 31, 1998, the Fund paid
investment advisory fees aggregating .36% of the average net assets of
the Portfolio, and BIMC waived advisory fees aggregating .13% of the average
net assets of the Portfolio.
PNC Bank was formerly sub-adviser to the Money Market Portfolio and
provided research, credit analysis and recommendations with respect to the
Portfolio's investments and supplied certain computer facilities, personnel and
other services. The facilities, personnel, services and related expenses have
been transferred to BIMC and in return, BIMC's obligation to pay a portion of
the sub-advisory fee to PNC Bank has been terminated. For its sub-advisory
services, PNC Bank was entitled to receive from BIMC an amount equal to 75% of
the investment advisory fee paid by the Portfolio to BIMC (subject to adjustment
in certain circumstances). The sub-advisory fees paid by BIMC to PNC Bank had no
effect on the investment advisory fees payable by the Portfolio to BIMC. The
services provided by BIMC and the fees payable by the Portfolio for these
services are described further in the Statement of Additional Information under
"Management of the Company".
ADMINISTRATOR
PFPC provides administration and accounting services to the Portfolio
as a delegate of BIMC under the advisory agreement. The Fund has agreed to pay
directly to PFPC the fees for administration and accounting services to the
Money Market Portfolio which PFPC would have received directly from BIMC. Such
arrangement has no effect on the total advisory and administrative fees payable
by the Portfolio to BIMC. Pursuant to the delegation PFPC is entitled to receive
an administration fee, computed daily, and payable monthly at the annual rate of
.10% of the average daily net assets of the Portfolio. PFPC's principal business
address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
-12-
<PAGE>
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank 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."
DISTRIBUTOR
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as Distributor of
the Principal Shares pursuant to a distribution agreement dated May 29, 1998
(the "Distribution Agreement").
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 Principal 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
Principal 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 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 the Portfolio's expense ratio and of lowering yield to
investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and Plan of Distribution for the Principal Class (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the
Distributor is entitled to receive from the Principal Class a distribution fee,
which is accrued daily and paid monthly, of up to .50% on an annualized basis of
the average daily net assets of the Principal 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 .45% of the average daily net assets of the Principal Class on an
annualized basis in any year. 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 Plan, the Distributor may
re-allocate an amount up to the full fee that it receives to financial
institutions, including broker/dealers, based upon the aggregate investment
amounts maintained by and services provided to shareholders of the Principal
Class serviced by such financial institutions. The Distributor may also
reimburse broker/dealers for other expenses incurred in the promotion of the
sale of Fund shares. The Distributor and/or broker/dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
The Plan obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of the Principal 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.
-13-
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Principal Class of the Portfolio
to the shareholders of the Principal Class. All distributions are reinvested in
the form of additional full and fractional Principal 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 trading of
the NYSE. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
- --------------------------------------------------------------------------------
Distributions from the Money Market Portfolio will generally be taxable
to shareholders. It is expected that all, or substantially all, of these
distributions will consist of ordinary income. You will be subject to income tax
on these distributions regardless whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
The foregoing is only a summary of certain tax considerations under the
current law, which may be subject to change in the future. You should consult
your tax adviser for further information regarding federal, state, local and/or
foreign tax consequences relevant to your specific situation.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 18.326 billion shares are
currently classified into 97 different classes of Common Stock ( see
"Description of Shares" in the Statement of Additional Information).
The Fund offers multiple classes of shares in its 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 the
Portfolio varies based upon the services provided, which may affect performance.
Each class of Common Stock of the Fund that has a Rule 12b-1 distribution plan
has a separate plan for the class. Under the Distribution Agreement 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 the Portfolio. 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 RELATES SOLELY TO THE PRINCIPAL CLASS OF THE MONEY MARKET
PORTFOLIO AND DESCRIBES ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO THE PRINCIPAL CLASS OF THE MONEY MARKET
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 the
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.
-14-
<PAGE>
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of the Portfolio will vote in the aggregate and not
by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples 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 October 26, 1998, 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).
-15-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
-----------------------
CONTENTS
PAGE
INTRODUCTION...............................................2
INVESTMENT OBJECTIVES AND POLICIES.........................3
INVESTMENT LIMITATIONS.....................................6
PURCHASE AND REDEMPTION OF SHARES..........................7
NET ASSET VALUE...........................................11
MANAGEMENT................................................12
DISTRIBUTION OF SHARES....................................13
DIVIDENDS AND DISTRIBUTIONS...............................14
TAXES .................................................14
DESCRIPTION OF SHARES.....................................14
OTHER INFORMATION.........................................15
INVESTMENt ADVISER
BlackRock 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
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
PROSPECTUS
THE PRINCIPAL CLASS
MONEY MARKET PORTFOLIO
DECEMBER 1, 1997
(AS REVISED OCTOBER 28, 1998)
<PAGE>
THE PRINCIPAL CLASS
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 the Principal Class (the
"Principal Shares" or "Shares") which represent interests in the Money Market
Portfolio, an investment 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 Principal Class Prospectus of the
Fund, dated December 1, 1997 (as revised October 28, 1998) (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 (as revised October 28, 1998).
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................................................15 N/A
PORTFOLIO TRANSACTIONS........................................18 N/A
PURCHASE AND REDEPTION INFORMATION............................19 13
VALUATION OF SHARES...........................................20 18
PERFORMANCE INFORMATION.......................................21 N/A
TAXES ......................................................22 21
ADDITIONAL INFORMATION CONCERNING FUND SHARES.................23 N/A
MISCELLANEOUS.................................................26 24
FINANCIAL STATEMENTS..........................................39 6
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 REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management
investment company currently operating or proposing to operate seventeen
separate investment portfolios. This Statement of Additional Information
pertains to the Principal Class of shares (the "Principal Class") representing
interests in one of the investment portfolios (the "Portfolio") of the Fund: the
Money Market Portfolio. The Principal Class is offered by the Prospectus dated
December 1, 1997 (as revised October 28, 1998). 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 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 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
the 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.
<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 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 is 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 Portfolio engages in when-issued
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. The Portfolio may enter into stand-by
commitments with respect to obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities
(collectively, "Municipal Obligations") held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option a
specified Municipal Obligation at its amortized cost value to the Portfolio plus
accrued interest, if any. Stand-by commitments may be exercisable by the
Portfolio at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved.
The Portfolio expects that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Portfolio may pay for a stand-by
commitment either in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by the Portfolio will
not exceed 1/2 of 1% of the value of the Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
The Portfolio intends to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the investment adviser's
opinion, present minimal credit risks. The Portfolio's reliance upon the credit
of these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment.
<PAGE>
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.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the 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 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, 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.
<PAGE>
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. The Portfolio's 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 or the daily 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 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.
<PAGE>
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
Portfolio does 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.
<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.
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 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 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. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
<PAGE>
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) borrow money, except from banks for temporary
purposes (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 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. 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;
<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, the Portfolio may be deemed an underwriter under
federal securities laws and except to the extent that the purchase of
Municipal Obligations directly from the issuer thereof in accordance
with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or
development programs;
(9) make loans except that the Portfolio may purchase or
hold debt obligations in accordance with its investment objective,
policies and limitations 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 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;
<PAGE>
(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 Portfolio's outstanding
shares, but any such change may require the approval of the Securities and
Exchange Commission (the "SEC") and would be disclosed in the Prospectus prior
to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Portfolio will meet the following limitations on its investments in addition
to the fundamental investment limitations described above. These limitations may
be changed without a vote of shareholders of the Portfolio.
1. The Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Portfolio
may invest more than 5% of its total assets in First Tier Securities
of one issuer for a period of up to three business days. "First Tier
Securities" include eligible securities that (i) if rated by more than
one 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.
<PAGE>
2. The Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities, to
5% of its total assets.
3. The Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1 million.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATION
- --------------------- ------------------ DURING PAST FIVE
----------------
YEARS
-----
<S> <C> <C>
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, 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); 1985
New York, NY 10005 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 Vice President,
7701 Burholme Avenue Fox Chase Cancer Center (biomedical
Philadelphia, PA 19111 research and medical care.)
<PAGE>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATION
- --------------------- ------------------ 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, 1969 to
1234 Market Street present, Comcast Corporation; Director,
16th Floor Comcast Cablevision of Philadelphia
Philadelphia, PA 19107-3723 (cable television and communications)
and Nextel (wireless communications).
Donald van Roden, 73 Director Self-employed businessman. From
1200 Old Mill Lane February 1980 to March 1987, Vice
Wyomissing, PA 19610 Chairman, SmithKline Beecham Corporation
(pharmaceuticals); Director, AAA
Mid-Atlantic (auto service); Director,
Keystone Insurance Co.
<PAGE>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATION
- --------------------- ------------------ DURING PAST FIVE
----------------
YEARS
-----
Edward J. Roach, 73 President and Certified Public Accountant; Vice
Suite 100 Treasurer Chairman of the Board of Fox Chase
Bellevue Park Cancer Center; Trustee Emeritus,
Corporate Center Pennsylvania School for the Deaf;
400 Bellevue Parkway Trustee Emeritus, Immaculata College;
Wilmington, DE 19808 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 of
Drinker Biddle & Reath LLP Drinker Biddle and Reath LLP;
1345 Chestnut Street Director, Rocking Horse Child
Philadelphia, PA 19107-3496 Care Centers of America, Inc.
</TABLE>
- -----------------------
* Mr. Reichman is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Counsellors
Securities Inc., the Fund's distributor.
** 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 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 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 Messrs.
Sablowsky and Reichman 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:
<PAGE>
DIRECTORS' COMPENSATION
-----------------------
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED ANNUAL COMPENSATION FROM
AGGREGATE ACCRUED AS PART ANNUAL BENEFITS REGISTRANT AND FUND
COMPENSATION FROM OF FUND UPON COMPLEX 1 PAID TO
NAME OF PERSON/ 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
- ----------------------
</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.
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 Blackrock Institutional Management Corporation ("BIMC"),
the Portfolios' adviser, PNC Bank, National Association ("PNC Bank") the Fund's
custodian, PFPC Inc. ("PFPC"), the Fund's transfer and dividend disbursing
agent, and Provident Distributors, 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 BIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENT. The advisory services provided by BIMC and
the fees received by BIMC for such services are described in the Prospectus.
BIMC renders advisory and administrative services to the Portfolio pursuant to a
separate investment advisory agreement. The advisory agreement relating to the
Portfolio is dated August 16, 1988. It is hereinafter referred to as the
"Advisory Agreement."
<PAGE>
For the fiscal years identified below, the Fund paid BIMC (or,
PNC Institutional Management Corporation, as it was formerly known) advisory
fees as follows:
FEES PAID
(AFTER
WAIVERS AND REIMBURSE-
FISCAL YEAR ENDED REIMBURSEMENTS) WAIVERS MENTS
--------------- ------- ----------
August 31, 1997 $5,366,431 $3,603,130 $469,986
August 31, 1996 $4,174,375 $3,527,715 $342,158
August 31, 1995 $2,274,697 $2,589,832 $12,047
The Portfolio bears all of its own expenses not specifically assumed by
BIMC. 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 BIMC; (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 and PFPC; (i) fees and expenses of officers and directors
who are not affiliated with the Portfolio's 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 Portfolio 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 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 Principal Class of the Fund
pays its 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 Principal Class or if it receives
different services.
<PAGE>
Under the Advisory Agreement, BIMC 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 Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC in the performance of its duties or from reckless disregard of its
duties and obligations thereunder.
The Advisory Agreement was most recently approved on July 29,
1998 by a 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 the shareholders of such Portfolio at
a special meeting held December 22, 1989, 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 BIMC. The Advisory Agreement may
also be terminated by BIMC 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, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Principal Class pursuant to a Transfer Agency
Agreement dated October 28, 1998 (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 of 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 the 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 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.
<PAGE>
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolio. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolio for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENT. Pursuant to the terms of a
distribution agreement, dated as of May 29, 1998, and a supplement entered into
by the Distributor and the Fund on behalf of the Principal Class (together, the
"Distribution Agreement"), and a separate Plan of Distribution for the Principal
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 Principal 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 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 Principal 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 Principal 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.
<PAGE>
The Fund believes that the Plan may benefit the Fund by
increasing sales of Principal Shares. Mr. Sablowsky and Mr. Reichman, Directors
of the Fund, have indirect interests in the operation of the Plans by virtue of
their positions with Fahnestock Co., Inc. and Counsellors Securities, 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 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.
Purchases of portfolio securities by the Portfolio are made
from dealers, underwriters and issuers; sales are made to dealers and issuers.
The Portfolio currently does not 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, BIMC 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 or BIMC or any
affiliated person of the foregoing entities except to the extent permitted by
SEC exemptive order or by applicable law.
BIMC 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 BIMC 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 BIMC 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 BIMC not participate in or benefit from
the sale to the Portfolio.
<PAGE>
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 Portfolio held the following securities:
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Bear Stearns Companies, $105,000,000
Inc. Commercial Paper
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.)
<PAGE>
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of the Principal 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 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 the Principal 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 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 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
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 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.
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 BIMC determines
present minimal credit risks pursuant to guidelines adopted by the Board of
Directors, and BIMC 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.
<PAGE>
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.
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 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 may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether the Portfolio should continue to hold the obligation.
<PAGE>
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 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).
<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 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
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 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 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.
<PAGE>
While the Portfolio does not expect to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. The Portfolio will not have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital 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 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 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 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 the Portfolio intends to
distribute all of its taxable income currently, the Portfolio anticipates not
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.
<PAGE>
Although the Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, the Portfolio may be subject to the tax laws of such states
or localities.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in shareholder
communication in such matters.
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise, to the holders of the
outstanding 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).
<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. PricewaterhouseCoopers, 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>
<CAPTION>
- --------------------------------- ----------------------------------------------------- ------------------------------
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------- ----------------------------------------------------- ------------------------------
<S> <C> <C>
Cash Preservation Money Market Jewish Family and Children's 44.2%
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- --------------------------------- ----------------------------------------------------- ------------------------------
Dominic and Barbara Pisciotta and Successors in 15.9%
Trust under the Dominic and Barbara Pisciotta
Caring Trust
207 Woodmere Way
St. Charles, MO 63303
- --------------------------------- ----------------------------------------------------- ------------------------------
Cash Preservation Municipal Kenneth Farwell and Valerie 11.3%
Money Market 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
- --------------------------------- ----------------------------------------------------- ------------------------------
<PAGE>
- --------------------------------- ----------------------------------------------------- ------------------------------
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------- ----------------------------------------------------- ------------------------------
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 Wasner & Co. 32.6%
Portfolio FAO Paine Webber and Managed Assets Sundry Holdings
(Class I) 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 Equity - Blue Cross & Blue Shield of Massachusetts Inc. 6.10%
Institutional 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
- --------------------------------- ----------------------------------------------------- ------------------------------
<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 Equity Bob & Co. 87.30%
Portfolio - Advisor Class P.O. Box 1809
(Class MM) Boston, MA 02105-1809
- --------------------------------- ----------------------------------------------------- ------------------------------
TRANSCORP 10.78%
FBO William E. Burns
P.O. Box 6535
Englewood, CO 80155-6535
- --------------------------------- ----------------------------------------------------- ------------------------------
BEA High Yield Portfolio - Fidelity Investments Institutional 15.61%
Institutional 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
- --------------------------------- ----------------------------------------------------- ------------------------------
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
- --------------------------------- ----------------------------------------------------- ------------------------------
<PAGE>
- --------------------------------- ----------------------------------------------------- ------------------------------
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------- ----------------------------------------------------- ------------------------------
BEA High Yield Portfolio - Richard A. Wilson TTEE 10.81%
Advisor Class (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 Wachovia Bank North Carolina Trust for Carolina 26.22%
Portfolio - Institutional Class Power & 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 Special Custody Account for the
Class (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 Portfolio - Patterson & Co. 43.71%
Institutional Class P.O. Box 7829
(Class X) Philadelphia, PA 19101-7829
- --------------------------------- ----------------------------------------------------- ------------------------------
<PAGE>
- --------------------------------- ----------------------------------------------------- ------------------------------
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------- ----------------------------------------------------- ------------------------------
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 New England UFCW & Employers' 24.30%
Portfolio - Institutional Class Pension Fund Board of 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
- --------------------------------- ----------------------------------------------------- ------------------------------
<PAGE>
- --------------------------------- ----------------------------------------------------- ------------------------------
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------- ----------------------------------------------------- ------------------------------
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 Sunkist Master Trust 32.35%
Income 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 William A. Marquard 39.48%
Portfolio 2199 Maysville Rd.
(Class 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
- --------------------------------- ----------------------------------------------------- ------------------------------
<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 Portfolio - 466 Lexington Ave.
Advisor Class (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 Micro Cap Charles Schwab & Co. Inc. 15.3%
Fund Special Custody Account for the Exclusive
(Class FF) 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
- --------------------------------- ----------------------------------------------------- ------------------------------
<PAGE>
- --------------------------------- ----------------------------------------------------- ------------------------------
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------------------------------- ----------------------------------------------------- ------------------------------
n/i Numeric Investors Growth Charles Schwab & Co. Inc. 18.6%
Fund Special Custody Account for the Exclusive
(Class GG) Benefit of 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 Growth Charles Schwab & Co. Inc. 22.9%
and Value Special Custody Account for the Exclusive Benefit
Fund (Class HH) 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 Cap Value Dr. Janice B. Yost 26.2%
Fund - Institutional Class Trust Mary Black Foundation Inc.
(Class QQ) Bell Hill-945 E. Main St.
Spartanburg, SC 29302
- --------------------------------- ----------------------------------------------------- ------------------------------
<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 Cap Value Fleet National Bank TTEE 7.7%
Fund - Investor Class Testa Hurwitz THIB
(Class RR) FBO Scott Birnbaum
P.O. Box 92800
Rochester, NY 14692
- --------------------------------- ----------------------------------------------------- ------------------------------
<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%
Spjecial 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 National Financial SVCS Corp. 27.2%
Fund For Exclusive Bene of our
Investor Class Customers
(Class TT) Sal Vella
200 Liberty Street
New York, NY 10281
- --------------------------------- ----------------------------------------------------- ------------------------------
<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 Cap Value Wells Fargo Bank Cust 5.4%
Fund FBO William W. Carter
Institutional Class (Class UU) 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. BIMC and other institutions that are banks or bank
affiliates are subject to such banking laws and regulations.
<PAGE>
BIMC believes it may perform the services for the Fund
contemplated by its 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 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.
<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 internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
<PAGE>
"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.
"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.
<PAGE>
"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 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.
<PAGE>
"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.
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.
<PAGE>
"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 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.
<PAGE>
"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 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.
<PAGE>
(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:
"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:
<PAGE>
"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 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.
<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 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:
<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.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
<PAGE>
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.
<PAGE>
Law Offices
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
Fax: (215) 988-2757
November 30, 1998
VIA EDGAR TRANSMISSION
- ----------------------
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The RBB Fund, Inc. (the "Registrant")
REGISTRATION NOS. 33-20827/811-5518
-------------------------------------
Ladies and Gentlemen:
On behalf of the Registrant and pursuant to Rule 497 (c) under the
Securities Act of 1933, filed herewith are:
1) the Prospectus, dated December 1, 1997 (as revised October 28,
1998), relating to Registrant's Principal Class Money Market
Portfolio and
2) the Statement of Additional Information dated December 1,
1997 (as revised October 28, 1998), relating to Registrant's
Principal Class Money Market Portfolio.
Questions and comments concerning the enclosed materials may be
directed to the undersigned at (215) 988-2935.
Very truly yours,
/S/ ALLAN J. OSTER
------------------
Allan J. Oster
Enclosures
