<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1998
Securities Act File No. 33-20827
Investment Company Act File No.811-5518
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. | |
Post-Effective Amendment No. 64 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 66 |X|
------------------
THE RBB FUND, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Bellevue Park Corporate Center
400 Bellevue Parkway, Suite 100
Wilmington, DE 19809
(Address of Principal Executive Offices)
Registrant's Telephone Number: (302) 792-2555
Copies to:
GARY M. GARDNER, ESQUIRE MICHAEL P. MALLOY, ESQUIRE
PNC Bank, National Association Drinker Biddle & Reath LLP
1600 Market Street, 28th Floor 1100 PNB Building
Philadelphia, PA 19103 1345 Chestnut Street
(NAME AND ADDRESS OF AGENT FOR SERVICE) Philadelphia, PA 19107-3496
It is proposed that this filing will become effective (check appropriate box)
| | immediately upon filing pursuant to paragraph (b)
|X| on December 29, 1998 pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a) (1)
| | on (date) pursuant to paragraph (a) (1)
| | 75 days after filing pursuant to paragraph (a) (2)
| | on (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
| | This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The purpose of this Post-Effective Amendment is to update certain financial and
other information relating to the Registrant's Money Market, Municipal Money
Market, Goverment Obligations Money Market, New York Municipal Money Market,
Government Securities, Boston Partners Large Cap Value, Boston Partners Mid
Cap Value, Boston Partners Bond and Boston Partners Micro Cap Value Portfolios.
Title of Securities..................Shares of Common Stock
<PAGE>
THE RBB FUND, INC.
(RBB Shares of the Government Securities Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions
7. Purchase of Securities Being Offered............ How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase........................ How to Redeem Shares;
and Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the
Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................ "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the
Municipal Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................ "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the
Government
Obligations Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................ "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the Money Market Portfolio,
Municipal Money Market Portfolio and Government
Obligations Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................ "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Cover Page
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Cash Preservation Shares of the Money Market Portfolio,
and Municipal Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Janney Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Cover Page
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Cover Page"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Select Shares of the
Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Sansom Street Shares of the Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures; Shareholder
Servicing
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Sansom Street Shares of the Money Market Portfolio,
Municipal Money Market Portfolio
and Government Obligations Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redempton
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Principal Shares of the
Money Market Portfolio)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Beta Shares of the Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Inapplicable
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Gamma Shares of the Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Inapplicable
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Delta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Inapplicable
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Epsilon Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Inapplicable
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Zeta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Inapplicable
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Eta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
AND NEW YORK Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Inapplicable
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Theta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Inapplicable
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ Purchase and Redemption
of Shares-Purchase
Procedures, Net Asset
Value
8. Redemption or Repurchase........................ Purchase and Redemption
................................................ of Shares-Redemption of
Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption
of Shares" and
"Distribution of Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INSTITUTIONAL CLASS OF
THE BOSTON PARTNERS LARGE CAP VALUE FUND)
CROSS REFERENCE SHEET
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Not Applicable
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase........................ How to Redeem and
................................................ Exchange Shares;
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"How to Purchase Shares",
"How to Redeem and
Exchange Shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INVESTOR CLASS OF
THE BOSTON PARTNERS LARGE CAP VALUE FUND)
CROSS REFERENCE SHEET
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Condensed Financial Information ................ Not Applicable
4. General Description of Registrant .............. Cover Page; The Fund;
................................................ Investment Objectives and
Policies
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Multi-Class
Structure; Description of
Shares
7. Purchase of Securities Being Offered............ How to Purchase Shares:
Net Asset Value
8. Redemption or Repurchase........................ How to Redeem Shares;
................................................ Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "The Fund"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"How to Purchase Shares"
and "Distribution of
Fund Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INSTITUTIONAL CLASS OF
THE BOSTON PARTNERS MID CAP VALUE FUND)
CROSS REFERENCE SHEET
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Investment
................................................ Objectives and Policies
Description of Shares
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Description
of Shares
7. Purchase of Securities Being Offered............ How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase........................ How to Redeem and Exchange
................................................ Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" "Multi
Class Structure: and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"How to Purchase Shares",
"How to Redeem and
Exchange shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INVESTOR CLASS OF
THE BOSTON PARTNERS MID CAP VALUE FUND)
CROSS REFERENCE SHEET
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; The Fund;
................................................ Investment Objectives
and Policies
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Multi-
Class Structure;
Description of Shares
7. Purchase of Securities Being Offered............ How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase........................ "How to Redeem Shares;
................................................ Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "The Fund"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"How to Purchase Shares",
"How to Redeem Shares"
and "Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INSTITUTIONAL CLASS OF
THE BOSTON PARTNERS BOND FUND)
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Introduction;
................................................ Investment Objectives and
Policies; Investment
Limitations; Risk Factors
5. Management of the Fund ......................... Management
5A. Management's Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Taxes;
Multi-Class Structure;
Description of Shares
7. Purchase of Securities Being Offered............ How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase........................ How to Redeem Shares;
................................................ Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INVESTOR CLASS OF
THE BOSTON PARTNERS BOND FUND)
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; Introduction;
................................................ Investment Objectives and
Policies; Investment
Limitations; Risk Factors
5. Management of the Fund ......................... Management
5A. Management's Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Taxes;
Multi-Class Structure;
Description of Shares
7. Purchase of Securities Being Offered............ How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase........................ How to Redeem Shares; Net
................................................ Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INSTITUTIONAL CLASS AND INVESTOR CLASS
OF THE BOSTON PARTNERS BOND FUND)
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
"Multi-Class Structure"
and "Description of
Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"How to Purchase Shares",
How to Redeem and Exchange
Shares" and "Distribution
of Fund Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Not Applicable
22. Calculation of Performance Data ............... Performance and Yield
Information
23. Financial Statements .......................... Miscellaneous
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INSTITUTIONAL CLASS OF
THE BOSTON PARTNERS MICRO CAP VALUE FUND)
CROSS REFERENCE SHEET
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Financial Highlights ........................... Financial Highlights
4. General Description of Registrant .............. Cover Page; The Fund;
................................................ Investment Objectives and
Policies
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Multi-Class
Structure; Description of
Shares
7. Purchase of Securities Being Offered............ How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase........................ How to Redeem and Exchange
................................................ Shares; Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "Introduction"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" "Multi
Class Structure: and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"How to Redeem and
Exchange Shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(BOSTON PARTNERS INVESTOR CLASS OF
THE BOSTON PARTNERS MICRO CAP VALUE FUND)
CROSS REFERENCE SHEET
Form N-1A Item ............................. Location
Part A PROSPECTUS
1. Cover Page ..................................... Cover Page
2. Synopsis ....................................... Introduction
3. Condensed Financial Information ................ Not Applicable
4. General Description of Registrant .............. Cover Page; The Fund;
................................................ Investment Objectives and
Policies
5. Management of the Fund ......................... Management
6. Capital Stock and Other Securities ............. Cover Page; Dividends and
................................................ Distributions; Multi Class
Structure; Description
of Shares
7. Purchase of Securities Being Offered............ How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase........................ "How to Redeem Shares;
................................................ Net Asset Value
9. Legal Proceedings............................... Inapplicable
<PAGE>
PART B ......................................... STATEMENT OF
................................................ ADDITIONAL INFORMATION
10. Cover Page ..................................... Cover Page
11. Table of Contents .............................. Contents
12. General Information and History ................ General; See Prospectus
................................................... "The Fund"
13. Investment Objectives and Policies ............. Investment Objectives
and Policies
14. Management of the Fund ......................... Directors and
................................................ Officers; Investment
Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities .................................. Miscellaneous
16. Investment Advisory and Other
Services ....................................... Investment Advisory,
................................................ Distribution
and Servicing
Arrangements;
See Prospectus -
"Management"
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities ............. Additional Information
................................................ Concerning Fund Shares;
See Prospectus -
"Dividends and
Distributions" Multi Class
Structure" and
"Description of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Purchase and Redemption
................................................ Information; Valuation of
Shares; See Prospectus -
"How to Redeem Shares" and
"Distribution of Fund
Shares"
20. Tax Status .................................... Taxes; See Prospectus -
.............................................. "Taxes"
21. Underwriters .................................. Portfolio Transactions
22. Calculation of Performance Data ............... Performance Information
23. Financial Statements .......................... Financial Statements
PART C ........................................ OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY
THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION.......................................... 2
FINANCIAL HIGHLIGHTS.................................. 5
INVESTMENT OBJECTIVES AND POLICIES.................... 7
YEAR 2000.............................................10
INVESTMENT LIMITATIONS................................11
MANAGEMENT............................................12
DISTRIBUTION OF SHARES................................15
HOW TO PURCHASE SHARES................................15
HOW TO REDEEM SHARES..................................19
NET ASSET VALUE.......................................21
DIVIDENDS AND DISTRIBUTIONS...........................21
TAXES.................................................22
DESCRIPTION OF SHARES.................................23
OTHER INFORMATION.....................................24
ACCOUNT APPLICATION...............................CENTER
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
GOVERNMENT SECURITIES
PORTFOLIO
(RBB Class)
PROSPECTUS
December 29, 1998
<PAGE>
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
<PAGE>
THE RBB CLASS
of The RBB Fund, Inc.
This Prospectus offers one class of shares in the Government Securities
Portfolio of The RBB Fund, Inc. (the "Fund"). The investment objective of this
portfolio is as follows:
Government Securities Portfolio -- to provide the highest level of
current income consistent with liquidity and a low risk to principal from a
portfolio of U.S. Government obligations. It seeks to achieve such
objective by investing in obligations issued or guaranteed by the U.S.
Treasury or other agencies or instrumentalities of the U.S. Government.
Shares of the Fund are not deposits or obligations of, or guaranteed
or endorsed by PNC Bank, National Association or any other bank and shares
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency. Investments in Shares of the
Fund involve investment risks, including the possible loss of principal.
This Prospectus contains information that a prospective investor needs
to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling
(800) 430-9618. The Prospectus and Statement of Additional Information are
also available for reference, along with other related materials, on the
SEC Internet Web Site (http://www.sec.gov).
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988 and is
currently operating or proposing to operate seventeen separate investment
portfolios. The class (the "RBB Class" or the "Class") of shares (the "RBB
Shares" or "Shares") offered by this Prospectus represents interests in the
Government Securities Portfolio (the "Portfolio").
Fund Management
BlackRock Institutional Management Corporation ("BIMC"), a majority-owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser to the Portfolio. PNC Bank serves as the custodian to the
Fund. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds.
PFPC Inc. ("PFPC") serves as the administrator and transfer and dividend
disbursing agent to the Fund.
The Distributor
Provident Distributors, Inc. (the "Distributor"), serves as the Fund's
distributor.
Investment Portfolio
The investment objective of the Government Securities Portfolio is to
provide the highest level of current income consistent with liquidity and a low
risk to principal from a portfolio of U.S. Government obligations. It seeks to
achieve this objective by investing in obligations issued or guaranteed by the
U.S. Treasury or other agencies or instrumentalities of the U.S. Government.
-2-
<PAGE>
EXPENSE TABLE
The Fee Table below contains a summary of annual operating expenses
incurred by the RBB Shares of the Portfolio (after fee waivers and expense
reimbursements) for the fiscal year ended August 31, 1998, as a percentage of
average daily net assets. An example based on the summary is also shown.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as percentage of offering price).................................... 4.75%
Annual Fund Operating Expenses (RBB Class)
(as a percentage of average net assets)
Management Fees (after
waivers)(1).............................................. 0%
12b-1 Fees................................................ .40%
Other Expenses (after
waivers)(1).............................................. .30%
Total Fund Operating Expenses (after
waivers)(1).............................................. .70%
=====
(1) Management Fees and 12b-1 Fees are each based on average daily
net assets and are calculated daily and paid monthly. Before
expense reimbursements and waivers for the Portfolio, Management
Fees would be .40%, Other Expenses would be .91%, and Total Fund
Operating Expenses would be 1.71%.
Example
An investor would pay the following expenses on a $1,000 investment in the
Portfolio, assuming (1) a 5% annual return, and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Government Securities $7* $22* $39* $87*
</TABLE>
* Reflects the imposition of the maximum sales charge at the beginning of the
period.
-3-
<PAGE>
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating
Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders of the Portfolio may
pay more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that a holder of RBB Shares in the Portfolio will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management" and "Distribution of Shares" below.) The
Fee Table reflects a voluntary waiver of Management Fees for the Portfolio.
However, there can be no assurance that any future waivers of Management Fees
(if any) will not vary from the figure reflected in the Fee Table. In addition,
the investment adviser is currently voluntarily assuming additional expenses of
the Portfolio. There can be no assurance that the investment adviser will
continue to assume such expenses. Assumption of additional expenses will have
the effect of lowering a Portfolio's overall expense ratio and increasing its
yield to investors. The expense figures are based on actual costs and fees
charged to the Portfolio.
Offering Price
RBB Shares will be offered to the public at the next determined net asset
value after receipt by PFPC, the Fund's transfer agent, of an order plus a
maximum sales charge of 4.75% of the offering price on single purchases of less
than $100,000. The sales charge is reduced on a graduated scale on single
purchases of $100,000 or more.
Minimum Initial and Subsequent Investments
The minimum initial investment for RBB Shares is $1,000. Subsequent
investments must be $100 or more. See "How to Purchase Shares."
Redemption
Shares may be redeemed at any time at their net asset value next determined
after receipt by PFPC of a redemption request. The Fund reserves the right, upon
30 days written notice, to redeem an account consisting of RBB Shares if the net
asset value of the investor's Shares in that account falls below $500 and is not
increased to at least such amount within such 30-day period. See "How to Redeem
Shares--Involuntary Redemption."
Certain Factors to Consider
An investment in the Portfolio is subject to certain risks, as set forth in
detail under "Investment Objective and Policies." As with other mutual funds,
there can be no assurance that the Portfolio will achieve its objective. The
Portfolio, to the extent set forth under "Investment Objective and
-4-
<PAGE>
Policies," engages in the following investment practices: the use of repurchase
agreements and reverse repurchase agreements, the purchase of mortgage-related
securities, the purchase of securities on a "when-issued" or "forward
commitment" basis, the purchase of stand-by commitments, the lending of
portfolio securities and engaging in options and futures transactions. All of
these transactions involving certain special risks, as set forth under
"Investment Objective and Policies." Investment methods described in this
Prospectus are among those which the Portfolio has the power to utilize. Some
may be employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular method or technique carries no implication that it
will be utilized or, if it is, that it will be successful.
Shareholder Inquiries
Any questions or communications regarding a shareholder account should be
directed to PFPC, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 430-9618.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the RBB Class of the Government Securities Portfolio for the periods
indicated. The financial data included in this table for each of the periods
ended August 31, 1994 through August 31, 1998 are part of the Fund's financial
statements for the Portfolio, which are incorporated by reference into the
Statement of Additional Information and have been audited by
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the Fund's independent
accountants. The financial data for the Portfolio for the periods ending
August 31, 1991, 1992 and 1993 are a part of previous financial statements
audited by PricewaterhouseCoopers. Further information about the performance of
the Portfolio is available in the Annual Report to Shareholders. The financial
data should be read in conjunction with the financial statements and notes
thereto. Both the Statement of Additional Information and the Annual Report to
Shareholders may be obtained free of charge by calling the telephone number on
Page 1 of this Prospectus.
-5-
<PAGE>
THE RBB CLASS
Government Securities Portfolio
-------------------------------
Financial Highlights(e)
(For a Share Outstanding Throughout each Period)
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period............................... $ 8.87 $ 9.04 $ 9.54 $ 9.69 $ 10.73
------ ------- -------- -------- ---------
Income from investment operations:
Net investment income............... 0.5562 0.8744 0.5220 0.5819 0.5931
Net gains (losses) on securities
(both realized and unrealized)..... 0.3565 0.1346 (0.2540) 0.0361 (0.8651)
------ ------- ------- ------ -------
Total from investment operations... 0.9127 1.0090 0.2680 0.6180 (0.2720)
------ ------- ------ ------ -------
Less distributions
Dividends (from net investment
income)............................ (0.5562) (0.8744) (0.5220) (0.5819) (0.5901)
Distributions (from excess of net
investment income)................. -- -- -- -- (0.0235)
Return of capital .................. (0.3565) (0.3046) (0.2460) (0.1861) (0.1544)
-------- ------- ------- ------- -------
Total distributions................ (0.9127) (1.1790) (0.7680) (0.7680) (0.7680)
-------- ------- ------- ------- -------
Net asset value, end of period.......... $ 8.87 $ 8.87 $ 9.04 $ 9.54 $ 9.69
====== ======= ======= ======= =======
Total return ........................... 6.54%(d) 9.39%(d) 2.75%(d) 6.72%(d) (2.60%)(d)
Ratios/Supplemental Data
Net assets, end of period (000)....... $5,901 $6,737 $ 8,785 $10,514 $54,938
Ratios of expenses to average
net assets.......................... 0.70%(a) 0.70%(a) .70%(a) .72%(a) .64%(a)
Ratios of net investment income to
average net assets ................. 6.16% 6.18% 6.05% 6.59% 5.86%
Portfolio turnover rate............... 5% 26% 77% 86% 65%
<CAPTION>
For the Period
August 1, 1991
For the For the (Commencement
Year Ended Year Ended of Operations)
August 31, August 31, to August 31,
1993 1992 1991
---------- ---------- --------------
<S> <C> <C> <C>
Net asset value, beginning
of period............................... $ 10.46 $ 10.12 $ 10.00
--------- ---------- ---------
Income from investment operations:
Net investment income............... 0.7080 0.8002 0.0737
Net gains (losses) on securities
(both realized and unrealized)..... 0.3300 0.3408 0.1213
------ ------ ------
Total from investment operations... 1.0380 1.1410 0.1950
------ ------ ------
Less distributions
Dividends (from net investment
income)............................ (0.7080) (0.8010) (0.0750)
Distributions (from excess of net
investment income)................. -- --
Return of capital .................. (0.0600) -- --
------- ------- --------
Total distributions................ (0.7680) (0.8010) (0.0750)
------- ------- -------
Net asset value, end of period.......... $ 10.73 $ 10.46 $ 10.12
======= ======= =======
Total return ........................... 10.36%(d) 11.73%(d) 1.95%(c)(d)
Ratios/Supplemental Data
Net assets, end of period (000)....... $36,296 $25,604 $28,225
Ratios of expenses to average
net assets.......................... .66%(a) .83%(a) 1.10%(a)(b)
Ratios of net investment income to
average net assets ................. 6.70% 7.81% 8.50%(b)
Portfolio turnover rate............... 47% 21% 3%(c)
</TABLE>
- -----------------
(a) Without the waiver of advisory, administration and custody fees and without
the reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Government Securities Portfolio would have been
1.71%, 2.15%, 2.05%, 1.22%, 1.10%. 1.22% and 1.22% for the years ended
August 31, 1998, 1997, 1996, 1995, 1994, 1993 and 1992, respectively, and
1.28% annualized for the period ended August 31, 1991.
(b) Annualized.
(c) Not annualized.
(d) Sales load not reflected in total return.
(e) Financial Highlights relate solely to the RBB Class of Shares within the
portfolio.
-6-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
Government Securities Portfolio
The objective of the Government Securities Portfolio is to provide the
highest level of current income consistent with liquidity and a low risk to
principal from a portfolio of U.S. Government obligations. It seeks to achieve
such objective by investing in obligations issued or guaranteed by the U.S.
Treasury or other agencies or instrumentalities of the U.S. Government. There is
no assurance that the investment objective of the Portfolio will be achieved.
U.S. Government Obligations. The Portfolio may purchase U.S. Government
agency and instrumentality obligations, which are debt securities issued by U.S.
Government-sponsored enterprises and federal agencies. Some obligations of
agencies and instrumentalities of the U.S. Government are supported by the full
faith and credit of the U.S. Government or by U.S. Treasury guarantees, such as
securities of the Government National Mortgage Association and the Federal
Housing Authority; others, by the right of the issuer to borrow from the U.S.
Treasury, such as securities of the Federal Home Loan Mortgage Corporation and
others, only by the credit of the agency or instrumentality issuing the
obligation, such as securities of the Federal National Mortgage Association and
the Federal Loan Banks. No assurance can be given that the U.S. Government will
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
During ordinary market conditions, at least 90% of the Portfolio's net
assets will be invested in obligations issued or guaranteed by the U.S. Treasury
or the agencies or instrumentalities of the U.S. Government, including options
and futures on such obligations. The maturities of U.S. Government securities
usually range from three months to thirty years. The Portfolio will at all times
invest at least 65% of its assets in such obligations, not including options and
futures on such obligations. The Portfolio's investment adviser may adjust the
average maturity of the Portfolio from time to time depending on its assessment
of relative yields of securities of different maturities and its expectations of
future changes in interest rates. Thus, at certain times the average maturity of
the Portfolio may be relatively short (under one year to five years, for
example) and at other times may be relatively long (more than 10 years, for
example). The obligations in which the Portfolio invests may not yield as high a
level of current income as lower grade obligations.
Hedging Investments. At such times as the Portfolio's investment adviser
deems it appropriate and consistent with the investment objective of the
Portfolio, the Portfolio may write covered call options on U.S. Government
obligations which are traded on a national securities exchange. The Portfolio
may also purchase and sell (i) options on U.S. Government obligations, (ii)
interest rate futures contracts, and (iii) options on interest rate futures
contracts. The purpose of such transactions is to hedge against changes in the
market value of securities in the Portfolio caused by fluctuating interest
rates, and to close out or offset its existing positions
-7-
<PAGE>
in such futures contracts or options as described below. Such instruments will
not be used for speculation. Options and futures contracts are discussed below.
Options. The Portfolio may purchase options issued by the Options Clearing
Corporation on U.S. Treasury bonds, notes and bills. Such options give the
Portfolio the right for a fixed period of time to sell (in the case of the
purchase of a put option) or to buy (in the case of the purchase of a call
option) the number of units of the underlying obligation covered by the option
at a fixed or determinable exercise price. Buying a put hedges against the risk
of rising interest rates. Buying a call hedges against a market advance when the
Portfolio is not fully invested. Prior to its expiration, a put or call option
may be sold in a closing sale transaction. Gain or loss from the sale will
depend on whether the amount received is more or less than the premium paid for
the option plus the related transaction costs.
The Portfolio also may write (sell) put or call options but only if such
options are covered, and such options remain covered so long as the Portfolio is
obligated as a writer of the option (seller). A call option is "covered" if the
Portfolio owns the underlying security covered by the call. A put option is
"covered" if the Portfolio maintains in a segregated account with its custodian
liquid assets with a value equal to the exercise price. If a "covered" call or
put option expires unexercised, the writer realizes a gain in the amount of the
premium received. If the covered call is exercised, the writer realizes a gain
or loss from the sale or purchase of the underlying security with the proceeds
to the writer being increased by the amount of the premium. If the covered put
is exercised, the writer's cost of purchasing the underlying security is reduced
by the amount of the premium. Prior to its expiration, a put or call option may
be purchased in a closing sale transaction and gain or loss from the sale will
depend on whether the amount paid is more or less than the premium received for
the option plus the related transaction costs.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the Portfolio's other investments and the
risk that there might not be a liquid secondary market for the option. In
general, options whose strike prices are close to their underlying instruments'
current value will have the highest trading volume, while options whose strike
prices are further away may be less liquid. The liquidity of options may also be
affected if options exchanges impose trading halts, particularly when markets
are volatile.
Futures Contracts. As noted above, the Portfolio may invest in financial
futures contracts. Financial futures contracts obligate the seller to deliver a
specific type of security called for in the contract, at a specified future
time, and for a specified price. Financial futures contracts may be satisfied by
actual delivery of the securities or, more typically, by entering into an
offsetting transaction. There are risks that are associated with the use of
futures contracts for hedging purposes. In certain market conditions, as in a
rising interest rate environment, sales of futures contracts may not completely
offset a decline in value of the portfolio securities against which the futures
contracts are being sold. In the futures market, it may not always be possible
to execute a buy or sell order at the desired price, or to close out an open
position due to market conditions, limits on open positions, and/or daily price
fluctuations. Risks in the use of futures contracts also result from the
possibility that changes in the market interest rates may differ
-8-
<PAGE>
substantially from the changes anticipated by the Portfolio's investment adviser
when hedge positions were established.
Options on Futures. The Portfolio may purchase and write call and put
options on futures contracts which are traded on a U.S. exchange or board of
exchange and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract. The Portfolio may use options on futures contracts in
connection with hedging strategies. The purchase of put options on futures
contracts is a means of hedging against the risk of rising interest rates. The
purchase of call options on futures contracts is a means of hedging against a
market advance when the Portfolio is not fully invested.
There is no assurance that the Portfolio will be able to close out its
financial futures positions at any time, in which case it would be required to
maintain the margin deposits on the contract. There can be no assurance that
hedging transactions will be successful, as there may be imperfect correlations
(or no correlations) between movements in the prices of the futures contracts
and of the debt securities being hedged, or price distortions due to market
conditions in the futures markets. Such imperfect correlations could have an
impact on the Portfolio's ability to effectively hedge its securities.
The Portfolio will not enter into financial futures contracts or related
options contracts (valued at market value) if, immediately thereafter, more than
50% of the value of the Portfolio's total assets would be so hedged. The 50%
investment restriction is not a fundamental policy of the Portfolio and may be
changed without a shareholder vote by the Board of Directors. Restrictions
imposed by the Internal Revenue Code may also limit the Portfolio's ability to
engage in hedging transactions.
The Portfolio intends to comply with the regulations of the Commodity
Futures Trading Commission exempting the Portfolio from registration as a
"commodity pool operator."
Short Sales. The Portfolio may only make short sales of securities
"against-the-box." A short sale is a transaction in which a Portfolio sells a
security it does not own in anticipation that the market price of that security
will decline. The Portfolio may make short sales as a form of hedging to offset
potential declines in long positions in similar securities. In a short sale
"against-the-box," at the time of sale, the Portfolio owns or has the immediate
and unconditional right to acquire the identical security at no additional cost.
When selling short "against-the-box," a portfolio forgoes an opportunity for
capital appreciation in the security.
When-Issued Securities. The Portfolio may purchase portfolio securities on
a "when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset when the commitment is entered into and are subject to
changes in value prior to delivery based upon changes in the general level of
-9-
<PAGE>
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
Repurchase Agreements. The Portfolio may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
Default by or bankruptcy of the seller would, however, expose the Portfolio to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
Lending of Portfolio Securities. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks.
Portfolio Turnover. The Portfolio will actively use trading to benefit from
yield disparities among different issues of U.S. Government securities or
otherwise to achieve its investment objective and policies. The Portfolio,
therefore, may be subject to a greater degree of turnover and, thus, a higher
incidence of short-term capital gains taxable as ordinary income than might be
expected from portfolios which invest substantially all of their funds on a
long-term basis, and correspondingly larger mark-up charges can be expected to
be borne by the Portfolio. The Portfolio anticipates that the annual turnover in
the Portfolio will not be in excess of 200%. A 200% turnover rate is greater
than that of many other investment companies.
Illiquid Securities. The Portfolio will not invest more than 15% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days and other securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
deemed illiquid for purposes of this limitation. The Portfolio's investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. See "Investment Objective and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Portfolio's investment objective and policies described above may be
changed by the Fund's Board of Directors without the affirmative vote of the
holders of a majority of outstanding Shares of the Fund representing interests
in the Portfolio.
-10-
<PAGE>
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Portfolio may not change the following investment limitations (with
certain exceptions, as noted below) without shareholder approval. (A complete
list of the investment limitations that cannot be changed without such a vote of
the shareholders is contained in the Statement of Additional Information under
"Investment Objective and Policies.")
The Portfolio may not:
1. Purchase the securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the value of the Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio, except
that up to 25% of the value of the Portfolio's total assets may be invested
without regard to such limitations.
2. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's total assets
at the time of such borrowing, and only if after such borrowing there is
asset coverage of at least 300% for all borrowings of the Portfolio, or
mortgage, pledge or hypothecate any of its assets except in connection with
any such borrowing and in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing; or purchase
portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio's securities
by enabling the Portfolio to meet redemption requests where the liquidation
of portfolio securities is deemed to be disadvantageous or inconvenient.)
-11-
<PAGE>
3. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in any industry, provided that there
is no limitation with respect to investments in U.S. Government
obligations. (In determining whether the Portfolio has complied with this
limitation, the value of options and futures will not be taken into
account.)
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
MANAGEMENT
- --------------------------------------------------------------------------------
Board of Directors
The business and affairs of the Fund and the Portfolio are managed under
the direction of the Fund's Board of Directors. The Fund currently operates or
proposes to operate seventeen separate investment portfolios. The RBB Family
Class represents interests in the Government Securities 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. PNC
Bank and its subsidiaries currently manage over $45.9 billion of assets, of
which approximately $31.4 billion are mutual funds. PNC Bank, a national bank
whose principal business address is 1600 Market Street, Philadelphia,
Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp, Inc. PNC
-12-
<PAGE>
Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary of PNC
Bank Corp., a multi-bank holding company.
As adviser to the Portfolio, BIMC is responsible for overall management of
the Portfolio, and is responsible for all purchases and sales of portfolio
securities for the Portfolio.
Robert J. Morgan is responsible for the day-to-day portfolio management of
the Portfolio. Mr. Morgan is Assistant Vice President with BIMC, where he has
been employed since 1988. Previously, he was a Portfolio Manager with CoreStates
Financial Corp.
For the services provided and expenses assumed by it, BIMC is entitled to
receive the following fees, computed daily and payable monthly based on the
Portfolio's average daily net assets: .40% of first $250 million of net assets;
.35% of next $250 million of net assets; and .30% of net assets in excess of
$500 million. BIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for the Portfolio. In
addition, BIMC may from time to time enter into an agreement with one of its
affiliates pursuant to which it delegates some or all of its accounting and
administrative obligations under its advisory agreements with the Fund relating
to the Portfolio. Any such arrangement would have no effect on the advisory fees
payable by the Portfolio to BIMC.
For the fiscal year ended August 31, 1998, BIMC waived all investment
advisory fees payable to it with respect to the Portfolio.
Administrator
PFPC serves as administrator to the Portfolio. PFPC is an indirect,
wholly-owned subsidiary of PNC Bank Corp. PFPC generally assists the Portfolio
in all aspects of its administration and operations, including matters relating
to the maintenance of financial records and accounting. PFPC is entitled to an
administration fee, computed daily and payable monthly at an annual rate of .10%
of the Portfolio's average daily net assets. For the fiscal year ended August
31, 1998, PFPC waived all administration fees payable to it with respect to the
portfolio. PFPC's principal business address is 400 Bellevue Parkway,
Wilmington, Delaware 19809.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank serves as the Fund's custodian and PFPC serves as the Fund's
transfer agent and dividend disbursing agent. PFPC may enter into shareholder
servicing agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor ("Authorized Dealers") for the provision of
certain shareholder support services to customers of such Authorized Dealers who
are shareholders of the Portfolio. The services provided and the fees payable by
the Fund for these services are
-13-
<PAGE>
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, acts as Distributor for the
Portfolio pursuant to a distribution agreement dated May 29, 1998 (the
"Distribution Agreement").
Expenses
The expenses of the Portfolio are deducted from its total income before
dividends are paid. Any general expenses of the Fund that are not readily
identifiable as belonging to a particular investment portfolio of the Fund will
be allocated among all investment portfolios of the Fund based upon the relative
net assets of the investment portfolios. The RBB Class of the Fund pays its own
distribution fees, and may pay a different share than other classes of the Fund
of other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the RBB Class or if it receives
different services.
The investment adviser may assume additional expenses of the Portfolio from
time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolio for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing the Portfolio's expense ratio and of decreasing yield
to investors.
For the Fund's fiscal year ended August 31, 1998, the Fund's total expenses
were 1.71% of the average daily net assets of the RBB Class of the Portfolio
(not taking into account waivers and reimbursements of 1.01%).
Portfolio Transactions
The Portfolio's adviser may consider a number of factors in determining
which brokers to use in purchasing or selling the Portfolio's securities. These
factors, which are more fully discussed in the Statement of Additional
Information, include, but are not limited to, research services, the
reasonableness of commissions and quality of services and execution.
Transactions for the Portfolio may be effected through Authorized Dealers,
subject to the requirements of best execution. The Portfolio may enter into
brokerage transactions with and pay brokerage commissions to brokers that are
affiliated persons (as such term is defined in the 1940 Act) provided that the
terms of the brokerage transactions comply with the provisions of the 1940 Act.
-14-
<PAGE>
THE RBB CLASS NEW ACCOUNT APPLICATION
Mail completed application to:
PFPC - Attention: The RBB Class, P.O. Box 8950,
Wilmington, DE 19899
<TABLE>
========================================================================================================
<S> <C> <C>
1 --------------------------------------------------------- [ ] Individual
PLEASE PRINT
Registration
--------------------------------------------------------- [ ] Joint Tenant
Owner
[ ] Custodian
---------------------------------------------------------
Co-owner*, minor, trust
[ ] UGMA_____(state)
---------------------------------------------------------
Street Address [ ] Trust
--------------------------------------------------------- [ ] Corporation
City State Zip Code
[ ] Other____________
---------------------------------------------------------
*For joint registration, both must sign. The registration
will be as joint tenants with the right of survivorship
and not as tenants in common, unless otherwise stated.
- --------------------------------------------------------------------------------------------------------
2 Enclosed is my check for $_________ (minimum of $1,000 per portfolio) made payable to
Investments "The RBB Class" Government Securities Portfolio $_________________.
My account being established with this application qualifies for a reduced sales
charge with one of the following privileges:
[ ] Right of Accumulation - I agree for Rights of Accumulation reduced sales charge
based on the following accounts in the RBB Class
------------------------------ --------------------------------
Portfolio Account No.
[ ] Letter of Intent - I agree to the Letter of Intent provisions in the prospectus.
I plan to invest during a 13-month period a dollar amount of at least $________.
($100,000 minimum)
========================================================================================================
</TABLE>
<PAGE>
<TABLE>
========================================================================================================
<S> <C>
3 Under penalties of perjury, I certify with my signature below that the number shown
Taxpayer in this section of the application is my correct taxpayer identification number and
Identification that I am not subject to backup withholdings as a result of a failure to report all
interest or dividends, or the Internal Revenue Service has notified me that I am no
longer subject to backup withholding.
If you are subject to backup withholding, check the box in front of the following
statement.
[ ] The Internal Revenue Service has notified me that I am subject to backup withholding.
------------------------------ or -------------------------------- or
(Owner's Social Security #) (Tax Identification #)
------------------------------
(Minor's Social Security #)
- --------------------------------------------------------------------------------------------------------
4 A. Dividend Election
Options Unless you elect otherwise, all dividends and capital gains distributions will be
automatically reinvested in additional shares. If you prefer to be paid in cash each
month check the appropriate box below. Pay all:
[ ] dividends and capital gains in cash.
[ ] dividends in cash and reinvest capital gains.
[ ] capital gains in cash and reinvest dividends.
[ ] I request the above distributions be sent to the special payee whose address is
specified in Section B below.
- --------------------------------------------------------------------------------------------------------
B. SYSTEMATIC WITHDRAWAL
Systematic withdrawal plan minimum account of $10,000 in shares at the current offering price. Minimum
withdrawal $100. Each withdrawal redemption will be processed about the 25th of the month and mailed
as soon as possible thereafter. Shareholders holding share certificates are not eligible for the
Systematic Withdrawal Plan because share certificates must accompany all withdrawal requests.
Start (month) __________________________________ $(amount)____________________________
[ ] Monthly [ ] Quarterly [ ] Semi-annually [ ] Annually
- --------------------------------------------------------------------------------------------------------
Provide the following information only if distribution or withdrawal checks are to be payable to a
person or organization different than as registered.
Name of Bank or Individual: ________________________________________________________
Bank Account # (if applicable)______________________________________________________
Street_______________________________City_________________State________Zip__________
- --------------------------------------------------------------------------------------------------------
C. AUTOMATIC INVESTING
This program provides for investments to be made automatically, by authorizing PFPC to withdraw funds
from your bank account. An initial minimum investment of $1,000, and subsequent investment of at least
$100 are required. The program requires additional information so that PFPC may contact your bank to
make sure the arrangement is properly established. This may not be used with a Systematic Withdrawal
Program.
[ ] Check here and the proper form will be sent to you.
========================================================================================================
</TABLE>
<PAGE>
<TABLE>
========================================================================================================
<S> <C>
5 Citizenship: [ ] U.S. [ ] Other________________________
Signatures Please provide Phone Number (___)________________
Sign below exactly as printed in Registration.
I(we) am (are) of legal age and have read the prospectus. I(we) hereby certify that
each of the persons listed below has been duly elected, and is now legally holding
the office set below his name and has the authority to make this authorization.
Please print titles below if signing on behalf of a business or trust.
Note: You must cross out item (2) above if you have been notified by the IRS that you
are currently subject to backup withholding because you have failed to report all
interest and dividends on your tax return. The Internal Revenue Service does not
require your consent to any provisions of this document other than the certification
required to audit backup withholding.
-------------------------------------------------------------
Signature
-------------------------------------------------------------
(President, Trustee, General Partner or Agent)
-------------------------------------------------------------
Signature
-------------------------------------------------------------
(Co-owner, Secretary of Corporation, Co-trustee, etc.)
- --------------------------------------------------------------------------------------------------------
6 MUST BE COMPLETED BY DEALER
Investment Dealer
-------------------------------------------------------------
Firm Name
-------------------------------------------------------------
Branch Street Address
-------------------------------------------------------------
Representative's Signature
-------------------------------------------------------------
Representative's name (print)
-------------------------------------------------------------
Representative Number
-------------------------------------------------------------
Date
========================================================================================================
</TABLE>
<PAGE>
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and a Plan of Distribution for the Portfolio (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to
receive from the Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the Class. The actual amount of such compensation under the Plan is agreed upon
by the Fund's Board of Directors and by the Distributor. Under the Distribution
Agreement, the Distributor has agreed to accept compensation for its services
thereunder and under the Plan in the amount of .40% of the average daily net
assets of the Class on an annualized basis in any year. Such compensation may be
increased, up to the amount permitted in the Plan, with the approval of the
Fund's Board of Directors. Pursuant to the conditions of an exemptive order
granted by the Securities and Exchange Commission (the "SEC"), the Distributor
has agreed to waive its fee with respect to the Class on any day to the extent
necessary to ensure that the fee required to be accrued by the Class does not
exceed the income of the Class on such day. In addition, the Distributor may, in
its discretion, from time to time waive voluntarily all or any portion of its
distribution fee.
Under the dealer agreements in effect with respect to the Class, the
Distributor may reallocate up to all of the compensation it receives for its
services under the Distribution Agreement and the Plan to Authorized Dealers,
based upon the aggregate investment amounts maintained by customers of such
Authorized Dealers in the Portfolio. The Distributor may also reimburse
Authorized Dealers for other expenses incurred in the promotion of the sale of
Fund Shares. The Distributor and/or Authorized Dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Portfolio as well as for
related direct mail, advertising and promotional expenses.
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Fund the fee agreed to under the
Distribution Plan. Payments under the Plan are not tied exclusively to expenses
actually incurred by the Distributor, and the payments may exceed distribution
expenses actually incurred.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
General
Shares representing interests in the Portfolio are offered continuously for
sale by the Distributor and may be purchased through Authorized Dealers. Shares
representing interests in the Portfolio may be purchased initially by completing
the application included in this Prospectus and forwarding the application,
through the designated Authorized Dealer, to the Fund's transfer agent, PFPC.
Subsequent purchases of Shares may be effected through an Authorized Dealer or
by mailing a check or Federal Reserve Draft, payable to the order of "The RBB
Class" to The RBB Class, c/o PFPC, P.O. Box 8916, Wilmington, Delaware 19899.
The name of the Portfolio for which Shares are being purchased must also appear
on the check or Federal Reserve Draft. Federal Reserve Drafts are available at
national
-15-
<PAGE>
banks or any state bank which is a member of the Federal Reserve System. Initial
investments in the Portfolio must be at least $1,000 and subsequent investments
must be at least $100. The Fund reserves the right to reject any purchase order.
Shares may be purchased on any Business Day. A "Business Day" is any day
that the New York Stock Exchange (the "NYSE") is open for business. Currently,
the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and the preceding Friday or subsequent Monday
when one of these holidays falls on Saturday or Sunday. Shares are offered at
the next determined net asset value per share, plus a sales load as described
below.
The price paid for Shares purchased is based on the net asset value next
computed (plus a sales charge, if no sales charge has been previously imposed
with respect to such Shares) after a purchase order is received in good order by
the Fund's transfer agent. Such price will be the net asset value next computed
(plus any applicable sales charge) after an order is received by an Authorized
Dealer provided such order is transmitted to and received by the Fund's transfer
agent prior to its close of business on such day. It is the responsibility of
Authorized Dealers to transmit orders received by them to the Fund's transfer
agent so they will be received prior to such time. On any Business Day, orders
received by the Fund's transfer agent from an Authorized Dealer after its close
of business are priced at the net asset value next determined (plus any
applicable sales charge) on the following Business Day. Orders of less than $500
are mailed by an Authorized Dealer. In those cases where an investor pays for
Shares by check, the purchase will be effected at the net asset value (plus any
applicable sales charge) next determined after the Fund's transfer agent
receives the order and Federal Funds are available to the Fund, which is
generally two Business Days after a purchase order is received.
Shareholders whose shares are held in the street name account of an
Authorized Dealer and who desire to transfer such shares to the street name
account of another Authorized Dealer should contact their current Authorized
Dealer.
Sales Charges -- General. The following table shows sales charges generally
applicable to Shares at various investment levels. Sales charges are reduced on
a graduated scale on single purchases of Shares of $100,000 or more. Sales
charges are imposed regardless of whether Shares are purchased through
Authorized Dealers or by direct investment. During special promotions, as much
as the entire sales load may be reallowed to Authorized Dealers, and at such
times such Authorized Dealers may, by virtue of such reallowance, be deemed to
be "underwriters" under the 1933 Act.
-16-
<PAGE>
<TABLE>
<CAPTION>
Sales Sales Reallowance
Charge as Charge as to Authorized
Percentage Percentage Dealers (as
of Net of Offering % of Offering
Amount of Transaction at Offering Price Asset Value Price Price)
- --------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Less than $ 100,000 .......................... 4.99% 4.75% 4.25%
$100,000 but less than $250,000 .............. 4.17 4.00 3.50
$250,000 but less than $500,000 .............. 3.09 3.00 2.50
$500,000 but less than $1,000,000 ............ 2.04 2.00 1.60
$1,000,000 but less than $2,000,000 .......... 1.01 1.00 .80
$2,000,000 but less than $4,000,000 ............ 50 .50 .40
$4,000,000 and above .......................... -0- -0- -0-
</TABLE>
The foregoing schedule of sales charges applies to purchases of Shares made
at any one time by the following: (a) any individual; (b) any individual, his or
her spouse, and their children under the age of 21; (c) a trustee or fiduciary
of a single trust estate or single fiduciary account; or (d) any organized group
which has been in existence for more than six months, provided that it is not
organized for the purpose of buying redeemable securities of a registered
investment company, and provided that the purchase is made through a central
administration, or through a single dealer, or by other means which result in
economy of sales effort or expense. An organized group does not include a group
of individuals whose sole organizational connection is participation as credit
card holders of a company, policyholders of an insurance company, customers of
either a bank or broker-dealer or clients of an investment adviser. Purchases
made by an organized group may include, for example, a trustee or other
fiduciary purchasing for a single fiduciary account or other employee benefit
plan purchases made through a payroll deduction plan.
The foregoing schedule applies to single purchases and to purchases made
under a Letter of Intent or pursuant to the Right of Accumulation, both of which
are described below.
Right of Accumulation. Under the Right of Accumulation, the current value
of an investor's existing Shares may be combined with the amount of the
investor's current purchase of Shares in determining the sales charge. In order
to receive the cumulative quantity reduction, previous purchases of Shares must
be called to the attention of the Fund's transfer agent at the time of the
current purchase.
Letter of Intent. An investor may qualify for a reduced sales charge on a
purchase of Shares immediately by signing a nonbinding Letter of Intent stating
the investor's intention to invest in Shares during the next 13 months a
specified amount which, if made at one time, would qualify for a reduced sales
charge. Any redemptions made during the 13-month period will be subtracted from
the amount of purchases in determining whether the Letter of Intent has been
completed. During the term of a Letter of Intent, the Fund's transfer agent will
hold Shares representing 5% of the indicated amount in escrow for payment of a
higher sales load if the full amount indicated in the Letter of Intent is not
purchased. The escrowed Shares will be released when the full amount indicated
has been purchased. If the full amount indicated is not purchased within the
13-month period, the investor will be required to pay an amount equal to the
difference in the dollar amount of sales charge actually paid and the
-17-
<PAGE>
amount of sales charge the investor would have had to pay on his or her
aggregate purchases if the total of such purchases had been made at a single
time.
The following persons associated with the Fund, the Distributor, or BIMC,
PNC Bank or PFPC may buy Shares without paying a sales charge: (a) officers,
directors and partners; (b) employees and retirees; (c) registered
representatives of Authorized Dealers and of the Distributor; (d) spouses or
children of any such persons; and (e) any trust, pension, profit-sharing or
other benefit plan for any of the persons set forth in (a) through (d) above.
The following persons may also buy Shares without paying a sales charge,
provided any such person informs the Portfolio's transfer agent at the time of
purchase that it believes it qualifies for a sales charge waiver: (a) a trust
department of a bank or law firm; (b) a 501(c)(3) organization and a charitable
remainder trust or a life income pool established for the benefit of a
charitable organization; (c) a registered investment adviser for its own account
or on behalf of its clients; (d) an employee benefit or retirement plan
(including 401(k) plans, 403(b) plans, 457 plans, profit-sharing plans,
SEP-IRAs and qualified plans for self-employed individuals, but excluding
regular IRAs, IRA transfers, IRA rollovers and non-working spousal IRAs): and
(e) a financial planner that charges a fee and makes the qualifying purchases
through a financial institution's net asset value purchase program (provided the
purchase program is recognized by the Fund, and the Portfolio whose shares are
being purchased is listed as part of the purchase program).
Automatic Investing
Additional investments in Shares may be made automatically by authorizing
the Fund's transfer agent to withdraw funds from your bank account. Investors
desiring to participate in the automatic investing program should call the
Fund's transfer agent, PFPC, at (800) 430-9618 to obtain the appropriate forms.
Retirement Plans
Shares may be purchased in conjunction with individual retirement accounts
("IRAs") and rollover IRAs where PNC Bank acts as custodian. For further
information as to applications and annual fees, contact the Distributor or an
Authorized Dealer. To determine whether the benefits of an IRA are available
and/or appropriate, a shareholder should consult with a tax adviser.
-18-
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Normal Redemption
Shareholders may redeem for cash some or all of their Shares of the
Portfolio at any time. To do so, a written request in proper form must be sent
directly to The RBB Class, c/o PFPC, P.O. Box 8916, Wilmington, Delaware 19899.
There is no charge for a redemption. Shareholders may also place redemption
requests through an Authorized Dealer, but such Authorized Dealer might charge a
fee for this service.
A request for redemption must be signed by all persons in whose names the
Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed. A signature guarantee may be obtained from a domestic bank or
trust company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, the Fund will issue share
certificates for Shares if a written request has been made to the Fund's
transfer agent. In the case of shareholders holding share certificates, the
certificates for the shares being redeemed must accompany the redemption
request. Additional documentary evidence of authority is also required by the
Fund's transfer agent in the event redemption is requested by a corporation,
partnership, trust, fiduciary, executor or administrator.
Systematic Withdrawal Plan
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan for the Portfolio and receive regular periodic
payments. A request to establish a Systematic Withdrawal Plan must be submitted
in writing to the Fund's transfer agent, PFPC, P.O. Box 8916, Wilmington,
Delaware 19899. Shareholders holding share certificates are not eligible to
establish a Systematic Withdrawal Plan because share certificates must accompany
all withdrawal requests. Each withdrawal redemption will be processed about the
25th of the month and mailed as soon as possible thereafter. There are no
service charges for maintenance; the minimum amount that you may withdraw each
period is $100. (This is merely the minimum amount allowed and should not be
mistaken for a recommended amount.) The holder of a Systematic Withdrawal Plan
will have any income dividends and any capital gains distributions reinvested in
full and fractional shares at net asset value. To provide funds for payment,
shares of the Portfolio will be redeemed in such amount as is necessary at the
redemption price, which is net asset value next determined after the Fund's
receipt of a
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<PAGE>
redemption request. Redemption of shares may reduce or possibly exhaust the
Shares in your account, particularly in the event of a market decline. As with
other redemptions, a redemption to make a withdrawal payment is a sale for
federal income tax purposes. Payments made pursuant to a Systematic Withdrawal
Plan cannot be considered as actual yield or income since part of such payments
may be a return of capital.
The maintenance of a Systematic Withdrawal Plan for a Class concurrently
with purchases of additional Shares would be disadvantageous because of the
sales commission involved in the additional purchases. You will ordinarily not
be allowed to make additional investments of less than the aggregate annual
withdrawals under the Systematic Withdrawal Plan during the time you have the
plan in effect and, while a Systematic Withdrawal Plan is in effect, you may not
make periodic investments under Automatic Investing. You will receive a
confirmation of each transaction showing the sources of the payment and the
share and cash balance remaining in your plan. The plan may be terminated on
written notice by the shareholder or by the Fund with respect to the Portfolio
and it will terminate automatically if all Shares are liquidated or withdrawn
from the account or upon the death or incapacity of the shareholder. You may
change the amount and schedule of withdrawal payments or suspend such payments
by giving written notice to the Fund's transfer agent at least seven Business
Days prior to the end of the month preceding a scheduled payment.
Involuntary Redemption
The Fund reserves the right to redeem a shareholder's account in the
Portfolio at any time the net asset value of the account in such Portfolio falls
below $500 as the result of a redemption request. Shareholders will be notified
in writing that the value of their account in a Portfolio is less than $500 and
will be allowed 30 days to make additional investments before the redemption is
processed.
Payment of Redemption Proceeds
In all cases, the redemption price is the net asset value per share next
determined after the request for redemption is received in proper form by the
Fund's transfer agent. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund's transfer agent of the request
and any other necessary documents in proper order. Such payment may be postponed
or the right of redemption suspended as provided by the rules of the SEC. If the
Shares to be redeemed have been recently purchased by check, the Fund's transfer
agent may delay mailing a redemption check, which may be a period of up to 15
days, pending a determination that the check has cleared.
-20-
<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of each class of the Portfolio is calculated as of the
close of regular trading on the NYSE on each Business Day. The net asset value
for each class of a portfolio is calculated by adding the value of the
proportionate interest of the class in the portfolio's securities, cash and
other assets, deducting the actual and accrued liabilities of the class and
dividing the result by the total number of outstanding shares of the class. The
net asset value of each class is calculated separately from each other class.
Valuation of securities held by the Portfolio is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; and securities for which market quotations are not
readily available are valued at fair market value as determined in good faith by
or under the direction of the Fund's Board of Directors. The amortized cost
method of valuation may also be used with respect to debt obligations with sixty
days or less remaining to maturity.
With the approval of the Board of Directors, the Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Portfolio to the Portfolio's
shareholders. All distributions are reinvested in the form of additional full
and fractional Shares of the Portfolio unless a shareholder elects otherwise.
The Portfolio will declare and pay dividends from net investment income
monthly, generally near the end of each month. Net realized capital gains
(including net short-term capital gains), if any, will be distributed at least
annually.
-21-
<PAGE>
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors in
the Portfolio should consult their tax advisers with specific reference to their
own tax situation.
The Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
the Portfolio qualifies for this tax treatment, it will be relieved of federal
income tax on amounts distributed to shareholders, but shareholders, unless
otherwise exempt, will pay income or capital gains taxes on amounts so
distributed (except distributions that constitute "exempt interest dividends" or
that are treated as a return of capital) regardless of whether such
distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Portfolio, and
out of the portion of such net capital gain that constitutes long-term capital
gain, will be taxed to shareholders as long-term capital gain, regardless of the
length of time a shareholder has held his shares, whether such gain was
reflected in the price paid for the shares, or whether such gain was
attributable to bonds bearing tax-exempt interest. All other distributions, to
the extent they are taxable, are taxed to shareholders as ordinary income. The
current nominal maximum marginal rate on ordinary income for individuals, trusts
and estates is generally 39% while the maximum rate imposed on long-term capital
gain of such taxpayers is 20%. Corporate taxpayers are taxed at the same rates
on both ordinary income and capital gains.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided such dividends are paid during January of
the following year. The Portfolio intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
federal excise tax.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing just prior to a distribution will nevertheless be taxed on the entire
amount of the distribution received.
Shareholders who exchange shares representing interests in one portfolio
for shares representing interests in another portfolio will generally recognize
capital gain or loss for federal income tax purposes. Under certain provisions
of the Code, some shareholders may be subject to a 31% "backup" withholding tax
on reportable dividends, capital gains distributions and redemption payments.
-22-
<PAGE>
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.
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).
Shares of a class of Common Stock in the Cash Preservation Family may be
exchanged for another class of Common Stock in such Family as well as for shares
of the RBB Class. Otherwise, no exchanges between Families or classes are
permitted.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE GOVERNMENT SECURITIES PORTFOLIO OF THE RBB CLASS
AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THIS PORTFOLIO.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of the Portfolio will vote in the aggregate and not by
class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
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<PAGE>
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of the
Fund.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 430-9618.
Performance Information
From time to time, the Portfolio may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return, net of the Portfolio's maximum sales charge, over one, five
and ten year periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Portfolio. Such total return quotations will be
computed by finding the compounded average annual total return for each time
period that would equate the assumed initial investment, of $1,000 to the ending
redeemable value, net of the maximum sales charge and other fees, according to a
required standardized calculation. The standard calculation is required by the
SEC to provide consistency and comparability in investment company advertising.
The Portfolio may also from time to time include in such advertising an
aggregate total return figure or a total return figure that is not calculated
according to the standardized formula in order to compare more accurately the
Portfolio's performance with other measures of investment return. For example,
the Portfolio's total return may be compared with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of the Standard & Poor's 500
Stock Index or the Dow Jones Industrial Average. For these purposes, the
performance of a portfolio, as well as the performance published by such
services or experienced by such indices, will usually not reflect sales charges,
the inclusion of which would reduce performance results. All advertisements
containing performance data will include a legend disclosing that such
performance data represent past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's Shares,
when redeemed, may be worth more or less than their original cost. If the
Portfolio advertises non-standard computations, however, the Portfolio will
disclose the maximum sales charge and will also disclose that the performance
data do not reflect sales charges and that inclusion of sales charges would
reduce the performance quoted.
From time to time, the Portfolio may also advertise its "30-day yield." The
yield of the Portfolio refers to the income generated by an investment in the
Portfolio over the
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<PAGE>
30-day period identified in the advertisement, and is computed by dividing the
net investment income per share earned by the Portfolio during the period by the
maximum public offering price per share of the last day of the period. This
income is "annualized" by assuming that the amount of income is generated each
month over a one-year period and is compounded semi-annually. The annualized
income is then shown as a percentage of the net asset value.
The yield on Shares of the Portfolio will fluctuate and is not necessarily
representative of future results. Shareholders should remember that yield is
generally a function of portfolio quality and maturity, type of instrument,
operating expenses and market conditions. Any fees charged by broker/dealers
directly to their customers in connection with investments in the Portfolio are
not reflected in the yields on the Portfolio's Shares, and such fees, if
charged, will reduce the actual return received by shareholders on their
investments. The yield on Shares of the RBB Class may differ from yields on
shares of other classes of the Fund that also represent interests in the same
Portfolio depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
-25-
<PAGE>
MONEY MARKET
PORTFOLIO
PROSPECTUS & APPLICATION
DECEMBER 29, 1998
BEAR
STEARNS
<PAGE>
<PAGE>
MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
THE BEDFORD SHARES OF THE MONEY MARKET PORTFOLIO are a class of shares of common
stock of The RBB Fund, Inc. (the "Fund"), an open-end management investment
company. Shares of the Bedford Class offered by this Prospectus represent
interests in the Fund's Money Market Portfolio.
o The investment objective of the Money Market Portfolio is to
provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in
a diversified portfolio of U.S.
dollar-denominated money market instruments.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE
MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
BlackRock Institutional Management Corporation serves as investment adviser for
the Portfolio, PNC Bank, National Association serves as custodian for the Fund
and PFPC Inc. serves as the administrator and transfer and dividend disbursing
agent for the Fund. Provident Distributors, Inc. acts as distributor for the
Fund.
--------------------
This Prospectus contains concise information that a prospective investor needs
to know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the SEC
Internet Website (http://www.sec.gov).
<PAGE>
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
PROSPECTUS December 29, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION.............................................................. 1
FEE TABLE................................................................. 2
FINANCIAL HIGHLIGHTS...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 5
YEAR 2000................................................................. 9
INVESTMENT LIMITATIONS.................................................... 9
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES...............................11
NET ASSET VALUE...........................................................18
MANAGEMENT................................................................19
DISTRIBUTION OF SHARES....................................................21
DIVIDENDS AND DISTRIBUTIONS...............................................22
TAXES.....................................................................22
DESCRIPTION OF SHARES.....................................................22
OTHER INFORMATION.........................................................23
ACCOUNT APPLICATION...................................................CENTER
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. (the "Fund") is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen separate
investment portfolios. The shares ("Shares") of the Bedford Class (the "Bedford
Class" or the "Class") of common stock of the Fund offered by this Prospectus
represent interests in the Fund's Money Market Portfolio (the "Money Market
Portfolio" or the "Portfolio").
The MONEY MARKET PORTFOLIO'S investment objective is to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets.
The Portfolio seeks to maintain a net asset value of $1.00 per share; however,
there can be no assurance that the Portfolio will be able to maintain a stable
net asset value of $1.00 per share.
The Portfolio's investment adviser is BlackRock Institutional Management
Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank") serves as
custodian to the Fund and PFPC Inc. ("PFPC" or the "Administrator" or "Transfer
Agent") serves as administrator and transfer and dividend disbursing agent to
the Fund. Provident Distributors, Inc. ("PDI" or the "Distributor") acts as
distributor of the Fund's Shares.
An investor may purchase and redeem Shares of the Class through his broker or by
direct purchases or redemptions. See "Purchase and Redemption of Shares."
An investment in the Shares is subject to certain risks, as set forth in detail
under "Investment Objective and Policies." The Portfolio, to the extent set
forth under "Investment Objective and Policies," may engage in the following
investment practices: the use of repurchase agreements and reverse repurchase
agreements, the purchase of asset-backed securities, the purchase of securities
on a "when-issued" or "forward commitment" basis, the purchase of stand-by
commitments and the lending of securities. All of these transactions involve
certain special risks, as set forth under "Investment Objective and Policies."
<PAGE>
FEE TABLE
The Fee Table below contains a summary of the annual operating expenses
incurred by the Bedford Class of the Portfolio after fee waivers and expense
reimbursements for the fiscal year ended August 31, 1998, as a percentage of
average daily net assets. An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (BEDFORD CLASS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
MONEY MARKET
PORTFOLIO
Management Fees (after waivers)(1)..................................... .24%
12b-1 Fees(1).......................................................... .54%
Other Expenses......................................................... .19%
Total Operating Expenses (Bedford Class)
(after waivers)(1)................................................... .97%
====
- ------------
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Management Fees would be .37% and Total Fund
Operating Expenses would be 1.10%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each
time period:
MONEY MARKET
PORTFOLIO*
1 Year........................................................ $10
3 Years....................................................... $31
5 Years....................................................... $54
10 Years...................................................... $119
*Other classes of this Portfolio are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and distributions are
reinvested and that the amounts listed under "Annual Fund Operating Expenses"
remain the same in the years shown. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the various
costs and expenses that an investor in the Bedford Class of the Fund will bear
directly or indirectly. (For more complete descriptions of the various costs and
expenses, see "Management -- Investment Adviser" and "Distribution of Shares"
below.) The expense figures are based on actual costs and fees charged to the
Class. The Fee Table reflects expense reimbursements and a voluntary waiver of
- 2 -
<PAGE>
Management Fees for the Class. However, there can be no assurance that any
future expense reimbursements and waivers of Management Fees will not vary from
the figures reflected in the Fee Table. To the extent that any service providers
assume additional expenses of the Portfolio, such assumption will have the
effect of lowering such Portfolio's overall expense ratio and increasing its
yield to investors.
From time to time the Portfolio advertises its "total return", "yield" and
"effective yield." TOTAL RETURN AND BOTH YIELD FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of the
Portfolio refers to the income generated by an investment in the Portfolio over
a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
a Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares will fluctuate and is not necessarily
representative of future results. Any fees charged by broker/dealers directly to
their customers in connection with investments in Shares are not reflected in
the total return and yields of the Shares, and such fees, if charged, will
reduce the actual return received by shareholders on their investments. The
total return and yield on Shares of the Class may differ from the total return
and yields on shares of other classes of the Fund that also represent interests
in the same Portfolio depending on the allocation of expenses to each class of
the Portfolio.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment results
of the Bedford Class of the Fund representing interests in the Money Market
Portfolio for the years indicated. The financial data included in this table for
each of the periods ended August 31, 1994 through 1998 are a part of the Fund's
financial statements for the Portfolio, which are incorporated by reference into
the Statement of Additional Information and have been audited by
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the Fund's independent
accountants. The financial data for the periods ended August 31, 1989, 1990,
1991, 1992 and 1993 are a part of previous financial statements audited by
PricewaterhouseCoopers. The financial data included in this table should be read
in conjunction with the financial statements and related notes. Further
information about the performance of the Portfolio is available in the Annual
Report to Shareholders. Both the Statement of Additional Information and the
Annual Report to Shareholders may be obtained from the Fund free of charge by
calling the telephone number on Page 1 of the Prospectus.
- 3 -
<PAGE>
FINANCIAL HIGHLIGHTS (C)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- -------
Income from investment
operations:
Net investment
income................ 0.0473 0.0462 0.0469 0.0486
Net gains on
securities
(both realized
and unrealized..... -- -- -- --
------ ------- -------- --------
Total from investment
operations......... 0.0473 0.0462 0.0469 0.0486
------ ------- -------- --------
Less distributions
Dividends (from net
investment income). (0.0473) (0.0462) (0.0469) (0.0486)
Distributions (from
capital gains)..... -- -- -- --
------ ------- -------- --------
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE FOR THE SEPTEMBER 30, 1988
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT OF
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, OPERATIONS) TO
1994 1993 1992 1991 1990 AUGUST 31, 1989
- -------------------------------------------------------------------------------------------------------
Net asset value
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income................ 0.0278 0.0243 0.0375 0.0629 0.0765 0.0779
Net gains on
securities
(both realized
and unrealized..... --- --- 0.0007 --- --- ---
-------- -------- -------- -------- ------- -------
Total from investment
operations......... 0.0278 0.0243 0.0382 0.0629 0.0765 0.0779
-------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income). (0.0278) (0.0243) (0.0375) (0.0629) (0.0765) (0.0779)
Distributions (from
capital gains)..... --- --- (0.0007) --- --- ---
-------- -------- -------- -------- -------- --------
</TABLE>
- 4 -
<PAGE>
Total distributions (0.0473) (0.0462) (0.469) (0.0486)
------ -------- -------- --------
Net asset value, end
of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ======== ========
Total return........... 4.84% 4.72% 4.79% 4.97%
Ratios/Supplemental
Data
Net assets,
end of period (000) $762,739 $1,392,911 $1,109,334 $935,821
Ratios of expenses to
average net assets .97%(a) .97%(a) .97%(a) .96%(a)
Ratios of net investment
income to average
net assets............ 4.73% 4.62% 4.69% 4.86%
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total distributions (0.0278) (0.0243) (0.0382) (0.0629) (0.0765) (0.0779)
-------- -------- -------- -------- -------- --------
Net asset value, end
of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............... 2.81% 2.46% 3.89% 6.48% 7.92% 8.81%(b)
Ratios/Supplemental
Data
Net assets,
end of period (000) $710,737 $782,153 $736,842 $747,530 $709,757 $152,311
Ratios of expenses to
average net assets .95%(a) .95%(a) .95%(a) .92%(a) .92%(a) .93%(a)(b)
Ratios of net investment
income to average
net assets............ 2.78% 2.43% 3.75% 6.29% 7.65% 8.61%(b)
</TABLE>
- -------------------
(a) Without the waiver of advisory fees and without their reimbursement of
certain operating expenses, the ratios of expenses to average net
assets for the Money Market Portfolio would have been 1.10%, 1.12%,
1.14%, 1.17%, 1.16%, 1.19%, 1.20%, 1.17% and 1.16% for the years ended
August 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992, 1991 and 1990,
respectively, and 1.27% annualized for the period ended August 31,
1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Class of Shares of the Fund
within the Portfolio.
- 5 -
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. Portfolio obligations held by the Money Market Portfolio
have remaining maturities of 397 days or less (exclusive of securities subject
to repurchase agreements). In pursuing its investment objective, the Money
Market Portfolio invests in a diversified portfolio of U.S. dollar-denominated
instruments, such as government, bank and commercial obligations, that may be
available in the money markets ("Money Market Instruments") and that meet
certain ratings criteria and present minimal credit risks to the Money Market
Portfolio. See "Eligible Securities." There is no assurance that the investment
objective of the Money Market Portfolio will be achieved. The following
descriptions illustrate the types of Money Market Instruments in which the Money
Market Portfolio invests.
BANK OBLIGATIONS.
The Portfolio may purchase obligations of issuers in the banking industry, such
as short-term obligations of bank holding companies, certificates of deposit,
bankers' acceptances and time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions having total assets at the time of purchase in excess of $1
billion. The Portfolio may invest substantially in obligations of foreign banks
or foreign branches of U.S. banks where the investment adviser deems the
instrument to present minimal credit risks. Such investments may nevertheless
entail risks in addition to those of domestic issuers, including higher
transaction costs, less complete financial information, less stringent
regulatory requirements and less market liquidity. The Portfolio may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its total assets.
COMMERCIAL PAPER.
The Portfolio may purchase commercial paper (i) rated (at the time of purchase)
in the two highest rating categories of at least two nationally recognized
statistical rating organizations ("Rating Organizations") or, by the only Rating
Organization providing a rating; or (ii) issued by issuers (or, in certain cases
guaranteed by persons) with short-term debt having such rating. 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
- 6 -
<PAGE>
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 security's stated maturity may be shortened, and the security's
total return may be difficult to predict precisely. Such difficulties are not
- 7 -
<PAGE>
expected, however, to have a significant effect on the Portfolio since the
remaining maturity of any asset-backed security acquired will be 13 months or
less. Asset-backed securities are considered an industry for industry
concentration purposes. See "Investment Limitations." In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by a portfolio will generally be at lower
rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS.
The Portfolio may enter into reverse repurchase agreements with respect to
portfolio securities. A reverse repurchase agreement involves a sale by a
portfolio of securities that it holds concurrently with an agreement by the
Portfolio to repurchase them at an agreed upon time and price. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Portfolio may decline below the price at which the Portfolio is
obligated to repurchase them. Reverse repurchase agreements are considered to be
borrowings by the Portfolio under the Investment Company Act of 1940 ("1940
Act").
MUNICIPAL OBLIGATIONS.
In addition, the Portfolio may, when deemed appropriate by its investment
adviser in light of the Portfolio's investment objective, invest without
limitation in high quality, short-term Municipal Obligations issued by state and
local governmental issuers, the interest on which may be taxable or tax-exempt
for federal income tax purposes, provided that such obligations carry yields
that are competitive with those of other types of Money Market Instruments of
comparable quality. For a more complete discussion of Municipal Obligations, see
Statement of Additional Information under "Investment Objectives and Policies."
GUARANTEED INVESTMENT CONTRACTS.
The Portfolio may make investments in obligations, such as guaranteed investment
contracts and similar funding agreements (collectively "GICs"), issued by highly
rated U.S. insurance companies. A GIC is a general obligation of the issuing
insurance company and not a separate account. The Portfolio's investments in
GICs are not expected to exceed 5% of its total assets at the time of purchase
absent unusual market conditions. GIC investments are subject to the Fund's
policy regarding investments in illiquid securities.
STAND-BY COMMITMENTS.
The Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio. Under a stand-by commitment, a dealer would
agree to purchase at the Portfolio's option specified Municipal Obligations at a
specified price. The acquisition of a stand-by commitment may increase the cost,
and thereby reduce the yield, of the Municipal Obligation to which such
commitment relates. The Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
- 8 -
<PAGE>
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 at least two Rating
Organizations ("Rating Organizations") (e.g. commercial paper rated "A-1" or
"A-2" by Standard & Poor's Ratings Services ("S&P")), (3) securities that are
rated at the time of purchase by the only Rating Organization rating the
security in one of its two highest rating categories for such securities, (4)
securities issued by issuers (or, in certain cases guaranteed by persons) with
short-term debt having such ratings, and (5) securities that are not rated and
are issued by an issuer that does not have comparable obligations rated by
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES.
The Portfolio will not invest more than 10% of its net assets in illiquid
securities, including repurchase agreements which have a maturity of longer than
seven days, time deposits with maturities in excess of seven days, variable rate
demand notes with demand periods in excess of seven days unless the Portfolio's
investment adviser determines that such notes are readily marketable and could
be sold promptly at the prices at which they are valued, GICs, and other
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed illiquid for purposes of this
limitation. The Portfolio's investment adviser will monitor the liquidity of
such restricted securities under the supervision of the Board of Directors. See
"Investment Objectives and Policies -- Illiquid Securities" in the Statement of
Additional Information.
- 9 -
<PAGE>
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Money Market Portfolio's investment objective and policies described above
may be changed by the Fund's Board of Directors without shareholder approval.
The Portfolio may not, however, change the investment limitations summarized
below without such a vote of shareholders. (A more detailed description of the
following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
THE MONEY MARKET PORTFOLIO MAY NOT:
1. Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5%
of the value of the Portfolio's assets and may make time deposits.
2. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess
of 10% of the value of the Portfolio's assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of
at least 300% for all borrowings of the Portfolio; or mortgage, pledge
or hypothecate any of its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the
Portfolio's assets at the time of such borrowing; or purchase portfolio
securities while borrowings in excess of 5% of the Portfolio's net
assets are outstanding. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where
the liquidation of portfolio securities is deemed to be disadvantageous
or inconvenient.)
3. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
- 10 -
<PAGE>
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which
would cause, at the time of purchase, more than 25% of the value of its
total assets to be invested in the obligations of issuers in any other
industry.
4. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and
instrumentalities, if immediately after and as a result of such
purchase more than 5% of the value of its total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's total
assets may be invested without regard to such 5% limitation.
So long as it values its portfolio securities on the basis of the amortized cost
method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money Market
Portfolio will meet the following limitations on its investments in addition to
the fundamental investment limitations described above. These limitations may be
changed without a vote of shareholders of the Money Market Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three Business Days,
(as defined below). "First Tier Securities" include eligible
securities that (i) if rated by more than one Rating Organization, are
rated (at the time of purchase) by two or more Rating Organizations in
the highest rating category for such securities, (ii) if rated by only
one Rating Organization, are rated by such Rating Organization in its
highest rating category for such securities, (iii) have no short-term
rating and are comparable in priority and security to a class of short-
term obligations of the issuer of such securities that have been rated
in accordance with (i) or (ii) above, or (iv) are Unrated Securities
that are determined to be of comparable quality to such securities.
Purchases of First Tier Securities that come within categories (ii)
and (iv) above will be approved or ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier
Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or
$1 million.
- 11 -
<PAGE>
THE BEAR STEARNS FUNDS
ACCOUNT INFORMATION FORM
Please Note: Do not use this form to open a retirement plan account. For
retirement plan forms call 1-800-766-4111. For assistance in completing this
form, contact PFPC at 1-800-447-1139.
1. ACCOUNT TYPE (Please print; indicate only one registration type)
[__] INDIVIDUAL [__] JOINT TENANT
-----------------------------------------------------------------------
NAME
-----------------------------------------------------------------------
JOINT REGISTRANT, IF ANY (SEE NOTES 1 AND 2)
--------------------------------------- ------------------------------
SOCIAL SECURITY NUMBER OF PRIMARY OWNER TAXPAYER IDENTIFICATION NUMBER
(1) Use only the Social Security number or Taxpayer Identification
Number of the first listed joint tenant.
(2) For joint registrations, the account registrants will be joint
tenants with right of survivorship and not tenants in common
unless tenants in common or community property registrations
are requested.
------------------------------ -------------------------------
[__] UNIFORM GIFT TO MINORS, OR [__] UNIFORM TRANSFER TO MINORS
(WHERE ALLOWED BY LAW)
-----------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
-----------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
Under the ________________________ Uniform Gift/Transfers to Minors Act
STATE RESIDENCE OF MINOR
------/------/------ --------------------------
MINOR'S DATE OF BIRTH MINOR'S SOCIAL SECURITY NUMBER
(REQUIRED TO OPEN ACCOUNT)
[__] Corporation [__] Partnership [__] Trust* [__] Other
-----------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER
-----------------------------------------------------------------------
NAME(S) OF TRUSTEE(S) DATE OF THE TRUST AGREEMENT
-------------------------- ------------------------------
SOCIAL SECURITY NUMBER TAXPAYER IDENTIFICATION NUMBER
(REQUIRED TO OPEN ACCOUNT) (REQUIRED TO OPEN ACCOUNT)
*If a Trust, include date of trust instrument and list of trustees if they
are to be named in the registration.
<PAGE>
2. MAILING ADDRESS
-----------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
-----------------------------------------------------------------------
CITY STATE ZIP CODE
( ) ( )
-----------------------------------------------------------------------
DAY TELEPHONE EVENING TELEPHONE
3. INVESTMENT INFORMATION
METHOD OF INVESTMENT
[__] I have enclosed a check for a minimum initial investment of
$1,000 per Fund.
[__] I have enclosed a check for a minimum subsequent investment of
$250 per Fund or completed the Systematic Investment Plan
information in Section 13.
[__] I purchased _____________ shares of __________________________
through my broker on __/__/__. Conform #___________.
PLEASE MAKE MY INVESTMENT IN THE FUNDS DESIGNATED BELOW:
<TABLE>
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A CLASS C CLASS Y BEAR STEARNS FUNDS INVESTMENT AMOUNT
---------------------------------------------------------------------------------------------
_______ _______ _______ S&P STARS Portfolio $________________
_______ _______ _______ Large Cap Value Portfolio $________________
_______ _______ _______ Small Cap Value Portfolio $________________
_______ _______ _______ Total Return Bond Portfolio $________________
_______ _______ _______ The Insiders Select Fund $________________
_______ _______ _______ Emerging Markets Debt Portfolio $________________
_______ _______ _______ Money Market Portfolio $________________
TOTAL INVESTMENT AMOUNT $================
</TABLE>
Note: All shares purchased will be held in a shareholder account for
the investor at the Transfer Agent. Checks drawn on foreign banks and
checks made payable to persons or entities other than the Fund will not
be accepted. Checks should be made payable to the Fund which you are
investing in. If no class is designated, your investment will be made
in Class A shares.
4. REDUCED SALES CHARGE (AVAILABLE FOR CLASS A SHARES ONLY)
Method of Investment
Are you a shareholder in another Bear Stearns Fund? [__] Yes [__] No
[__] I apply for Right of Accumulation reduced sales charges
based on the following Bear Stearns Fund Accounts
(excluding Class C Shares).
-----------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
-----------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
-----------------------------------------------------------------------
FUND ACCOUNT NUMBER OR SOCIAL SECURITY NUMBER
LETTER OF INTENT
<PAGE>
[__] I am already investing under an existing Letter of Intent.
[__] I agree to the Letter of Intent provisions in the Fund's current
prospectus. During a 13-month period, I plan to invest a dollar
amount of at least:
[__] $50,000 [__] $100,000 [__] $250,000
[__] $500,000 [__] $750,000 [__] $1,000,000
NET ASSET VALUE PURCHASE
[__] I qualify for an exemption from the sales charge by meeting the
conditions set forth in the prospectus. (Please attach
certification to this form.)
[__] I qualify to purchase shares at net asset value, with
proceeds received from a mutual fund or closed-end fund
not distributed by Bear Stearns. (Please attach proof of
fund share redemption.)
5. DISTRIBUTION OPTIONS
DIVIDENDS AND CAPITAL GAINS MAY BE REINVESTED OR PAID BY CHECK. IF NO
OPTIONS ARE SELECTED BELOW, BOTH DIVIDENDS AND CAPITAL GAINS WILL BE
REINVESTED IN ADDITIONAL FUND SHARES.
Dividends [__] Pay by check. [__] Reinvest.
Capital Gains [__] Pay by check. [__] Reinvest.
The Redirected Distribution Option allows an investor to have dividends
and any other distributions from a Fund automatically used to purchase
shares of the same class of any other Fund. The receiving account must
be in the same name as your existing account.
[__] Please reinvest dividends and capital gains from the
_____________________ to the _______________________.
(NAME OF FUND) (NAME OF FUND)
If you elect to have distributions paid by check, distributions will be
sent to the address of record. Distributions may also be sent to
another payee:
-----------------------------------------------------------------------
NAME
-----------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
-----------------------------------------------------------------------
CITY STATE ZIP CODE
-----------------------------------------------------------------------
OPTIONAL FEATURES
6. AUTOMATIC WITHDRAWAL PLAN
[__] Fund Name _________________________ [__] Amount ______________
[__] Startup month _____________________
Frequency option:
[__] Monthly [__] Every other month [__] Quarterly [__] Semiannually
[__] Annually
o A minimum account value of $5,000 in a single account is required
to establish an automatic withdrawal plan.
o Payments will be made on or near the 25th of the month.
o Shareholders holding share certificates are not eligible for the
Automatic Withdrawal Plan.
<PAGE>
[__] Please mail checks to Address of Record (Named in Section 2)
[__] Please electronically credit my Bank of Record
(Named in Section 9)
[__] Special payee as specified below:
-----------------------------------------------------------------------
NAME
-----------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
-----------------------------------------------------------------------
CITY STATE ZIP CODE
7. TELEPHONE EXCHANGE PRIVILEGE
Unless indicated below, I authorize the Transfer Agent to accept
instructions from any persons to exchange shares in my account(s) by
telephone, in accordance with the procedures and conditions set forth
in the Fund's current prospectus.
[__] I DO NOT want the Telephone Exchange Privilege.
8. TELEPHONE REDEMPTION PRIVILEGE
[__] I authorize the Transfer Agent to accept instructions from any
person to redeem shares in my account(s) by telephone, in accordance
with the procedures and conditions set forth in the Fund's current
prospectus.
Checks for redemption of proceeds will be sent by check via U.S. Mail
to the address to record, unless the information in Section 9 is
completed for redemption by wire of $500 or more.
9. BANK OF RECORD (FOR TELEPHONE REDEMPTIONS AND/OR SYSTEMATIC INVESTMENT
PLANS) PLEASE ATTACH A VOIDED CHECK (FOR ELECTRONIC CREDIT TO YOUR
CHECKING ACCOUNT) IN THE SPACE PROVIDED IN SECTION 13.
-----------------------------------------------------------------------
BANK NAME
-----------------------------------------------------------------------
STREET OR P.O. BOX APARTMENT NUMBER
-----------------------------------------------------------------------
CITY STATE ZIP CODE
-----------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
-----------------------------------------------------------------------
ACCOUNT NAME
10. SIGNATURE AND TAXPAYER CERTIFICATION
The undersigned warrants that I(we) have full authority and, if a
natural person, I(we) am(are) of legal age to purchase shares pursuant
to this Account Information Form, and have received a current
prospectus for the Bear Stearns Fund(s) in which I(we) am(are)
investing. THE UNDERSIGNED ACKNOWLEDGES THAT THE TELEPHONE EXCHANGE
PRIVILEGE IS AUTOMATIC AND THAT I(WE) MAY BEAR THE RISK OF LOSS IN
EVENT OF FRAUDULENT USE OF THE PRIVILEGE. If I(we) do not want the
Telephone Exchange Privilege, I(we) have so indicated on this Account
Information Form.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is
required to have the following certification:
Under penalty of perjury, I certify that:
<PAGE>
(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be issued to
me), and
(2) I am not subject to backup withholding because (a) I am exempt from
backup withholding or (b) I have not been notified by the Internal
Revenue Service that I am subject to 31% backup withholding as a result
of a failure to report all interest or dividends or (c) the IRS has
notified me that I am no longer subject to backup withholding.
Certification Instructions - You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting of interest or dividends on your
tax return. MUTUAL FUND SHARES ARE NOT DEPOSITS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION, NOR ARE THEY INSURED BY THE FDIC.
INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
[__] Exempt from backup withholding
[__] Nonresident alien (Form W-8 attached) ___________________________
COUNTRY OF CITIZENSHIP
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AUTHORIZED SIGNATURE TITLE DATE
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AUTHORIZED SIGNATURE TITLE DATE
11. FOR AUTHORIZED DEALER USE ONLY (Please Print)
We hereby authorize the Transfer Agent to act as our agent in
connection with the transactions authorized by the Account Information
Form and agree to notify the Transfer Agent of any purchases made under
a Letter of Intent or Right of Accumulation. If this Account
Information Form includes a Telephone Exchange Privilege authorization,
a Telephone Redemption Privilege authorization or an Automatic
Withdrawal Plan request, we guarantee the signature(s) above.
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DEALER'S NAME DEALER NUMBER
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MAIN OFFICE ADDRESS BRANCH NUMBER
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REPRESENTATIVE'S NAME REP. NUMBER
( )
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BRANCH ADDRESS TELEPHONE NUMBER
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AUTHORIZED SIGNATURE OF DEALER TITLE DATE
12. ADDITIONAL ACCOUNT STATEMENTS (Please Print)
In addition to myself and my representative, please send copies of my
account statements to:
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NAME NAME
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ADDRESS ADDRESS
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CITY, STATE, ZIP CODE CITY, STATE, ZIP CODE
<PAGE>
13. SYSTEMATIC INVESTMENT PLAN
The Systematic Investment Plan, which is available to shareholders of
the Bear Stearns Funds, makes possible regularly scheduled purchases of
Fund shares to allow dollar-cost averaging. The Funds' Transfer Agent
can arrange for an amount of money selected by you ($100 minimum) to be
deducted from your checking account and used to purchase shares of a
specified Bear Stearns Fund. A $250 minimum initial investment is
required. This may not be used in conjunction with the Automatic
Withdrawal Plan.
Please debit $__________ from my checking account (named in Section 9)
on or about the 20th of the month. Depending on the Application receipt
date, the Plan may take 10 to 20 days to be in effect.
[__] Monthly [__] Every alternate month
[__] Quarterly [__] Other _______________
$____________ into the _______________ Fund ______________ Start Month.
$100 MINIMUM
$____________ into the _______________ Fund ______________ Start Month.
$100 MINIMUM
$____________ into the _______________ Fund ______________ Start Month.
$100 MINIMUM
If you are applying for the Telephone Redemption Privilege or
Systematic Investment Plan, please tape your voided check on top of our
sample below.
[TAPE CHECK HERE]
SERVICE ASSISTANCE MAILING INSTRUCTIONS
Our knowledgeable Client Services Mail your completed Account
Representatives are available to Information Form and check to:
assist you between 8:30 a.m. and THE BEAR STEARNS FUNDS
5:00 p.m. Eastern Time at: C/O PFPC INC.
1-800-447-1139 P.O. BOX 8960
WILMINGTON, DE 19899-896
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<PAGE>
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
- --------------------------------------------------------------------------------
PURCHASE PROCEDURES
GENERAL. Bedford Shares are sold without a sales load on a continuous basis by
the Fund's Distributor. The Distributor is located at Four Falls Corporate
Center, Conshohocken, Pennsylvania 19428. Investors may purchase Bedford Shares
either directly, through an exchange from accounts invested in shares of any
open-end investment company ("The Bear Stearns Funds") either sponsored by or
advised by Bear, Stearns & Co. Inc. ("Bear Stearns"), or its affiliates, or
through an account (the "Account") maintained by the investor with certain
brokerage firms and may also purchase Shares directly by mail or wire. The
minimum initial investment is $1,000, and the minimum subsequent investment is
$250. The Fund in its sole discretion may accept or reject any order for
purchases of Bedford Shares.
All payments for initial and subsequent investments should be in U.S. dollars.
Purchases will be effected at the net asset value next determined after PFPC,
the Fund's transfer agent, has received a purchase order in good order and the
Fund's custodian has Federal Funds immediately available to it. In those cases
where payment is made by check, Federal Funds will generally become available
two Business Days after the check is received. Orders which are accompanied by
Federal Funds, and received by the Fund by 12:00 noon Eastern Time, and orders
as to which payment has been converted into Federal Funds by 12:00 noon Eastern
Time, will be executed as of 12:00 noon that Business Day. A "Business Day" is
any day that both the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open. On any Business Day, orders
which are accompanied by Federal Funds and received by PFPC after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
If a broker makes special arrangements under which orders for Bedford Shares are
received by PFPC prior to 12:00 noon Eastern Time, and the broker guarantees
that payment for such Shares will be made in Federal Funds to the Fund's
custodian prior to 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.
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be effected through
brokers (other than Bears Stearns or brokers who have clearing arrangements with
Bear Stearns) and may be made by check (except that a check drawn on a foreign
bank will not be accepted), Federal Reserve draft or by wiring Federal Funds
with funds held in the brokerage accounts. Checks or Federal Reserve drafts
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<PAGE>
should be made payable as follows: (1) to an investor's broker or (ii) to "The
RBB Fund-Money Market Portfolio (Bedford Class)" if purchased directly from the
Portfolio, and should be directed to the Transfer Agent: PFPC Inc., Attention:
The RBB Fund-Money Market Portfolio (Bedford Class), P.O. Box 8960, Wilmington,
Delaware 19899. The investor's broker is responsible for forwarding payment
promptly to the Fund's custodian, PNC Bank. An investor's bank or broker may
impose a charge for this service.
In the event of a purchase effected through an investor's Account with his
broker through procedures established in connection with the requirements of
Accounts at such broker, beneficial ownership of Shares will be recorded by the
broker and will be reflected in the Account statements provided by the broker to
such investors. A broker may impose minimum investor Account requirements. Even
if a broker does not impose a sales charge for purchases of Bedford Shares,
depending on the terms of an investor's Account with his broker, the broker may
charge an investor's Account fees for automatic investment and other services
provided to the Account. Information concerning Account requirements, services
and charges should be obtained from an investor's broker, and this Prospectus
should be read in conjunction with any information received from a broker.
Shareholders whose shares are held in the street name account of a broker/dealer
and who desire to transfer such shares to the street name account of another
broker/dealer should contact their current broker/dealer.
A Shareholder of The Bear Stearns Funds may purchase Bedford Shares of the
Portfolio in exchange for his shares of The Bear Stearns Funds. This exchange
privilege is available for an investor with an existing account. See "Exchange
of Shares" below.
For distribution services with respect to Bedford Shares of the Portfolio held
by clients of Bear Stearns, the Fund's Distributor will pay Bear Stearns up to
.50% of the annual average value of such accounts.
DIRECT PURCHASES. Investors may purchase the Portfolio's shares by mail by
completing and signing an Account Information Form (the "Application"), a copy
of which is attached to this Prospectus, and mailing it, together with a check
payable to "The RBB Fund--Money Market Portfolio (Bedford Class)," to Bedford
Money Market Portfolio, c/o PFPC, P.O. Box 8960, Wilmington, Delaware 19899. The
check must specify the name of The RBB Fund -- Money Market Portfolio (Bedford
Class). Subsequent purchases may be made by forwarding payment to the Fund's
transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also purchase
Shares by having his bank or his broker wire Federal Funds to the Fund's
custodian, PNC Bank. An investor's bank or broker may impose a charge for this
service. In order to ensure prompt receipt of an investor's Federal Funds wire,
for an initial investment, it is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 447-1139
and provide your name, address, telephone number, Social Security or
Tax Identification Number, the Bedford Class selected, the amount being
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<PAGE>
wired, and by which bank. PFPC will then provide an investor with a
Fund account number. (Investors with existing accounts should also
notify the Fund's transfer agent prior to wiring funds.)
B. Instruct your bank or broker to wire the specified amount, together
with your assigned account number, to the custodian:
PNC Bank, N.A.
ABA-0310-0005-3.
CREDIT ACCOUNT NUMBER: 86-1030-3398
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number
with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Complete and sign the Application and mail it to the address shown
thereon. PFPC will not process initial purchases until it receives a
completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
RETIREMENT PLANS. Shares may be purchased in conjunction with individual
retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as custodian.
For further information as to applications and annual fees, contact the
Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next determined
after receipt of the order in proper form by the Fund's transfer agent, PFPC.
Investors may redeem all or some of their Shares in accordance with one of the
procedures described below.
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns Shares in
an Account may redeem Shares in his Account in accordance with instructions and
limitations pertaining to his Account by contacting his broker. If such notice
is received by PFPC from the broker by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds will be made after 12:00 noon Eastern Time on
the day the redemption is effected, provided that the Fund's custodian is open
for business. If the custodian is not open, payment will be made on the next
bank business day. If the redemption request is received between 12:00 noon and
the close of regular trading on the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading on the NYSE on such Business Day
and payment will be made on the next bank business day following receipt of the
redemption request. If all Shares are redeemed, all accrued but unpaid dividends
on those Shares will be paid with the redemption proceeds.
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<PAGE>
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
REDEMPTION OF SHARES OWNED DIRECTLY. An investor may redeem any number of Shares
by sending a written request to The RBB Fund Money Market Portfolio (Bedford
Class), c/o PFPC, P.O. Box 8960, Wilmington, Delaware 19899. Redemption requests
must be signed by each shareholder in the same manner as the Shares are
registered. Redemption requests for joint accounts require the signature of each
joint owner. On redemption requests of $5,000 or more, a signature guarantee is
required. A signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
Investors may redeem or exchange shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Portfolio, the
Distributor, PFPC nor any other Fund agent will be liable for any loss,
liability, cost or expense for following the procedures below or for following
instructions communicated by telephone that they reasonably believe to be
genuine.
The Fund's telephone transaction procedures include the following measures: (1)
requiring the appropriate telephone transaction privilege forms; (2) requiring
the caller to provide the names of the account owners, the account social
security number and name of the Portfolio, all of which must match the Fund's
records; (3) requiring the Fund's service representative to complete a telephone
transaction form, listing all of the above caller identification information;
(4) requiring that redemption proceeds be sent only by check to the account
owners of record at the address of record, or by wire only to the owners of
record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers or other
industry professionals, additional documentation or information regarding the
scope of a caller's authority is required. Finally, for telephone transactions
in accounts held jointly, additional information regarding other account holders
is required. Telephone transactions will not be permitted in connection with IRA
or other retirement plan accounts or by an attorney-in-fact under power of
attorney.
Redemption proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form that such proceeds are to be sent by wire transfer
to a specified checking or savings account. If redemption proceeds are to be
sent by wire transfer, a telephone redemption request received prior to the
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<PAGE>
close of regular trading on the NYSE will result in redemption proceeds being
wired to the investor's bank account on the next bank business day. The minimum
redemption for proceeds sent by wire transfer is $2,500. There is no maximum for
proceeds sent by wire transfer. The Fund may modify this redemption service at
any time or charge a service fee upon prior notice to shareholders, although no
fee is currently contemplated.
REDEMPTION BY CHECK. Upon request, the Fund will provide any direct investor and
any investor who does not have check writing privileges for his Account with
forms of drafts ("checks") payable through PNC Bank. These checks may be made
payable to the order of anyone. The minimum amount of a check is $250; however,
a broker may establish a higher minimum. An investor wishing to use this check
writing redemption procedure should complete specimen signature cards (available
from PFPC), and then forward such signature cards to PFPC. PFPC will then
arrange for the checks to be honored by PNC Bank. Investors who own shares
through an Account should contact their brokers for signature cards. Investors
of joint accounts may elect to have checks honored with a single signature.
Check redemptions will be subject to PNC Bank's rules governing checks. An
investor will be able to stop payment on a check redemption. The Fund or PNC
Bank may terminate this redemption service at any time, and neither shall incur
any liability for honoring checks, for effecting redemptions to pay checks, or
for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the investor's
agent, will cause the Fund to redeem a sufficient number of full and fractional
shares owned by the investor to cover the amount of the check. This procedure
enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
Written redemption instructions, indicating the Portfolio from which shares are
to be redeemed, and duly endorsed stock certificates, if previously issued, must
be received by the transfer agent in proper form and signed exactly as the
shares are registered. All signatures must be guaranteed as described above
under "Redemption of Shares Owned Directly." Redemption requests by corporate
and fiduciary shareholders must be accompanied by appropriate documentation
establishing the authority of the person seeking to act on behalf of the
account. Investors may obtain from the Fund or the transfer agent forms of
resolutions and other documentation which have been prepared in advance to
assist compliance with the Portfolio's procedures.
During times of drastic economic or market conditions, investors may experience
difficulty in contacting Bear Stearns, the Distributor or the investor's broker
by telephone to request a redemption of Portfolio shares. In such cases,
investors should consider using the other redemption procedures described
herein. Use of these other redemption procedures may result in the redemption
request being processed at a later time than it would have been if telephone
redemption had been used.
AUTOMATIC WITHDRAWAL. Automatic withdrawal permits investors to request
withdrawal of a specified dollar amount (minimum of $25) on either a monthly or
quarterly basis if the investor has a $5,000 minimum account. An application for
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<PAGE>
automatic withdrawal can be obtained from Bear Stearns, the Distributor, the
investor's broker, or the transfer agent. Automatic withdrawal may be ended at
any time by the investor, the Fund or the transfer agent. Shares for which
certificates have been issued may not be redeemed through automatic withdrawal.
Purchases of additional shares concurrently with withdrawals generally are
undesirable.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make payment for all
Shares redeemed within seven days after receipt by PFPC of a redemption request
in proper form. Although the Fund will redeem Shares purchased by check before
the check clears, payment of the redemption proceeds may be delayed for a period
of up to fifteen days after purchase, pending a determination that the check has
cleared. This procedure does not apply to Shares purchased by wire payment.
Investors should consider purchasing Shares using a certified or bank check or
money order if they anticipate an immediate need for redemption proceeds. During
the period prior to the time Shares are redeemed, dividends on such Shares will
accrue and be payable.
The Fund imposes no charge when Shares are redeemed, except as described below.
The Fund reserves the right to redeem any account in the Class involuntarily, on
30 days' notice, if such account falls below $500 and during such 30-day period
the amount invested in such account is not increased to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
A shareholder may have redemption proceeds of $1 million or more wired to the
shareholder's brokerage account or a commercial bank account designated by the
shareholder. A transaction fee of $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns account executive, to the investor's
broker, or to the transfer agent if the shares are not held in a brokerage
account.
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<PAGE>
EXCHANGE OF SHARES
EXCHANGE PRIVILEGE
The exchange privilege enables an investor to purchase shares of the Portfolio
in exchange for shares of the other mutual funds sponsored or advised by Bear
Stearns, to the extent such shares are offered for sale in the investor's state
of residence. These funds have different investment objectives than the Money
Market Portfolio. To use this privilege, investors should consult their account
executive at Bear Stearns, their investment dealers who have sales agreements
with Bear Stearns, the Distributor, the investor's broker or the Transfer Agent
to determine if it is available and whether any conditions are imposed on its
use. Currently, exchanges may be made among the following portfolios (and such
additional portfolios which may be added in the future):
o Emerging Markets Debt Portfolio
o S&P STARS Portfolio
o Large Cap Value Portfolio
o Small Cap Value Portfolio
o Total Return Bond Portfolio
o The Insiders Select Fund
To effect an exchange of Shares, exchange instructions must be given to the
transfer agent in writing or by telephone. A shareholder wishing to make an
exchange may do so by sending a written request to PFPC, Attention: The RBB
Fund--Money Market Portfolio (Bedford Class), P.O. Box 8960, Wilmington,
Delaware 19899. Shareholders are automatically provided with telephone exchange
privileges when opening an account, unless they indicate otherwise on the
account application. Shareholders holding share certificates are not eligible to
exchange shares of the Portfolio by phone because share certificates must
accompany all exchange requests. To add this feature to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with the transfer agent. This form is available from the transfer
agent. Once this election has been made, the shareholder may contact the
Transfer Agent by telephone at (800) 447-1139 to request the exchange. See
"Redemption Procedures--Redemption of Shares Owned Directly" for a description
of the Fund's telephone transaction procedures. During periods of substantial
economic or market change, telephone exchanges may be difficult to complete and
shareholders may have to submit exchange requests to the transfer agent in
writing.
If the exchanging shareholder does not currently own shares of the Portfolio or
fund whose shares are being acquired, a new account will be established with the
same registration, dividend and capital gain options and the same dealer of
record as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed as
described above. To participate in the Systematic Investment Plan or establish
automatic withdrawal for the new account, however, an exchanging shareholder
must file a specific written request. The exchange privilege may be modified or
terminated at any time, or from time to time, by the Fund on 60 days' notice to
affected portfolio or fund shareholders.
Before any exchange, the investor must obtain and should review a copy of the
current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained from Bear Stearns. Except in the case of
Personal Retirement Plans, the Shares being exchanged must have a current value
of at least $250; furthermore, when establishing a new account by exchange, the
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<PAGE>
shares being exchanged must have a value of at least the minimum initial
investment required for the portfolio or fund into which the exchange is being
made. If making an exchange to an existing account, the dollar value must equal
or exceed the applicable minimum for subsequent investments. If any amount
remains in the investment portfolio from which the exchange is being made, such
amount must not be below the minimum account value required by the portfolio or
fund.
Shares will be exchanged at the next determined public offering price. To
qualify for the exchange privilege, at the time of the exchange, the investor
must notify Bear Stearns, the Distributor, his investment dealer or the transfer
agent. Any such qualification is subject to confirmation of the investor's
holdings through a check of appropriate records. No fees currently are charged
shareholders directly in connection with exchanges, although the Fund reserves
the right, upon not less than 60 days' written notice, to charge shareholders a
$5.00 fee in accordance with rules promulgated by the Securities and Exchange
Commission. The Fund reserves the right to reject any exchange request in whole
or in part. The Exchange Privilege may be modified or terminated at any time
upon notice to shareholders.
The exchange of shares of one portfolio or fund for shares of another is treated
for federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
REDIRECTED DISTRIBUTION OPTION.
The Redirected Distribution Option enables a shareholder to invest automatically
dividends or dividends and capital gain distributions, if any, paid by the
Portfolio in shares of another portfolio of the Fund or a fund advised or
sponsored by Bear Stearns of which the shareholder is an investor. Shares of the
other portfolio or fund will be purchased at the then current public offering
price; however, a sales load may be charged with respect to investments in
shares of a portfolio or fund sold with a sales load. If the shareholder is
investing in a fund that charges a sales load, such shareholder may qualify for
share prices which do not include the sales load or which reflect a reduced
sales load.
This privilege is available only for existing accounts and may not be used to
open new accounts. Minimum subsequent investments do not apply. The Fund may
modify or terminate this privilege at any time or charge a service fee. No such
fee currently is contemplated.
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<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class of the Portfolio for the purpose of
pricing purchase and redemption orders is determined twice each day, once as of
12:00 noon Eastern Time and once as of the close of regular trading on the NYSE
on each weekday with the exception of those holidays on which either the NYSE or
the FRB is closed. Currently, the NYSE is closed on weekends and the customary
national business holidays of New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays as the NYSE is closed as well
as Veterans' Day and Columbus Day. The net asset value for each class of the
Fund is calculated by adding the value of the proportionate interest of the
class in the securities, cash and other assets of the Portfolio, deducting the
actual and accrued liabilities of such class and dividing the result by the
number of outstanding shares of the class. The net asset value per share of each
class of a portfolio is determined independently of any of the Fund's other
classes.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00 per
share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under the heading "Valuation of Shares."
There can be no assurance that net asset value per share will not vary.
With the approval of the Board of Directors, the Portfolio may use a pricing
service, bank or broker dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio are managed
under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate seventeen separate investment portfolios. The
Class represents interests in the Fund's Money Market Portfolio.
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<PAGE>
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. PNC
Bank and its subsidiaries currently manage over $45.9 billion of assets, of
which approximately $31.4 billion are mutual funds. PNC Bank, a national bank
whose principal business address is 1600 Market Street, Philadelphia,
Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp, Inc. PNC
Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary of PNC
Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolio, BIMC manages such Portfolio and is
responsible for all purchases and sales of portfolio securities. 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 Fund, 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 such Portfolio, and to maintain the Portfolio's
financial accounts and records. These administrative responsibilities have been
delegated to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit of the
Money Market Portfolio, BIMC is entitled to receive the following fees, computed
daily and payable monthly based on a Portfolio's average daily net assets: .45%
of the first $250 million; .40% of the next $250 million; and .35% of net assets
in excess of $500 million.
BIMC may in its discretion from time to time agree to waive voluntarily all or
any portion of its advisory fee for the Portfolio.
For the Fund's fiscal year ended August 31, 1998, the Fund paid investment
advisory fees aggregating .24% of the average daily net assets of the Money
Market Portfolio. For that same year, BIMC waived approximately .13% of the
average daily net assets of the Money Market Portfolio.
PNC Bank was formerly sub-adviser to the 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
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<PAGE>
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 Fund to BIMC. The services provided
by BIMC and the fees payable by the Fund for these services are described
further in the Statement of Additional Information under "Management of the
Company."
ADMINISTRATOR
Pursuant to its advisory agreement with the Fund with respect to the Money
Market Portfolio, BIMC provides administrative services to such Portfolio, and
is entitled to receive an administration fee, computed daily and payable monthly
at a rate of .10% of the average daily net assets of the Portfolio. BIMC has
delegated to PFPC all of its accounting and administrative obligations under
such agreement. The Fund has agreed to pay directly to PFPC the fees for
accounting and administrative services which PFPC would have received directly
from BIMC. Such arrangement has no effect on the total advisory and
administrative fees payable by such Portfolio to BIMC. PFPC's principal business
address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an indirect wholly-owned
subsidiary of PNC Bank Corp., serves as the Fund's transfer agent and dividend
disbursing agent. PFPC may enter into shareholder servicing agreements with
registered broker/dealers who have entered into dealer agreements with the
Distributor for the provision of certain shareholder support services to
customers of such broker/dealers who are shareholders of the Portfolio. The
services provided and the fees payable by the Fund for these services are
described in the Statement of Additional Information under "Investment Advisory,
Distribution and Servicing Arrangements."
DISTRIBUTOR
Provident Distributors, Inc., with a principal business address at Four Falls
Corporate Center, Conshohocken, Pennsylvania 19428, acts as Distributor of the
Fund pursuant to a distribution agreement dated May 29, 1998 (the "Distribution
Agreement").
EXPENSES
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio of
the Fund will be allocated among all investment portfolios of the Fund based on
the relative net assets of the investment portfolios at the time such expenses
were accrued. The Bedford Class of the Fund pays its own distribution fees, and
- 22 -
<PAGE>
may pay a different share than other classes of the Fund of other expenses
(excluding advisory and custodial fees) if these expenses are actually incurred
in a different amount by the Bedford Class or if it receives different services.
The investment adviser may assume expenses of the Portfolio from time to time.
In certain circumstances, it may assume such expenses on the condition that it
is reimbursed by the Portfolio for such amounts prior to the end of a fiscal
year. In such event, the reimbursement of such amounts will have the effect of
lowering a Portfolio's expense ratio and of increasing yield to investors.
For the Fund's fiscal year ended August 31, 1998, the Fund's total expenses were
1.10% of the average daily net assets with respect to the Class of the Money
Market Portfolio (not taking into account waivers and reimbursements of .13%).
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and separate Plan of Distribution for the Class (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to
receive from the Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the Class. Under the Distribution Agreement, the Distributor has agreed to
accept compensation for its services thereunder and under the Plan in the amount
of .60% of the average daily net assets of the Class on an annualized basis in
any year. The actual amount of such compensation is agreed upon from time to
time by the Fund's Board of Directors and the Distributor. Pursuant to the
conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to the
Class on any day to the extent necessary to assure that the fee required to be
accrued by the Class does not exceed the income of the Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
Under the Distribution Agreement and the Plan, the Distributor may reallocate an
amount up to the full fee that it receives to financial institutions, including
Dealers, based upon the aggregate investment amounts maintained by and services
provided to shareholders of the Class serviced by such financial institutions.
The Distributor may also reimburse Dealers for other expenses incurred in the
promotion of the sale of Fund shares. The Distributor and/or Dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
The Plan obligates the Fund, during the period it is in effect, to accrue and
pay to the Distributor on behalf of the Class the fee agreed to under the
Distribution Agreement. Payments under the Plan are not based on expenses
actually incurred by the Distributor, and the payments may exceed distribution
expenses actually incurred.
- 23 -
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and net
realized capital gains, if any, of the Portfolio to the Portfolio's
shareholders. All distributions are reinvested in the form of additional full
and fractional Shares of the Class unless a shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by the Portfolio will be declared as a dividend on a daily basis and paid
monthly. Dividends are payable to shareholders of record immediately prior to
the determination of net asset value made as of the close of regular trading on
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.
- 24 -
<PAGE>
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 the Money Market Portfolio to
expand its marketing alternatives and to broaden its range of services to
different investors. The expenses of the various classes within these Portfolios
vary based upon the services provided, which may affect performance. Each class
of Common Stock of the Fund has a separate Rule 12b-1 distribution plan. Under
the Distribution Agreements entered into with the Distributor and pursuant to
each of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class a
distribution fee based on average daily net assets. A salesperson or any other
person entitled to receive compensation for servicing Fund shares may receive
different compensation with respect to different classes in a Portfolio of the
Fund. An investor may contact the Fund's Distributor by calling 1-800-888-9723
to request more information concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN
RELATE PRIMARILY TO THE BEDFORD SHARES OF THE MONEY MARKET PORTFOLIO AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE BEDFORD SHARES OF THE MONEY MARKET PORTFOLIO.
- 25 -
<PAGE>
Each share that represents an interest in a Portfolio has an equal proportionate
interest in the assets belonging to such Portfolio with each other share that
represents an interest in such Portfolio, even where a share has a different
class designation than another share representing an interest in that Portfolio.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares of the Fund will be fully paid
and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of the Portfolio will vote in the aggregate and not by class
on all matters, except where otherwise required by law. Further, shareholders of
all investment portfolios of the Fund will vote in the aggregate and not by
portfolio except as otherwise required by law or when the Board of Directors
determines that the matter to be voted upon affects only the interests of the
shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples of when the 1940 Act requires voting by investment portfolio or by
class.) Shareholders of the Fund are entitled to one vote for each full share
held (irrespective of class or portfolio) and fractional votes for fractional
shares held. Voting rights are not cumulative and, accordingly, the holders of
more than 50% of the aggregate shares of Common Stock of the Fund may elect all
of the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record or
beneficially 25% or more of the outstanding shares of all classes of the Fund.
OTHER INFORMATION
- --------------------------------------------------------------------------------
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual reports describing the Fund's
investment operations and annual financial statements audited by independent
accountants. Shareholder inquiries should be addressed to PFPC, the Fund's
transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 447-1139.
- 26 -
<PAGE>
THE
BEAR STEARNS
FUNDS
235 Park Avenue
New York, New York 10167
1-800-766-4111
MONEY MARKET
PORTFOLIO
INVESTMENT ADVISER
BlackRock Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
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.
<PAGE>
--------------------------------------------------
BEDFORD
MUNICIPAL
MONEY MARKET
PORTFOLIO
PROSPECTUS
December 29, 1998
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY
THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
-----------------------
CONTENTS
PAGE
INTRODUCTION........................................ 3
FINANCIAL HIGHLIGHTS................................ 6
INVESTMENT OBJECTIVE AND POLICIES................... 8
YEAR 2000...........................................10
INVESTMENT LIMITATIONS..............................11
PURCHASE AND REDEMPTION OF SHARES...................12
NET ASSET VALUE.....................................17
MANAGEMENT..........................................17
DISTRIBUTION OF SHARES..............................19
DIVIDENDS AND DISTRIBUTIONS.........................20
TAXES...............................................20
DESCRIPTION OF SHARES...............................21
OTHER INFORMATION...................................22
INVESTMENT ADVISER
BlackRock Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
BEDFORD
MUNICIPAL MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
The Bedford Shares of the Municipal Money Market Portfolio (THE
"MUNICIPAL MONEY MARKET PORTFOLIO" OR THE "PORTFOLIO") are a class of shares of
common stock of The RBB Fund, Inc. (the "Fund"), an open-end management
investment company. Shares of the class offered by this Prospectus represent
interests in the Portfolio.
The investment objective of the Municipal Money Market Portfolio is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio seeks to achieve such objective by
investing substantially all of its assets in a diversified portfolio of
short-term Municipal Obligations. "Municipal Obligations" are obligations issued
by or on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market conditions,
at least 80% of the net assets of the Portfolio will be invested in Municipal
Obligations, the interest on which is exempt from the regular federal income tax
but which may constitute an item of tax preference for purposes of the federal
alternative minimum tax.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
BlackRock Institutional Management Corporation serves as investment
adviser for the Portfolio. PNC Bank, National Association serves as custodian
for the Fund and PFPC Inc. serves as administrator of the Portfolio and the
transfer and dividend disbursing agent for the Fund. Provident Distributors,
Inc. acts as distributor for the Fund.
This Prospectus contains concise information that a prospective
investor needs to know before investing. Please keep it for future reference. A
Statement of Additional Information, dated December 29, 1998, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
this Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the SEC
Internet Website (http://www.sec.gov).
<PAGE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS DECEMBER 29, 1998
- 2 -
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen separate
investment portfolios. The shares ("Shares") of the Bedford Class (the "Class")
of common stock of the Fund offered by this Prospectus represent interests in
the Fund's Municipal Money Market Portfolio.
The investment objective of the Municipal Money Market Portfolio is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks to the Portfolio. During periods of normal market conditions, at
least 80% of the net assets of the Portfolio will be invested in Municipal
Obligations, the interest on which is exempt from the regular federal income
tax, but which may constitute an item of tax preference for purposes of the
federal alternative minimum tax.
The Portfolio seeks to maintain a net asset value of $1.00 per share;
however, there can be no assurance that the Portfolio will be able to maintain a
stable net asset value of $1.00 per share.
The Portfolio's investment adviser is BlackRock Institutional
Management Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank")
serves as custodian to the Fund and PFPC Inc. ("PFPC") serves as the
administrator to the Portfolio and transfer and dividend disbursing agent to the
Fund. Provident Distributors, Inc. (the "Distributor") acts as distributor of
the Fund's Shares.
An investor may purchase and redeem Shares through his broker or by
direct purchases or redemptions. See "Purchase and Redemption of Shares."
An investment in the Portfolio is subject to certain risks, as set
forth in detail under "Investment Objective and Policies." The Portfolio, to the
extent set forth under "Investment Objective and Policies," may engage in the
purchase of securities on a "when-issued" or "forward commitment" basis, and the
purchase of stand-by commitments. These transactions involve certain special
risks, as set forth under "Investment Objective and Policies."
- 3 -
<PAGE>
FEE TABLE
The Fee Table below contains a summary of the annual operating expenses
of the Bedford Class of the Municipal Money Market Portfolio based on expenses
incurred for the fiscal year ended August 31, 1998, as a percentage of average
daily net assets. An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (BEDFORD CLASS)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
Management Fees (after waivers)(1)........................................ .08%
12b-1 Fees(1)............................................................. .58%
Other Expenses(1)......................................................... .23%
Total Fund Operating Expenses (Bedford Class)
(after waivers and reimbursements)(1)..................................... .89%
====
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the
Bedford Municipal Money Market Portfolio, Management Fees would be
.34%, and Total Fund Operating Expenses would be 1.15%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Municipal Money Market
Portfolio* $9 $28 $49 $110
</TABLE>
*Other Classes of this Portfolio are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. Long-term Shareholders may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Bedford Class of the
Portfolio will bear directly or indirectly. (For more complete descriptions of
the various costs and expenses, see "Management-Investment Adviser," and
"Distribution of Shares" below.) Expense figures are based on actual costs and
- 4 -
<PAGE>
fees charged to the Class. The Fee Table reflects a voluntary waiver of
Management Fees for the Class. However, there can be no assurance that any
future waivers of Management Fees will not vary from the figures reflected in
the Fee Table. To the extent that any service providers assume additional
expenses of the Portfolio, such assumption will have the effect of lowering the
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time the Class advertises its "total return", "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Class refers to the income generated by an investment in the Class over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Class
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of the Class may also be quoted from time to time, which
shows the level of taxable yield needed to produce an after-tax equivalent to
the tax-free yield of the Class. This is done by increasing the yield of the
Class (calculated as above) by the amount necessary to reflect the payment of
federal income tax at a stated tax rate.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares will fluctuate and is not necessarily
representative of future results. Any fees charged by broker/dealers directly to
their shareholders in connection with investments in the Class are not reflected
in the total return and yield of the Shares, and such fees, if charged, will
reduce the actual return received by shareholders on their investments. The
total return and yield on Shares of the Class may differ from the total return
and yields on shares of other classes of the Fund that also represent interests
in the Portfolio depending on the allocation of expenses to each class of the
Portfolio. See "Expenses."
- 5 -
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the
investment results of the Bedford Class of the Municipal Money Market Portfolio
for the periods indicated. The financial data included in this table for each of
the periods ended August 31, 1994 through August 31, 1998, are a part of the
Fund's financial statements for the Portfolio which are incorporated by
reference into the Statement of Additional Information and have been audited by
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the Fund's independent
accountants. The financial data for the Portfolio for the periods ended August
31, 1989, 1990, 1991, 1992 and 1993 are a part of previous financial statements
audited by PricewaterhouseCoopers. The financial data included in the table
should be read in conjunction with the financial statements and notes thereto.
Further information about the performance of the Portfolio is available in the
Annual Report to Shareholders. Both the Statement of Additional Information, and
the Annual Report to Shareholders may be obtained free of charge by calling the
telephone number on page 1 of this Prospectus.
- 6 -
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC FINANCIAL HIGHLIGHTS (C)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Municipal Money Market Portfolio
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------- ----------
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income.................... 0.0286 0.0285 0.0288 0.0297 0.0195 0.0195
Net gains on securities (both realized
and unrealized)....................... -- -- -- -- -- --
-------- ---------- ---------- ---------- ---------- ----------
Total from investment operations........... 0.0286 0.0285 0.0288 0.0297 0.0195 0.0195
-------- ---------- ---------- ---------- ---------- ----------
Less distributions
Dividends (from net investment income)... (0.0286) (0.0285) (0.0288) (0.0297) (0.0195) (0.0195
Distributions (from capital gains)....... -- -- -- -- -- --
-------- ---------- ---------- ---------- ---------- ----------
Total distributions.................... (0.0286) (0.0285) $(0.0288) $(0.0297) $(0.0195) $(0.0195
-------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========== ========== ========== ========== ==========
Total return............................... 2.97% 2.88% 2.92% 3.01% 1.97% 1.96%
Ratios/Supplemental Data
Net Assets, end of period (000).......... $147,633 $ 213,034 $ 201,940 $ 198,425 $ 182,480 $ 215,577
Ratios of expenses to average net assets .89%(a) .85%(a) .84%(a) .82%(a) .77%(a) .77%(a)
Ratios of net invest income to
average net assets..................... 2.86% 2.85% 2.88% 2.97% 1.95% 1.95%
<S> <C> <C> <C> <C>
For the Period
For the For the For the September 30, 1988
Year Ended Year Ended Year Ended (Commencement of
August 31, August 31, August 31, Operations)
1992 1991 1990 to August 31, 1989
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income.................... 0.0287 0.0431 0.0522 0.0513
Net gains on securities (both realized
and unrealized)....................... -- -- -- --
---------- ---------- ---------- ----------
Total from investment operations........... 0.0287 0.0431 0.0522 0.0513
---------- ---------- ---------- ----------
Less distributions
Dividends (from net investment income)... (0.0287) (0.0431) (0.0522) (0.0513)
Distributions (from capital gains)....... -- -- -- --
---------- ---------- ---------- ----------
Total distributions.................... $(0.0287) $(0.0431) $(0.0522) $(0.0513)
---------- ---------- ---------- ----------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total return............................... 2.90% 4.40% 5.35% 5.72%
Ratios/Supplemental Data
Net Assets, end of period (000).......... $ 176,950 $ 215,140 $ 195,566 $ 85,806
Ratios of expenses to average net assets .77%(a) .74%(a) .75%(a) .73%(a)(b)
Ratios of net invest income to
average net assets..................... 2.87% 4.31% 5.22% 5.70%
</TABLE>
(a) Without the waiver of advisory and administration fees, and
without the reimbursement of certain operating expenses, the
ratios of expenses to average net assets for the Municipal
Money Market Portfolio would have been 1.15%, 1.14%, 1.12%,
1.14%, 1.12%, 1.16%, 1.15%, 1.13% and 1.14% for the years
ended August 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992,
1991 and 1990, respectively, and 1.27% annualized for the
period ended August 31, 1989.
(b) Annualized
(c) Financial Highlights relate solely to the Bedford Class of Shares
within the Portfolio.
- 7 -
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax and which meet certain ratings
criteria and present minimal credit risks. See "Eligible Securities". During
periods of normal market conditions, at least 80% of the net assets of the
Municipal Money Market Portfolio will be invested in Municipal Obligations.
Municipal Obligations include securities, the interest on which is exempt from
the regular federal income tax and is not an item of tax preference for purposes
of the federal alternative minimum tax ("Tax-Exempt Interest"), although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase securities that are unrated at the time of purchase provided that such
securities are determined to be of comparable quality to eligible rated
securities. The applicable Municipal Obligations ratings are described in the
Appendix to the Statement of Additional Information.
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Portfolio's
investment adviser, suitable obligations bearing Tax-Exempt Interest or AMT
Interest are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
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current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield. The Portfolio will generally not pay for such securities or start earning
interest on them until they are received. Securities purchased on a when-issued
basis are recorded as an asset at the time the commitment is entered into and
are subject to changes in value prior to delivery based upon changes in the
general level of interest rates. The Portfolio expects that commitments to
purchase when-issued securities will not exceed 25% of the value of its total
assets absent unusual market conditions. The Portfolio does not intend to
purchase when-issued securities for speculative purposes but only in furtherance
of its investment objective.
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
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Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the Portfolio's
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include: (1) U.S. Government securities, (2)
securities that are rated at the time of purchase in the two highest rating
categories by at least two Rating Organizations ("Rating Organizations") for
such securities (e.g., commercial paper rated "A-1" or "A-2" by Standard &
Poor's Ratings Services ("S&P"), or rated "Prime-l" or "Prime-2" by Moody's
Investors Service, Inc. ("Moody's")), (3) securities that are rated at the time
of purchase by the only Rating Organization rating the security in one of its
two highest categories for such securities; (4) securities issued by issuers
(or, in certain cases guaranteed by persons) with short-term debt having such
ratings, and (5) and securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by a Rating Organization
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to eligible rated securities. For a more complete description
of eligible securities, see "Investment Objectives and Policies" in the
Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
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INVESTMENT LIMITATIONS
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The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
shareholder approval. The Portfolio may not, however, change the following
investment limitations without such a vote of shareholders. (A more detailed
description of the following investment limitations, together with other
investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Municipal Money Market Portfolio may not:
1. Purchase the securities of any issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities, if
immediately after and as a result of such purchase more than 5% of the value of
its total assets would be invested in the securities of such issuer, or more
than 10% of the outstanding voting securities of such issuer would be owned by
the Portfolio, except that up to 25% of the value of the Portfolio's total
assets may be invested without regard to this 5% limitation.
2. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10% of
the value of the Portfolio's assets at the time of such borrowing, and only if
after such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowing and in amounts not in excess of 10% of the
value of the Portfolio's assets at the time of such borrowing; or purchase
portfolio securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio securities is deemed
to be disadvantageous or inconvenient.)
3. Purchase any securities which would cause more than 25% of the value
of the total assets of the Portfolio to be invested at the time of purchase in
obligations of issuers in the same industry.
In addition, the Portfolio may not, without Shareholder approval,
change its policy of investing during normal market conditions at least 80% of
its net assets in obligations the interest on which is Tax-Exempt Interest or
AMT Interest.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act"), the Municipal Money Market Portfolio will
meet the following limitation on its investments in addition to the fundamental
investment limitations described above. This limitation may be changed without a
vote of shareholders of the Municipal Money Market Portfolio.
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<PAGE>
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio
has more than 5% of its total assets invested in instruments issued by
or subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and
at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
GENERAL. Shares are sold without a sales load on a continuous basis by
the Distributor. The Distributor is located at Four Falls Corporate Center,
Conshohocken, Pennsylvania 19428. Investors may purchase Shares through an
account maintained by the investor with his brokerage firm (an "Account") and
may also purchase Shares directly by mail or wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which payment has been converted into Federal Funds by 12:00
noon Eastern Time, will be executed as of 12:00 noon that Business Day. Orders
which are accompanied by Federal Funds and received by PFPC after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by PFPC as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be effected
through an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Shares will be recorded by the broker and will be
reflected in the Account statements provided by the broker to such investors. A
broker may impose minimum investor Account requirements. Even if a broker does
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not impose a sales charge for purchases of Shares, depending on the terms of an
investor's Account with his broker, the broker may charge an investor's Account
fees for automatic investment and other services provided to the Account.
Information concerning Account requirements, services and charges should be
obtained from an investor's broker. This Prospectus should be read in
conjunction with any information received from a broker. Shareholders whose
shares are held in the street name account of a broker and who desire to
transfer such shares to the street name account of another broker should contact
their current broker.
A broker may offer investors maintaining Accounts the ability to
purchase Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares. The frequency of investments and the minimum
investment requirement will be established by the broker and the Fund. In
addition, the broker may require a minimum amount of cash and/or securities to
be deposited in an Account for participants in its Purchase Program. The
description of the particular broker's Purchase Program should be read for
details, and any inquiries concerning an Account under a Purchase Program should
be directed to the broker.
If a broker makes special arrangements under which orders for Shares
are received by PFPC prior to 12:00 noon Eastern Time and the broker guarantees
that payment for such Shares will be made in available Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, on the same
day, such purchase orders will be effective and Shares will be purchased at the
offering price in effect as of 12:00 noon Eastern Time on the date the purchase
order is received by PFPC.
DIRECT PURCHASES. An investor may also make direct investments in
Shares at any time through any broker that has entered into a dealer agreement
with the Distributor (a "Dealer"). An investor may make an initial investment by
mail by fully completing and signing an application obtained from a Dealer (an
"Application") and mailing it, together with a check payable to "Bedford
Municipal Money Market" to "Bedford Municipal Money Market," c/o PFPC, P.O. Box
8950, Wilmington, Delaware 19899. An Application will be returned to the
investor unless it contains the name of the Dealer from whom it was obtained.
Subsequent purchases may be made through a Dealer or by forwarding payment to
the Fund's transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares by having his bank or Dealer wire Federal Funds to the Fund's
custodian, PNC Bank. An investor's bank or Dealer may impose a charge for this
service. The Fund does not currently charge for effecting wire transfers but
reserves the right to do so in the future. In order to ensure prompt receipt of
an investor's Federal Funds wire, for an initial investment, it is important
that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800)533-7719
(in Delaware call collect (302) 791-1196), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the amount being
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wired, and by which bank or Dealer. PFPC will then provide an investor with a
Fund account number. (Investors with existing accounts should also notify PFPC
prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the custodian:
PNC Bank, N.A., Philadelphia, PA
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the Portfolio)
FOR PURCHASE OF: (name of Portfolio)
AMOUNT: (amount to be invested)
C. Complete and sign the Application and mail it to the address shown
thereon. PFPC will not process initial purchase orders until it receives a
completed and signed Application.
For subsequent investments, an investor should follow steps A and B
above.
RETIREMENT PLANS. Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
It is the responsibility of the Dealer to transmit promptly to PFPC a
customer's redemption request. In the case of shareholders holding share
certificates, the certificates must accompany the redemption request. Investors
may redeem all or some of their Shares in accordance with one of the procedures
described below.
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns
Shares through an Account may redeem Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting his broker.
If such notice is received by PFPC by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds will be made after 12:00 noon Eastern Time on
the day the redemption is effected, provided that the Fund's custodian is open
for business. If the custodian is not open, payment will be made on the next
bank business day. If the redemption request is received between 12:00 noon and
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<PAGE>
the close of regular trading on the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading on the NYSE on such Business Day
and payment will be made on the next bank business day following receipt of the
redemption request. If all Shares are redeemed, all accrued but unpaid dividends
on those Shares will be paid with the redemption proceeds.
An investor's brokerage firm may also redeem each day a sufficient
number of Shares to cover debit balances created by transactions in the Account
or instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
REDEMPTION OF SHARES OWNED DIRECTLY. A direct investor may redeem any
number of Shares by sending a written request to "Bedford Municipal Money
Market," c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. Redemption
requests must be signed by each shareholder in the same manner as the Shares are
registered. Redemption requests for joint accounts require the signature of each
joint owner. On redemption requests of $5,000 or more, each signature must be
guaranteed. A signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are the Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Portfolio, the
Distributor, PFPC nor any other Fund agent will be liable for any loss,
liability, cost or expense for following the procedures below or for following
instructions communicated by telephone that they reasonably believe to be
genuine.
The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the Portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; (6) and maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
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telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by an
attorney-in-fact under power of attorney.
The proceeds of a telephone redemption request will be mailed by check
to an investor's registered address unless he has designated in his Application
or Telephone Authorization Form that such proceeds are to be sent by wire
transfer to a specified checking or savings account. If proceeds are to be sent
by wire transfer, a telephone redemption request received prior to the close of
regular trading on the NYSE, will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. The minimum
redemption for proceeds sent by wire transfer is $2,500. There is no maximum for
proceeds sent by wire transfer. There is no minimum redemption for proceeds
mailed by check; however, the maximum redemption for proceeds mailed by check is
$25,000. The Fund may modify this redemption service at any time or charge a
service fee upon prior notice to shareholders, although no fee is currently
contemplated.
REDEMPTION BY CHECK. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors with joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cashed at other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make
payment for all Shares redeemed within seven days after receipt by PFPC of a
redemption request in proper form. Although the Fund will redeem Shares
purchased by check before the check clears, payment of redemption proceeds may
be delayed for a period of up to fifteen days after their purchase, pending a
determination that the check has cleared. This procedure does not apply to
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Shares purchased by wire payment. Investors should consider purchasing Shares
with a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in the Class involuntarily, on 30 days' notice,
if such account falls below $500 and during such 30-day notice period the amount
invested in such account is not increased to at least $500. Payment for Shares
redeemed may be postponed or the right of redemption suspended as provided by
the rules of the Securities and Exchange Commission.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class of the Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day
once as of 12:00 noon Eastern Time and once, as of the close of regular trading
of the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays on which the NYSE is
closed as well as Veterans' Day and Columbus Day. The net asset value per share
of each class of the Portfolio is calculated by adding the value of the
proportionate interest of the class in the securities, cash and other assets of
the Portfolio, deducting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value per share of each class of the Fund is determined independently of
any of the Fund's other classes.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00
per share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under the heading "Valuation of Shares."
There can be no assurance that net asset value per share will not vary.
With the approval of the Board of Directors, the Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
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BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio of
the Fund are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate seventeen investment portfolios.
The Municipal Money Market Portfolio is one of these portfolios.
INVESTMENT ADVISER
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for the Municipal Money Market Portfolio. BIMC has its
principal offices at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. PNC Bank and its subsidiaries currently manage over
$45.9 billion of assets, of which approximately $31.4 billion are mutual
funds. PNC Bank, a national bank whose principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103, is a wholly-owned subsidiary of PNC
Bancorp, Inc. PNC Bancorp Inc. is a bank holding company and a wholly-owned
subsidiary of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolio, BIMC manages the Portfolio and
is responsible for all purchases and sales of portfolio securities. 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 Fund, subject to the
requirements of best execution.
For the services provided to and expenses assumed by it for the benefit
of the Portfolio, BIMC is entitled to receive from the Portfolio a fee, computed
daily and payable monthly, at an annual rate of .35% of the first $250 million
of the Portfolio's average daily net assets, .30% of the next $250 million of
the Portfolio's average daily net assets and .25% of the average daily net
assets of the Portfolio in excess of $500 million. BIMC may in its discretion
from time to time agree to waive voluntarily all or any portion of its advisory
fee for the Portfolio.
For the Fund's fiscal year ended August 31, 1998, the Fund paid
investment advisory fees aggregating .08% of the average net assets of the
Portfolio. For that same year, BIMC waived approximately .26% of investment
advisory fees payable to it with respect to the Portfolio.
PNC Bank was formerly sub-adviser to the Portfolio and provided
research, credit analysis and recommendations with respect to the Portfolio's
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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 serves as the administrator for the Municipal Money Market
Portfolio and generally assists the Portfolio in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at a rate of .10% of the average daily net
assets of the Portfolio. PFPC's principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND CUSTODIAN
PNC Bank serves as the Fund's custodian and PFPC, an indirect wholly
owned subsidiary of PNC Bank Corp., serves as the Fund's transfer agent and
dividend disbursing agent. PFPC may enter into shareholder servicing agreements
with registered broker/dealers who have entered into dealer agreements with the
Distributor for the provision of certain shareholder support services to
customers of such broker/dealers who are shareholders of the Portfolio. The
services provided and the fees payable by the Fund for these services are
described in the Statement of Additional Information under "Investment Advisory,
Distribution and Servicing Arrangements."
DISTRIBUTOR
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as Distributor of
the Shares pursuant to a distribution agreement dated May 29, 1998 (the
"Distribution Agreement").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will be allocated among all investment portfolios of the Fund based
on the relative net assets of the investment portfolios at the time such
expenses were accrued. The Bedford Classes of the Fund pay their own
distribution fees, and may pay a different share than other classes of the Fund
- 19 -
<PAGE>
of other expenses (excluding advisory and custodial fees if these expenses are
actually incurred in a different amount by the Bedford Classes or if they
receive different services.
The investment adviser may assume additional expenses of the Portfolio
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolio for such amounts prior to the
end of a fiscal year. In such event, reimbursement of such amounts will have the
effect of increasing the Portfolio's expense ratio and of lowering yield to
investors.
For the fiscal year ended August 31, 1998, total expenses were 1.15%
of average net assets with respect to the Bedford Class of the Municipal Money
Market Portfolio (not taking into account waivers of .26%).
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plan of Distribution for the Class (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the
Distributor is entitled to receive from the Class a distribution fee, which is
accrued daily and paid monthly, of up to .65% on an annualized basis of the
average daily net assets of the Class. The actual amount of such compensation is
agreed upon from time to time by the Fund's Board of Directors and the
Distributor. Under the Distribution Agreement, the Distributor has agreed to
accept compensation for its services thereunder and under the Plan in the amount
of .60% of the average daily net assets of the Class on an annualized basis in
any year. Such compensation may be increased, up to the amount permitted in the
Plan, with the approval of the Fund's Board of Directors. Pursuant to the
conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to the
Class on any day to the extent necessary to assure that the fee required to be
accrued by such Class does not exceed the income of such Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
Under the Distribution Agreement and the Plan, the Distributor may
reallocate an amount up to the full fee that it receives to Dealers based upon
the aggregate investment amounts maintained by and services provided to
shareholders of the Class serviced by such Dealers. The Distributor may also
reimburse Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or Dealers pay for the cost of printing
(excluding typesetting) and mailing to prospective investors prospectuses and
other materials relating to the Fund as well as for related direct mail,
advertising and promotional expenses.
The Plan obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of the Class the fee agreed to under
the Distribution Agreement. Payments under the Plan are not based on expenses
actually incurred by the Distributor, and the payments may exceed distribution
expenses actually incurred.
- 20 -
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Municipal Money Market Portfolio
to the Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares unless a shareholder elects otherwise.
The net investment income (not including any net short-term capital
gains) earned by the Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of net asset value made as of the close of regular
trading on the NYSE. Net short-term capital gains, if any, will be distributed
at least annually.
TAXES
- --------------------------------------------------------------------------------
Distributions from the Municipal Money Market Portfolio will generally
constitute tax-exempt income for shareholders for federal income tax purposes.
It is possible, depending upon the Portfolio's investments, that a portion of
the Portfolio's distributions could be taxable to shareholders as ordinary
income or capital gains, but it is not expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio are
exempt for federal income tax purposes, they will generally constitute taxable
income for state and local income tax purposes except that, subject to
limitations that vary depending on the state, distributions from interest paid
by a state or municipal entity may be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio generally will not be deductible
for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by
the Municipal Money Market Portfolio may constitute an item of tax preference
for purposes of determining federal alternative minimum tax liability.
Exempt-interest dividends will also be considered along with other adjusted
gross income in determining whether any Social Security or railroad retirement
payments received by you are subject to federal income taxes.
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.
- 21 -
<PAGE>
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 the Municipal Money
Market Portfolio to expand its marketing alternatives and to broaden its range
of services to different investors. The expenses of the various classes within
these Portfolios vary based upon the services provided, which may affect
performance. Each class of common stock of the Fund has a separate Rule 12b-1
distribution plan. Under the Distribution Agreement and pursuant to each of the
distribution plans, the Distributor is entitled to receive from each class as
compensation for distribution services provided to that class a distribution fee
based on average daily net assets. A salesperson or any other person entitled to
receive compensation for servicing Fund shares may receive different
compensation with respect to different classes in a Portfolio of the Fund. An
investor may contact the Fund's distributor by calling 1-800-888-9723 to request
more information concerning other classes available.
- 22 -
<PAGE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE BEDFORD CLASS OF THE MUNICIPAL MONEY
MARKET PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO SUCH CLASS OF THIS
PORTFOLIO.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to the Portfolio with each other
share that represents an interest in the Portfolio, even where a share has a
different class designation than another share representing an interest in the
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares will be fully paid
and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of the Portfolio will vote in the aggregate and not
by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of common stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
the Fund.
- 24 -
<PAGE>
OTHER INFORMATION
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call collect
(302) 791-1196).
<PAGE>
<TABLE>
<S> <C>
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 BEDFORD
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH GOVERNMENT
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS OBLIGATIONS
HAVING BEEN AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS MONEY MARKET
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY PORTFOLIO
THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
Prospectus
- --------------------------------------------------------------
CONTENTS
Page
INTRODUCTION........................................ 3
FINANCIAL HIGHLIGHTS................................ 5
INVESTMENT OBJECTIVE AND POLICIES................... 7
YEAR 2000........................................... 9
INVESTMENT LIMITATIONS.............................. 9
PURCHASE AND REDEMPTION OF SHARES...................10
NET ASSET VALUE.....................................15
MANAGEMENT..........................................15
DISTRIBUTION OF SHARES..............................17
DIVIDENDS AND DISTRIBUTIONS.........................18
TAXES...............................................18
DESCRIPTION OF SHARES...............................19
OTHER INFORMATION...................................20
Investment Adviser December 29, 1998
BlackRock Institutional Management Corporation
Wilmington, Delaware
</TABLE>
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
- ------------------------------------------------
<PAGE>
BEDFORD
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
of
The RBB Fund, Inc.
The investment objective of the Government Obligations Money Market
Portfolio is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. The Government
Obligations Money Market Portfolio seeks to achieve such objective by investing
in short-term U.S. Treasury bills and notes and other obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and
entering into repurchase agreements relating to such obligations. The Bedford
shares of the Government Obligations Money Market Portfolio (the "Government
Obligations Money Market Portfolio" or the "Portfolio") are a class of shares of
common stock of The RBB Fund, Inc. (the "Fund"), an open-end management
investment company. Shares of the Class are offered by this Prospectus and
represent interests in the Portfolio.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. There can be no
assurance that the Portfolio will be able to maintain a stable not asset value
of $1.00 per share.
BlackRock Institutional Management Corporation serves as investment
adviser for the Portfolio, PNC Bank, National Association serves as custodian
for the Fund, and PFPC Inc. serves as administrator and transfer and dividend
disbursing agent for the Fund. Provident Distributors, Inc. acts as distributor
for the Fund.
This Prospectus contains concise information that a prospective
investor needs to know before investing. Please keep it for future reference. A
Statement of Additional Information, dated December 29, 1998, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
this Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the
Internet Website (http://www.sec.gov).
<PAGE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
-2-
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen separate
investment portfolios. The shares ("Shares") offered by this Prospectus are a
class ("Class") of the shares of common stock of the Fund and represent
interests in the Fund's Government Obligations Money Market Portfolio.
The investment objective of the Portfolio is to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. To achieve its objective, the Portfolio invests
exclusively in short-term U.S. Treasury bills and notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
The Portfolio seeks to maintain a net asset value of $1.00 per share;
however, there can be no assurance that the Portfolio will be able to maintain a
stable net asset value of $1.00 per share.
The Portfolio's investment adviser is BlackRock Institutional
Management Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank")
serves as custodian for the Fund and PFPC Inc. ("PFPC") serves as administrator
and transfer and dividend disbursing agent for the Fund. Provident Distributors,
Inc. (the "Distributor") acts as distributor of the Fund's shares.
An investor may purchase and redeem Shares through his broker or by
direct purchases or redemptions. See "Purchase and Redemption of Shares."
An investment in the Portfolio is subject to certain risks, as set
forth in detail under "Investment Objective and Policies." The Portfolio, to the
extent set forth under "Investment Objective and Policies," may engage in the
following investment practices among others: the use of repurchase agreements
and reverse repurchase agreements, the purchase of mortgage-related securities
and the lending of securities. All of these transactions involve certain special
risks, as set forth under "Investment Objective and Policies."
FEE TABLE
The Fee Table below contains a summary of annual fund operating
expenses incurred by the Government Obligations Money Market Portfolio during
the fiscal year ended August 31, 1998 as a percentage of average daily net
assets. An example based on the summary is also provided.
-3-
<PAGE>
Annual Fund Operating Expenses (Bedford Class)
as a percentage of average daily net assets
Management Fees (after waivers)(1) .30%
12b-1 Fees(1) .57%
Other Expenses(1) .105%
Total Fund Operating Expenses
(Bedford Class) (after waivers)(1) .975%
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the
Government Obligations Money Market Portfolio, Management Fees would be
.42% and Total Fund Operating Expenses would be 1.10%.
Example
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and(2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Government Obligations
Money Market Portfolio*
(Bedford Class) $10 $31 $54 $120
* Other classes of this Portfolio are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses (Bedford Class)" remain the same in the years shown. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Bedford 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 a Portfolio, such assumption will have the effect of lowering such
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time, the Class advertises its "total return", "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to
-4-
<PAGE>
indicate future performance. The "yield" of the Class refers to the income
generated by an investment in the Class over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Class is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares will fluctuate and is not necessarily
representative of future results. Any fees charged by broker/dealers directly to
their customers in connection with investments in the Class are not reflected in
the total return and yield of Shares, and such fees, if charged, will reduce the
actual return received by shareholders on their investments. The total return
and yield on Shares of the Class may differ from the total return and yields on
shares of other classes of the Fund that also represent interests in the
Portfolio depending on the allocation of expenses to each class of the
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the
investment results of the Bedford Class of the Government Obligations Money
Market Portfolio for the periods indicated. The financial data included in this
table for each of the periods ended August 31, 1994 through August 31, 1998 are
part of the Fund's financial statements for the Portfolio, which have been
incorporated by reference into the Statement of Additional Information and have
been audited by PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the
Fund's independent accountants. The financial data for the Portfolio for the
periods ended August 31, 1989, 1990, 1991, 1992 and 1993 are part of previous
financial statements audited by PricewaterhouseCoopers. The financial data
should be read in conjunction with the financial statements and notes thereto.
Further information about the performance of the Portfolio is available in the
Annual Report to Shareholders. Both the Statement of Additional Information and
the Annual Report to Shareholders may be obtained free of charge by calling the
telephone number on page 1 of this Prospectus.
-5-
<PAGE>
Bedford Class of the Government Obligations Money Market Portfolio
The RBB Fund Inc. Financial Highlights (c)
(for a Share Outstanding Throughout each Period)
<TABLE>
<CAPTION>
Government Obligations Money Market Portfolio
---------------------------------------------------------------------------------------------------------
For the For the For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31, August 31, August 31,
1998 1997 1996 1995 1994 1993 1992 1991
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- ------- ------- ------- -------
Income from investment
Operations:
Net investment income..... 0.0463 0.0449 0.0458 0.0475 0.0270 0.0231 0.0375 0.0604
Net gains on
securities both realized
Unrealized)........... -- -- -- -- -- -- 0.0009 --
------ ------- ------- ------- ------- ------- ------- -------
Total from
investment operations. 0.0463 0.0449 0.0458 0.0475 0.0270 0.0231 0.0384 0.0604
------ ------- ------- ------- ------- ------- ------- -------
<CAPTION>
---------------------------------
For the Period
September 30,
For the 1988
Year Ended (Commencement
August 31, of Operations)
1990 to
August 31, 1989
---------------------------------
<S> <C> <C>
Net asset value,
beginning of period............... $ 1.00 $ 1.00
------- -------
Income from investment
Operations:
Net investment income............. 0.0748 0.0725
Net gains on
securities both realized
and Unrealized)............... -- --
------- -------
Total from investment
operations........................ 0.0748 0.0725
------- -------
</TABLE>
-6-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Less distributions
Dividends (from net
investment income).... (0.0463) (0.0449) (0.0458) (0.0475) (0.0270) (0.0231) (0.0375) (0.0604)
Distributions (from
capital gains)........ -- -- -- -- -- -- (0.0009) --
-------- -------- -------- --------- --------- -------- ------- -------
Total distributions..... (0.0463) (0.0449) (0.0458) (0.0475) (0.0270) (0.0231) (0.0384) (0.0604)
-------- -------- -------- --------- --------- -------- ------- -------
Net asset value, end of
period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========= ========= ======== ======= ========
Total return.............. 4.74% 4.59% 4.68% 4.86% 2.73% 2.33% 3.91% 6.21%
Ratios/Supplemental Data
Net Assets, end of
period (000)............ $128,447 $209,715 $192,599 $163,398 $166,418 $213,741 225,101 $368,899
Ratios of expenses to
average net assets...... .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .95%(a)
Ratios of net investment
income to average
net assets.............. 4.63% 4.49% 4.58% 4.75% 2.70% 2.31% 3.75% 6.04%
</TABLE>
<TABLE>
<S> <C> <C>
Less distributions
Dividends (from net
investment income)............ (0.0748) (0.0725)
Distributions (from
capital gains)................ --
-------- -------
Total distributions............. (0.0748) (0.0725)
-------- --------
Net asset value, end of
period.......................... $ 1.00 $ 1.00
======== =======
Total return...................... 7.74% 8.64%(b)
Ratios/Supplemental Data
Net Assets, end of
period (000).................... $209,378 $66,281
Ratios of expenses to
average net assets.............. .95%(a) .96%(a)(b)
Ratios of net investment
income to average
net assets...................... 7.48% 8.34%(b)
</TABLE>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net
assets for the Government Obligations Money Market Portfolio would have
been 1.10%, 1.09%, 1.10%, 1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17%
for the years ended August 31, 1998, 1997, 1996, 1995, 1994, 1993,
1992, 1991 and 1990, respectively, and 1.40% annualized for the period
ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares of the
Government Obligations Money Market Portfolio.
-7-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal. There is no assurance that the investment objective of the Government
Obligations Money Market Portfolio will be achieved.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns Shares representing interests in the Portfolio. Certain government
securities held by the Portfolio may have remaining maturities exceeding 397
days if such securities provide for adjustments in their interest rates not less
frequently than every 397 days and the adjustments are sufficient to cause the
securities to have market values, after adjustment, which approximate their par
values.
Repurchase Agreements. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 13 months, provided the repurchase agreement itself matures in less
than 13 months. Default by or bankruptcy of the seller would, however, expose
the Portfolio to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations.
Reverse Repurchase Agreements. The Portfolio may borrow funds by
entering into reverse repurchase agreements in accordance with the investment
restrictions described below. A reverse repurchase agreement involves a sale by
a portfolio of securities that it holds concurrently with an agreement by the
Portfolio to repurchase them at an agreed upon time and price. Reverse
repurchase agreements involve the risk that the market value of the portfolio
securities sold by the Portfolio may decline below the price at which
-8-
<PAGE>
the Portfolio is obligated to repurchase them. The Portfolio would consider
entering into reverse repurchase agreements to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
Mortgage-Related Securities. Mortgage-related securities consist of
mortgage loans, which are assembled into pools, the interests on which are
issued and guaranteed by an agency or instrumentality of the U.S. Government,
though not necessarily by the U.S. Government itself.
Asset-Backed Securities. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and, instrumentalities
or issued by private companies. Asset-backed securities also include adjustable
rate securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. For this
and other reasons, an asset-backed security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
Lending of Securities. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days and other securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
deemed illiquid for purposes of this limitation. The Portfolio's investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. See "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
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<PAGE>
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Portfolio's investment objective and policies described above may
be changed by the Fund's Board of Directors without shareholder approval. The
investment limitations summarized below may not be changed, however, without
shareholder approval. (A more detailed description of the following investment
limitations is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes
and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations.
2. Borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an amount not
exceeding 10% of the value of the Portfolio's total assets, and only
if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate
its assets except in connection with any such borrowing and in amounts
not in excess of 10% of the value of the Portfolio's assets at the
time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and
may lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the
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<PAGE>
securities loaned. There is no investment restriction on the amount of
securities that may be loaned, except that payments received on such
loans, including amounts received during the loan on account of
interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under federal income tax provisions applicable to regulated investment
companies.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Purchase Procedures
General. Shares are sold without a sales load on a continuous basis by
the Distributor. The Distributor is located at Four Falls Corporate Center,
Conshohocken, Pennsylvania 19428. Investors may purchase Shares through an
account maintained by the investor with his brokerage firm (an "Account") and
may also purchase Shares directly by mail or wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which payment has been converted into Federal Funds by 12:00
noon Eastern Time, will be executed as of 12:00 noon that Business Day. Orders
which are accompanied by Federal Funds and received by PFPC after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
Purchases through an Account. Purchases of Shares may be effected
through an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Shares will be recorded by the broker and will be
reflected in the Account statements provided by the broker to such investors. A
broker may impose minimum investment Account requirements. Even if a broker does
not impose a sales charge for purchases of Shares, depending on the terms of an
investor's Account with his broker, the broker may charge investors Account fees
for automatic
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<PAGE>
investment and other services provided to the Account. Information concerning
Account requirements, services and charges should be obtained from an investor's
broker, and this Prospectus should be read in conjunction with any information
received from a broker.
Shareholders whose shares are held in the street name account of a
broker and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability to
purchase Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares. The frequency of investments and the minimum
investment requirement will be established by the broker and the Fund. In
addition, the broker may require a minimum amount of cash and/or securities to
be deposited in an Account for participants in its Purchase Program. The
description of the particular broker's Purchase Program should be read for
details, and any inquiries concerning an Account under a Purchase Program should
be directed to the broker.
If a broker makes special arrangements under which orders for Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the broker guarantees
that payment for such Shares will be made in available Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, on the same
day, such purchase orders will be effective and Shares will be purchased at the
offering price in effect as of 12:00 noon Eastern Time on the date the purchase
order is received by PFPC.
Direct Purchases. An investor may also make direct investments in
Shares at any time through any broker that has entered into a dealer agreement
with the Distributor (a "Dealer"). An investor may make an initial investment by
mail by fully completing and signing an application obtained from a Dealer (an
"Application") and mailing it, together with a check payable to "Bedford
Government Obligations Money Market" to Bedford Government Obligations Money
Market Portfolio, c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. An
Application will be returned to the investor unless it contains the name of the
Dealer from whom it was obtained. Subsequent purchases may be made through a
Dealer or by forwarding payment to the Fund's transfer agent at the foregoing
address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares by having his bank or Dealer wire Federal Funds to the Fund's
custodian, PNC Bank. An investor's bank or Dealer may impose a charge for this
service. The Fund does not currently charge for effecting wire transfers but
reserves the right to do so in the future. In order to ensure prompt receipt of
an investor's Federal Funds wire for an initial investment, it is important that
an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 533-7719
(in Delaware call collect (302) 791-1196), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the amount being
wired, and by which bank or Dealer. PFPC will then provide an investor with a
Fund account number. (Investors with existing accounts should also notify PFPC
prior to wiring funds.)
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<PAGE>
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the custodian:
PNC Bank, N.A., Philadelphia, PA
ABA-0310-0005-3
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the
Portfolio)
FOR PURCHASE OF: (name of Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a fully
completed and signed Application.
For subsequent investments, an investor should follow steps A and B
above.
Retirement Plans. Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
Redemption Procedures
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
Redemption of Shares In an Account. An investor who beneficially owns
Shares through an Account may redeem Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting his broker.
If such notice is received by PFPC by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds will be made after 12:00 noon Eastern Time on
the day the redemption is effected, provided that the Fund's custodian is open
for business. If the custodian is not open, payment will be made on the next
bank business day. If the redemption request is received between 12:00 noon and
the close of regular trading of the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading of the NYSE on such Business Day
and payment will be made on the next bank business day following receipt of the
redemption request. If all Shares are redeemed, all accrued but unpaid dividends
on those Shares will be paid with the redemption proceeds.
An investor's brokerage firm may also redeem each day a sufficient
number of Shares to cover debit balances created by transactions in the Account
or instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
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<PAGE>
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written request, to Bedford Government Obligations
Money Market, c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. Redemption
requests must be signed by each shareholder in the same manner as the Shares are
registered. Redemption requests for joint accounts require the signature of each
joint owner. On redemption requests of $5,000 or more, each signature must be
guaranteed. A signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency or savings association who are
participants in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are Securities Transfer
Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Exchange, Inc. Medallion Signature Program (MSP). Signature guarantees
that are not part of these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Portfolio, the
Distributor, PFPC nor any other Fund agent will be liable for any loss,
liability, cost or expense for following the procedures described below or for
following instructions communicated by telephone that they reasonably believe to
be genuine.
The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
Proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form that such proceeds are to be sent by wire transfer
to a specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading of the NYSE will result in redemption proceeds being wired to the
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<PAGE>
investor's bank account on the next bank business day. The minimum redemption
for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Fund may modify this redemption service at any time
or charge a service fee upon prior notice to shareholders, although no fee is
currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cashed at other banks.
Additional Redemption Information. The Fund ordinarily will make
payment for all Shares redeemed within seven days after receipt by PFPC of a
redemption request in proper form. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed for a period of up to fifteen days after their purchase, pending
a determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in the Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such 30-day notice period
the amount invested in such account is not increased to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class of the Portfolio for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday, with the
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<PAGE>
exception of those holidays on which either the NYSE or the FRB is closed.
Currently, the NYSE is closed on weekends and the customary national business
holidays of New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday. The FRB is currently closed on weekends
and the same holidays on which the NYSE is closed, as well as Veterans' Day and
Columbus Day. The net asset value per share of each class is calculated by
adding the value of the proportionate interest of the class in the securities,
cash and other assets of the Portfolio, subtracting the actual and accrued
liabilities of such class and dividing the result by the number of outstanding
shares of the class. The net asset value per share of each class of the
Portfolio is determined independently of any of the Fund's other classes.
The Fund seeks to maintain for the Portfolio a net asset value of $1.00
per share for purposes of purchases and redemptions and values its portfolio
securities on the basis of the amortized cost method of valuation described in
the Statement of Additional Information under the heading "Valuation of Shares."
There can be no assurance that net asset value per share will not vary.
With the approval of the Board of Directors, the Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
Board of Directors
The business and affairs of the Fund and 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 Government Obligations
Money Market Portfolio is one of these portfolios.
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. PNC
Bank and its subsidiaries currently manage over $45.9 billion of assets, of
which approximately $31.4 billion are mutual funds. PNC Bank, a national bank
whose principal business address is 1600 Market Street, Philadelphia,
Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp Inc. PNC
Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary of PNC
Bank Corp., a multi-bank holding company.
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<PAGE>
As investment adviser to the Portfolio, BIMC manages the Portfolio and
is responsible for all purchases and sales of portfolio securities. In entering
into transactions for the Portfolio with a broker, BIMC may take into account
the sale by such broker of shares of the Fund, subject to the requirements of
best execution. The agreement between BIMC and RBB with respect to the
Government Obligations Money Market Portfolio provides for BIMC to also assist
generally in supervising the operations of such Portfolio, and to maintain the
Portfolio's financial account and records. These administrative responsibilities
have been delegated to PFPC, as 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. BIMC may in its discretion from time to time agree to
waive voluntarily all or any portion of its advisory fee for the Portfolio.
For the Fund's fiscal year ended August 31, 1998 the Fund paid
investment advisory fees aggregating .30% of the average net assets of the
Portfolio. For that same year, BIMC waived approximately .12% of the advisory
fees payable with respect to the Portfolio.
PNC Bank was formerly sub-adviser to the 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. Such 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
Pursuant to its advisory agreement with the Fund with respect to the
Government Obligations Portfolio, BIMC provides administrative services to the
Portfolio, and is entitled to an administration fee, computed daily and payable
monthly at .10% of average daily net assets of the Portfolio. BIMC has delegated
to PFPC all of its accounting and
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<PAGE>
administrative obligations under such advisory agreement. The Fund has agreed to
pay directly to PFPC the fees for accounting and administrative services to the
Government Obligations Portfolio which PFPC would have received directly from
BIMC. Such arrangement has no effect on the total advisory and administrative
fees payable by such Portfolio to BIMC. PFPC's principal business address is 400
Bellevue Parkway, Wilmington, Delaware 19809.
Transfer Agent, Dividend Disbursing Agent and Custodian
PNC Bank also serves as the Fund's custodian and PFPC, an indirect
wholly-owned subsidiary of PNC Bank Corp., serves as the Fund's transfer agent
and dividend disbursing agent. PFPC may enter into shareholder servicing
agreements with registered dealers who have entered into dealer agreements with
the Distributor for the provision of certain shareholder support services to
customers of such dealers who are shareholders of the Portfolio. The services
provided and the fees payable by the Fund for these services are described in
the Statement of 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 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 Bedford Class of
the Fund pays its own distribution fees, and may pay a different share than
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if these expenses are actually incurred in a different amount by the
Bedford Class or if it received different services.
The investment adviser may assume expenses of the Portfolio from time
to time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolio for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing the Portfolio's expense ratio and of lowering yield to
investors.
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<PAGE>
For the Fund's fiscal year ended August 31, 1998, the Fund's total
expenses were 1.10% of average net assets with respect to the Bedford Class of
the Portfolio (not taking into account waivers and reimbursements of .125%).
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plan of Distribution for the Class (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the
Distributor is entitled to receive from the Class a distribution fee, which is
accrued daily and paid monthly, of up to .65% on an annualized basis of the
average daily net assets of the Class. Under the Distribution Agreement, the
Distributor has agreed to accept compensation for its services thereunder and
under the Plan in the amount of .60% of the average daily net assets of the
Class on an annualized basis in any year. The actual amount of such compensation
is agreed upon from time to time by the Fund's Board of Directors and the
Distributor. Pursuant to the conditions of an exemptive order granted by the
Securities and Exchange Commission, the Distributor has agreed to waive its fee
with respect to the Class on any day to the extent necessary to assure that the
fee required to be accrued by such Class does not exceed the income of such
Class on that day. In addition, the Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee.
Under the Distribution Agreement and the Plan, the Distributor may
reallocate an amount up to the full fee that it receives to financial
institutions, including Dealers, based upon the aggregate investment amounts
maintained by and services provided to shareholders of the Class serviced by
such financial institutions. The Distributor may also reimburse Dealers for
other expenses incurred in the promotion of the sale of Fund shares. The
Distributor and/or Dealers pay for the cost of printing (excluding typesetting)
and mailing to prospective investors prospectuses and other materials relating
to the Fund as well as for related direct mail, advertising and promotional
expenses.
The Plan obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of the Class the fee agreed to under
the Distribution Agreement. Payments under the Plan are not based on expenses
actually incurred by the Distributor and the payments may exceed distribution
expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Portfolio to the Portfolio's
shareholders. All distributions are reinvested in the form of additional full
and fractional Shares unless a shareholder elects otherwise.
The net investment income (not including any net short-term capital
gains) earned by the Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of net asset value made as of the close of regular
trading on the NYSE. Net short-term capital gains, if any, will be distributed
at least annually.
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TAXES
- --------------------------------------------------------------------------------
Distributions from the Government Obligations 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 the Portfolio to expand
its marketing alternatives and to broaden its range of services to different
investors. The expenses of the various classes within this Portfolio vary based
upon the services provided, which may affect performance. Each class of Common
Stock of the Fund has a separate Rule 12b-1 distribution plan. Under the
Distribution Agreements entered into with the Distributor and pursuant to each
of the distribution plans, the Distributor is entitled to receive from each
class as compensation for distribution services provided to that class a
distribution fee based on average daily net assets. A salesperson or any other
person entitled to receive compensation for servicing Fund shares may receive
different compensation with respect to different classes in a Portfolio of the
Fund. An investor may contact the Fund's Distributor by calling 1-800-888-9723
to request more information concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE BEDFORD CLASS OF THE GOVERNMENT
OBLIGATIONS MONEY MARKET PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THIS
PORTFOLIO.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to the Portfolio with each other
share that represents an interest in the Portfolio, even where a share has a
different class designation than another share representing an interest in the
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
-20-
<PAGE>
Holders of shares of the Portfolio will vote in the aggregate and not
by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
the Fund.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call collect
(302) 791-1196).
-21-
<PAGE>
================================================================================
PROSPECTUS
THE BEDFORD FAMILY
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
DECEMBER 29, 1998
================================================================================
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
------------------------------
CONTENTS
PAGE
INTRODUCTION........................................... 3
FINANCIAL HIGHLIGHTS................................... 6
INVESTMENT OBJECTIVES AND POLICIES.....................10
YEAR 2000..............................................16
INVESTMENT LIMITATIONS.................................17
PURCHASE AND REDEMPTION OF SHARES......................19
NET ASSET VALUE........................................24
MANAGEMENT.............................................24
DISTRIBUTION OF SHARES.................................27
DIVIDENDS AND DISTRIBUTIONS............................28
TAXES..................................................28
DESCRIPTION OF SHARES..................................29
OTHER INFORMATION......................................30
INVESTMENT ADVISER
BlackRock Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
================================================================================
<PAGE>
THE BEDFORD FAMILY
OF
THE RBB FUND, INC.
The three classes of common stock (each, a "Bedford Class") of The RBB
Fund, Inc. (the "Fund"), an open-end management investment company, offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio and a U.S. Government obligations money market
portfolio (together, the "Portfolios"). The investment objectives of each
investment portfolio described in this Prospectus are as follows:
MONEY MARKET PORTFOLIO -- to provide as high a level of current
interest income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
MUNICIPAL MONEY MARKET PORTFOLIO -- to provide as high a level of
current interest income exempt from federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular federal
income tax but which may constitute an item of tax preference for purposes of
the federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO -- to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in
short-term U.S. Treasury bills, notes and other obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, AT ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
BlackRock Institutional Management Corporation serves as investment
adviser for the Portfolios, PNC Bank, National Association serves as custodian
for the Fund and PFPC Inc. serves as administrator and transfer and dividend
disbursing agent for the Fund. Provident Distributors, Inc. acts as distributor
for the Fund.
This Prospectus contains concise information that a prospective
investor needs to know before investing. Please keep it for future reference. A
Statement of Additional Information, dated December 29, 1998, has been filed
with
<PAGE>
the Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the SEC
Internet Website (http://www.sec.gov).
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS DECEMBER 29, 1998
- 2 -
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen separate
investment portfolios. Each of the three classes of the Fund's shares
(collectively, the "Bedford Shares" or "Shares") offered by this Prospectus
represents interests in one of the following of such investment portfolios: the
Money Market Portfolio, the Municipal Money Market Portfolio and the Government
Obligations Money Market Portfolio.
The MONEY MARKET PORTFOLIO'S investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets.
The MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular federal income tax but which may
constitute an item of tax preference for purposes of the federal alternative
minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and enters into repurchase agreements relating to
such obligations.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
The Portfolios' investment adviser is BlackRock Institutional
Management Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank")
serves as custodian to the Fund and PFPC Inc. ("PFPC") serves as the
administrator and the transfer and dividend disbursing agent to the Fund.
Provident Distributors, Inc. (the "Distributor") acts as distributor of the
Fund's Shares.
An investor may purchase and redeem Shares of any of the Bedford
Classes through his broker or by direct purchases or redemptions. See "Purchase
and Redemption of Shares."
- 3 -
<PAGE>
An investment in any of the Bedford Shares is subject to certain risks,
as set forth in detail under "Investment Objectives and Policies." Any or all of
the Portfolios, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase of
mortgage-related securities, the purchase of securities on a "when-issued" or
"forward commitment" basis, the purchase of stand-by commitments and the lending
of securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (BEDFORD CLASSES)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
The Fee Table below contains a summary of the annual operating expenses
of the Bedford Classes of the Portfolios based on expenses incurred for the
fiscal year ended August 31, 1998, as a percentage of average daily net assets.
An example based on the summary is also shown.
<TABLE>
<S> <C> <C> <C>
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
Management Fees (after waivers)(1)................. .24% .08% .30%
12b-1 Fees ........................................ .54 .58 .57
Other Expenses .................................... .19 .23 .105
---- ---- ----
Total Fund Operating Expenses (Bedford Classes)
(after waivers)(1)............................... .97% .89% .975%
==== ==== =====
</TABLE>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio and Government
Obligations Money Market Portfolio, Management Fees would be .37%, .34%
and .42%, respectively, and Total Fund Operating Expenses would be
1.10%, 1.15% and 1.10%, respectively.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market*.............................................. $10 $31 $54 $119
Municipal Money Market*.................................... $ 9 $28 $49 $110
Government Obligations Money Market*....................... $10 $31 $54 $120
</TABLE>
*Other classes of these Portfolios are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
- 4 -
<PAGE>
Operating Expenses (Bedford Classes)" remain the same in the years shown. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Long-term Shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Bedford Classes of the Fund
will bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management -- Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on actual costs and fees charged to
each class. The Fee Table reflects a voluntary waiver of Management Fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management Fees will not vary from the figures reflected in the Fee Table. To
the extent that any service providers assume additional expenses of the
Portfolios, such assumption will have the effect of lowering a Portfolio's
overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield"
and "effective yield." TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The Municipal Money Market Portfolio's "tax-equivalent yield" may
also be quoted from time to time, which shows the level of taxable yield needed
to produce an after-tax equivalent to such Portfolio's tax-free yield. This is
done by increasing such Portfolio's yield (calculated as above) by the amount
necessary to reflect the payment of federal income tax at a stated tax rate.
The total returns yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total returns yield on Shares of any of the Bedford Classes will fluctuate and
is not necessarily representative of future results. Any fees charged by
broker/dealers directly to their customers in connection with investments in
Bedford Shares are not reflected in the total returns yield of Shares of the
Bedford Classes, and such fees, if charged, will reduce the actual return
received by shareholders on their investments. The total returns yield on Shares
of the Bedford Classes may differ from total returns yield on shares of other
classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
- 5 -
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the
investment results of the Bedford Classes representing interests in the Money
Market, Municipal Money Market and Government Obligations Money Market
Portfolios for the periods indicated. The financial data included in this table
for each of the periods ended August 31, 1994 through August 31, 1998 are a part
of the Fund's financial statements for each of the Portfolios, which are
incorporated by reference into the Statement of Additional Information and have
been audited by PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the
Fund's independent accountants. The financial data for each of the Portfolios
for the periods ended August 31, 1989, 1990, 1991, 1992 and 1993 are a part of
previous financial statements audited by PricewaterhouseCoopers. The financial
data should be read in conjunction with the financial statements and notes
thereto. Further information about the performance of the Portfolios is
available in the Annual Report to Shareholders. Both the Statement of Additional
Information and the Annual Report to Shareholders may be obtained free of charge
by calling the telephone number on page 1 of this Prospectus.
- 6 -
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (C)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
MONEY MARKET PORTFOLIO
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ---------- ---------- -------- -------- --------
Income from investment operations:
Net investment income.......... 0.0473 0.0462 0.0469 0.0486 0.0278 0.0243
Net gains on securities (both
realized and unrealized)..... -- -- -- -- -- --
------ ---------- ---------- -------- -------- --------
Total from investment
operations............... 0.0473 0.0462 0.0469 0.0486 0.0278 0.0243
------ ------ ------ ------ ------ ------
Less distributions
Dividends (from net investment
income)...................... (0.0473) (0.0462) (0.0469) (0.0486) (0.0278) (0.0243)
Distributions (from capital
gains)....................... -- -- -- -- -- --
------ ---------- ---------- -------- -------- --------
Total distributions........ (0.0473) (0.0462) (0.0469) (0.0486) (0.0278) (0.0243)
------ ------- ------- ------ ------ ------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ========== ========== ======== ======== ========
Total return..................... 4.84% 4.72% 4.79% 4.97% 2.81% 2.46%
Ratios/Supplemental Data
Net assets, end of period (000) $762,739 $1,392,911 $1,109,334 $935,821 $710,737 $782,153
Ratios of expenses to average
net assets................... .97%(a) .97%(a) .97%(a) .96%(a) .95%(a) .95%(a)
Ratios of net investment income to
average net assets........... 4.73% 4.62% 4.69% 4.86% 2.78% 2.43%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS)
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------
Net asset value,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- --------- ---------
Income from investment operations:
Net investment income.......... 0.0375 0.0629 0.0765 0.0779
Net gains on securities (both
realized and unrealized)..... 0.0007 -- -- --
-------- -------- ---------- ----------
Total from investment
operations............... 0.0382 0.0629 0.0765 0.0779
------ ------ ------- -------
Less distributions
Dividends (from net investment
income)...................... (0.0375) (0.0629) (0.0765) (0.0779)
Distributions (from capital
gains)....................... (0.0007) -- -- --
-------- -------- ---------- ----------
Total distributions........ (0.0382) (0.0629) (0.0765) (0.0779)
------ ------ ------- -------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========= =========
Total return..................... 3.89% 6.48% 7.92% 8.81%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $736,842 $747,530 $709,757 $152,311
Ratios of expenses to average
net assets................... .95%(a) .92%(a) .92%(a) .93%(a)(b)
Ratios of net investment income to
average net assets........... 3.75% 6.29% 7.65% 8.61%(b)
</TABLE>
(a) Without the waiver of advisory and administration fees, and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been
1.10%, 1.12%, 1.14%, 1.17%, 1.16%, 1.19%, 1.20%, 1.17% and 1.16% for
the years ended August 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992,
1991 and 1990, respectively, and 1.27% annualized for the period ended
August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within the
Portfolio.
- 7 -
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (C)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income.......... 0.0286 0.0285 0.0288 0.0297 0.0195 0.0195
Net gains on securities (both
realized and unrealized)..... -- -- -- -- -- --
------- -------- -------- -------- -------- --------
Total from investment
operations............... 0.0286 0.0285 0.0288 0.0297 0.0195 0.0195
------- ------ ------ ------ ------ ------
Less distributions
Dividends (from net investment
income)...................... (0.0286) (0.0285) (0.0288) (0.0297) (0.0195) (0.0195)
Distributions (from capital
gains)....................... -- -- -- -- -- --
------- -------- -------- -------- -------- --------
Total distributions........ (0.0286) (0.0285) (0.0288) (0.0297) (0.0195) (0.0195)
------- ------- ------- ------ ------ ------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======== ========
Total return..................... 2.97% 2.88% 2.92% 3.01% 1.97% 1.96%
Ratios/Supplemental Data
Net assets, end of period (000) $147,633 $213,034 $201,940 $198,425 $182,480 $215,577
Ratios of expenses to average
net assets................... .89%(a) .85%(a) .84%(a) .82%(a) .77%(a) .77%(a)
Ratios of net investment income to
average net assets........... 2.86% 2.85% 2.88% 2.97% 1.95% 1.95%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS)
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------
Net asset value,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- --------- ---------
Income from investment operations:
Net investment income.......... 0.0287 0.0431 0.0522 0.0513
Net gains on securities (both
realized and unrealized)..... -- -- -- --
-------- -------- ---------- ----------
Total from investment
operations............... 0.0287 0.0431 0.0522 0.0513
------ ------ ------- -------
Less distributions
Dividends (from net investment
income)...................... (0.0287) (0.0431) (0.0522) (0.0513)
Distributions (from capital
gains)....................... -- -- -- --
-------- -------- ---------- ----------
Total distributions........ (0.0287) (0.0431) (0.0522) (0.0513)
------ ------ ------- -------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========= =========
Total return..................... 2.90% 4.40% 5.35% 5.72%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $176,950 $215,140 $195,566 $85,806
Ratios of expenses to average
net assets................... .77%(a) .74%(a) .75%(a) .33%(a)(b)
Ratios of net investment income to
average net assets........... 2.87% 4.31% 5.22% 5.70%(b)
</TABLE>
(a) Without the waiver of advisory and administration fees, and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Municipal Money Market Portfolio would have
been 1.15%, 1.14%, 1.12%, 1.14%, 1.12%,1.16%, 1.15%, 1.13% and 1.14% for
the years ended August 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992,
1991 and 1990, respectively, and 1.27% annualized for the period ended
August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within the
Portfolio.
- 8 -
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income.......... 0.0463 0.0449 0.0458 0.0475 0.0270 0.0231
Net gains on securities (both
realized and unrealized)..... -- -- -- -- -- --
------- -------- -------- -------- -------- --------
Total from investment
operations............... 0.0463 0.0449 0.0458 0.0475 0.0270 0.0231
------- ------ ------ ------ ------ ------
Less distributions
Dividends (from net investment
income)...................... (0.0463) (0.0449) (0.0458) (0.0475) (0.0270) (0.0231)
Distributions (from capital
gains)....................... -- -- -- -- -- --
------- -------- -------- -------- -------- --------
Total distributions........ (0.0463) (0.0449) (0.0458) (0.0475) (0.0270) (0.0231)
------- ------- ------- ------ ------ ------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======== ========
Total return..................... 4.74% 4.59% 4.68% 4.86% 2.73% 2.33%
Ratios/Supplemental Data
Net assets, end of period (000) $128,447 $209,715 $192,599 $163,398 $166,418 $213,741
Ratios of expenses to average
net assets................... .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income to
average net assets........... 4.63% 4.49% 4.58% 4.75% 2.70% 2.31%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS)
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------
Net asset value,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- --------- ---------
Income from investment operations:
Net investment income.......... 0.0375 0.0604 0.0748 0.0725
Net gains on securities (both
realized and unrealized)..... 0.0009 -- -- --
-------- -------- ---------- ----------
Total from investment
operations............... (0.0384) (0.0604) (0.0748) (0.0725)
------ ------ ------- -------
Less distributions
Dividends (from net investment
income)...................... (0.0375) (0.0604) (0.0748) (0.0725)
Distributions (from capital
gains)....................... 0.0009 -- -- --
-------- -------- ---------- ----------
Total distributions........ (0.0384) (0.0604) (0.0748) (0.0725)
------ ------ ------- -------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========= =========
Total return..................... 3.91% 6.21% 7.74% 8.64%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $225,101 $368,899 $209,378 $66,281
Ratios of expenses to average
net assets................... .975(a)% .95(a)% .95(a)% .96%(a)(b)
Ratios of net investment income to
average net assets........... 3.75% 6.04% 7.48% 8.34% (b)
</TABLE>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net
assets for the Government Obligations Money Market Portfolio would have
been 1.10%, 1.09%, 1.10%, 1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17%
for the years ended August 31, 1998, 1997, 1996, 1995, 1994, 1993,1992,
1991 and 1990, respectively, and 1.40% annualized for the period ended
August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within the
Portfolio.
- 9 -
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. Portfolio obligations held by the Money Market
Portfolio have remaining maturities of 397 days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." There is no
assurance that the Portfolio will achieve its investment objective. The
following descriptions illustrate the types of Money Market Instruments in which
the Money Market Portfolio invests.
BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
The Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (i)
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. 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.
- 10 -
<PAGE>
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 security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a Portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
- 11 -
<PAGE>
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and Policies
- -Municipal Money Market Portfolio -- Municipal Obligations."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
WHEN-ISSUED SECURITIES. The Portfolio may purchase portfolio securities
on a "when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset at the time the commitment is entered into and are subject
to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the Portfolio's
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include: (1) U.S. Government securities, (2)
securities that are rated at the time of purchase in the two highest rating
categories by at least two Rating Organizations ("Rating Organizations") (e.g.,
commercial paper rated "A-1" or "A-2" by Standard & Poor's Ratings Services
("S&P")), (3) securities that are rated at the time of purchase by the only
Rating Organization rating the security in one of its two highest rating
categories for such securities, (4) securities issued by issuers (or, in certain
- 12 -
<PAGE>
cases guaranteed by persons) with short-term debt having such ratings, and (5)
securities that are not rated and are issued by an issuer that does not have
comparable obligations rated by a Rating Organization ("Unrated Securities"),
provided that such securities are determined to be of comparable quality to
eligible rated securities. For a more complete description of eligible
securities, see "Investment Objectives and Policies" in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies -- Illiquid Securities" in
the Statement of Additional Information.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities, the interest on which is Tax-Exempt Interest, although to
the extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Portfolio's
investment adviser, suitable obligations bearing Tax-Exempt Interest or AMT
Interest are unavailable. There is no percentage limitation on the amount of
- 13 -
<PAGE>
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
- 14 -
<PAGE>
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis as described under "Investment Objectives
and Policies -- Money Market Portfolio -- When-Issued Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio as described
under "Investment Objectives and Policies -- Money Market Portfolio --
Stand-By Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies -- Money Market Portfolio -- Eligible
Securities" and "Investment Objectives and Policies" in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies -- Illiquid Securities" in the Statement of Additional Information.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury, others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal. There is no assurance that the investment objective of the Portfolio
will be achieved.
Due to fluctuations in interest rates, the market values of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 days and the adjustments
- 15 -
<PAGE>
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a more complete description of repurchase agreements, see "Investment Objectives
and Policies -- Money Market Portfolio -- Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by
entering into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions and to meet redemptions. For a more complete description of
reverse repurchase agreements, see "Investment Objectives and Policies -- Money
Market Portfolio -- Reverse Repurchase Agreements."
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. Mortgage-related
securities consist of mortgage loans which are assembled into pools, the
interests in which are issued and guaranteed by an agency or instrumentality of
the U.S. Government, though not necessarily by the U.S. Government itself. The
Fund may also acquire asset-backed securities as described under "Investment
Objectives and Policies -- Money Market Portfolio -- Asset Backed Securities."
LENDING OF SECURITIES. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies--Money Market Portfolio -- Illiquid Securities" and "Investment
Objectives and Policies -- Illiquid Securities" in the Statement of Additional
Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
- 16 -
<PAGE>
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios' respective investment objectives and the policies
described above may be changed by the Fund's Board of Directors without
shareholder approval. The Portfolios may not, however, change the following
investment limitations (except as noted) without such a vote of their respective
shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The Portfolios may not borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in amounts not
in excess of 10% of the value of a Portfolio's assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or hypothecate any
of its assets except in connection with any such borrowing and in amounts not in
excess of 10% of the value of a Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess of 5% of
the Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of a Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
The Money Market and Municipal Money Market Portfolios may not:
1. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities, if
immediately after and as a result of such purchase more than 5% of the value of
its total assets would be invested in the securities of such issuer, or more
than 10% of the outstanding voting securities of such issuer would be owned by a
Portfolio, except that up to 25% of the value of a Portfolio's total assets may
be invested without regard to such 5% limitation.
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits.
- 17 -
<PAGE>
2. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Money Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government securities,
to 5% of its total assets, except that the Money Market Portfolio may invest
more than 5% of its total assets in First Tier Securities of one issuer for a
period of up to three Business Days (as defined below). "First Tier Securities"
include eligible securities that (i) if rated by more than one Rating
Organization, are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii) if rated
by only one Rating Organization, are rated by such Rating Organization in its
highest rating category for such securities, (iii) have no short-term rating and
are comparable in priority and security to a class of short-term obligations of
the issuer of such securities that have been rated in accordance with (i) or
(ii) above, or (iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First Tier Securities that
come within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second
Tier Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1 million.
The Municipal Money Market Portfolio may not:
1. Purchase any securities which would cause more than 25% of the value
of the total assets of the Portfolio to be invested in obligations at the time
of purchase to be invested in issuers in the same industry.
In addition, without shareholder approval, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
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The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral, consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
GENERAL. Bedford Shares are sold without a sales load on a continuous
basis by the Distributor. The Distributor is located at Four Falls Corporate
Center, Conshohocken, Pennsylvania. Investors may purchase Bedford Shares
through an account maintained by the investor with his brokerage firm (the
"Account") and may also purchase Shares directly by mail or wire. The minimum
initial investment is $1,000, and the minimum subsequent investment is $100.
The Fund in its sole discretion may accept or reject any order for purchases of
Bedford Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by the Fund by 12:00 noon Eastern
Time, and orders as to which payment has been converted into Federal Funds by
12:00 noon Eastern Time, will be executed as of 12:00 noon that Business Day.
Orders which are accompanied by Federal Funds and received by PFPC after 12:00
noon Eastern Time but prior to the close of regular trading on the NYSE
(generally 4:00 p.m. Eastern Time), and orders as to which payment has been
converted into Federal Funds after 12:00 noon Eastern Time but prior to the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the closed of regular trading on the NYSE on that Business Day,
but will not be entitled to receive dividends declared on such Business Day.
Orders which are accompanied by Federal Funds and received by the Fund as of the
close of regular trading on the NYSE or later, and orders as to which payment
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<PAGE>
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be effected
through an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Bedford Shares will be recorded by the broker and will
be reflected in the Account statements provided by the broker to such investors.
A broker may impose minimum investment Account requirements. Even if a broker
does not impose a sales charge for purchases of Bedford Shares, depending on the
terms of an investor's Account with his broker, the broker may charge an
investor's Account fees for automatic investment and other services provided to
the Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker, and this Prospectus should be read
in conjunction with any information received from a broker. Shareholders whose
shares are held in the street name account of a broker and who desire to
transfer such shares to the street name account of another broker should contact
their current broker.
A broker may offer investors maintaining Accounts the ability to
purchase Bedford Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Bedford Class designated by the investor
as the "Primary Bedford Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the broker. A participant in a Purchase
Program may change the designation of the Primary Bedford Class at any time by
so instructing his broker.
If a broker makes special arrangements under which orders for Bedford
Shares are received by PFPC prior to 12:00 noon Eastern Time, and the broker
guarantees that payment for such Shares will be made in available Federal Funds
to the Fund's custodian prior to the close of regular trading on the NYSE on the
same day, such purchase orders will be effective and Shares will be purchased at
the offering price in effect as of 12:00 noon Eastern Time on the date the
purchase order is received by PFPC.
DIRECT PURCHASES. An investor may also make direct investments at any
time in any Bedford Class he selects through any broker that has entered into a
dealer agreement with the Distributor (a "Dealer"). An investor may make an
initial investment in any of the Bedford Classes by mail by fully completing and
signing an application obtained from a Dealer (the "Application"), specifying
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Bedford Family" to the Bedford Family, c/o PFPC, P.O. Box
8950, Wilmington, Delaware 19899. The check must specify the name of the
Portfolio for which shares are being purchased. An Application will be returned
to the investor unless it contains the name of the Dealer from whom it was
obtained. Subsequent purchases may be made through a Dealer or by forwarding
payment to the Fund's transfer agent at the foregoing address.
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<PAGE>
Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Bedford Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
may impose a charge for this service. The Fund does not currently charge for
effecting wire transfers but reserves the right to do so in the future. In order
to ensure prompt receipt of an investor's Federal Funds wire, for an initial
investment, it is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800)533-7719
(in Delaware call collect (302) 791-1196), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the Bedford
Class selected, the amount being wired, and by which bank or Dealer. PFPC will
then provide an investor with a Fund account number. (Investors with existing
accounts should also notify PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, PA
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number
with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a fully
completed and signed Application.
For subsequent investments, an investor should follow steps A and B
above.
RETIREMENT PLANS. Bedford Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns
Bedford Shares through an Account may redeem Bedford Shares in his Account in
accordance with instructions and limitations pertaining to his Account by
contacting his broker. If such notice is received by PFPC by 12:00 noon Eastern
Time on any Business Day, the redemption will be effective as of 12:00 noon
Eastern Time on that day. Payment of the redemption proceeds will be made after
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<PAGE>
12:00 noon Eastern Time on the day the redemption is effected, provided that the
Fund's custodian is open for business. If the custodian is not open, payment
will be made on the next bank business day. If the redemption request is
received between 12:00 noon and the close of regular trading on the NYSE on a
Business Day, the redemption will be effective as of the close of regular
trading on the NYSE on such Business Day and payment will be made on the next
bank business day following receipt of the redemption request. If all Shares are
redeemed, all accrued but unpaid dividends on those Shares will be paid with the
redemption proceeds.
An investor's brokerage firm may also redeem each day a sufficient
number of Shares of the Primary Bedford Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
REDEMPTION OF SHARES OWNED DIRECTLY. A direct investor may redeem any
number of Shares by sending a written request to The Bedford Family c/o PFPC,
P.O. Box 8950, Wilmington, Delaware 19899. Redemption requests must be signed by
each shareholder in the same manner as the Shares are registered. Redemption
requests for joint accounts require the signature of each joint owner. On
redemption requests of $5,000 or more, each signature must be guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by call (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine.
The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
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<PAGE>
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
Proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form that such proceeds are to be sent by wire transfer
to a specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next day that a wire transfer can be effected.
The minimum redemption for proceeds sent by wire transfer is $2,500. There is no
maximum for proceeds sent by wire transfer. The Fund may modify this redemption
service at any time or charge a service fee upon prior notice to shareholders,
although no fee is currently contemplated.
REDEMPTION BY CHECK. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make
payment for all Shares redeemed within seven days after receipt by PFPC of a
redemption request in proper form. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed for a period of up to fifteen days after their purchase, pending
a determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. Investors should consider purchasing Shares
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<PAGE>
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in a Bedford Class involuntarily, on thirty
days' notice, if such account falls below $500 and during such 30-day notice
period the amount invested in such account is not increased to at least $500.
Payment for Shares redeemed may be postponed or the right of redemption
suspended as provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the proportionate interest of each class in the
value of the securities, cash and other assets of the Portfolio, subtracting the
accrued and actual liabilities of the class and dividing the result by the
number of outstanding shares of the class. The net asset value per share of each
class of the Fund is determined independently of any of the Fund's other
classes.
The Fund seeks to maintain for each of the Portfolios a net asset value
of $1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate seventeen investment portfolios. Each of the
Bedford Classes represents interests in one of the following portfolios: the
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Money Market Portfolio, the Municipal Money Market Portfolio and the Government
Obligations Money Market Portfolio.
INVESTMENT ADVISER
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios
and is responsible for all purchases and sales of portfolio securities. In
entering into Portfolio transactions for a Portfolio with a broker, BIMC may
take into account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreements between BIMC and RBB, with
respect to the Money Market and Government Obligations Money Market Portfolios,
respectively, provide for BIMC to also assist generally in supervising the
operations of such Portfolios, and to maintain such Portfolio's financial
accounts and records. These administrative responsibilities have been delegated
to PFPC as described below.
For the services provided to and expenses assumed by it for the benefit
of each of the Money Market and Government Obligations Money Market Portfolios,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of net assets in excess of $500
million.
For the services provided and expenses assumed by it with respect to
the Municipal Money Market Portfolio, BIMC is entitled to receive the following
fees, computed daily and payable monthly based on the Portfolio's average daily
net assets: .35% of the first $250 million; .30% of the next $250 million; and
.25% of net assets in excess of $500 million.
BIMC may in its discretion from time to time agree to waive voluntarily
all or any portion of its advisory fee for any Portfolio.
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<PAGE>
For the Fund's fiscal year ended August 31, 1998, the Fund paid
investment advisory fees aggregating .24% of the average net assets of the
Money Market Portfolio, .08% of the average net assets of the Municipal Money
Market Portfolio and .30% of the average net assets of the Government
Obligations Money Market Portfolio. For that same year, BIMC waived
approximately .13%, .26% and .12% of average net assets of the Money Market
Portfolio, Municipal Money Market Portfolio and the Government Obligations Money
Market Portfolio, respectively.
PNC Bank was formerly sub-adviser to the Money Market, Municipal Money
Market and Government Obligations Portfolios and provided research, credit
analysis and recommendations with respect to each such 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 each such 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 such Portfolios 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 serves as the administrator for the Municipal Money Market
Portfolio and generally assists the Portfolio in all aspects of its
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at .10% of the average daily net assets of
the Portfolio. Pursuant to its advisory agreements with the Fund with respect to
the Money Market and Government Obligations Money Market Portfolios, BIMC
provides administrative services to such Portfolios pursuant to the same terms,
but has delegated to PFPC all of its accounting and administrative obligations
under such advisory agreements. The Fund has agreed to pay directly to PFPC the
fees for accounting and administrative services to the Money Market and
Government Obligations Money Market Portfolios which PFPC would have received
directly from BIMC. Such arrangement has no effect on the total advisory and
administrative fees payable by such Portfolios to BIMC. PFPC's principal
business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
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<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 Shares of each of the Bedford Classes of the Fund pursuant to a distribution
agreement dated May 29, 1998 (the "Distribution Agreement").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. The Bedford Classes
of the Fund pay their own distribution fees and may pay a different share than
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Bedford Class or if they receive different services.
The investment adviser may assume expenses of the Portfolios from time
to time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1998, the Fund's total
expenses were 1.10% of the average net assets with respect to the Bedford Class
of the Money Market Portfolio (not taking into account waivers of .13%), were
1.15% of the average net assets with respect to the Bedford Class of the
Municipal Money Market Portfolio (not taking into account waivers of .26%) and
were 1.10% of the average net assets with respect to the Bedford Class of the
Government Obligations Money Market Portfolio (not taking into account waivers
of .125%).
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<PAGE>
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Bedford Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the relevant Bedford Class. The actual amount of such compensation is agreed
upon from time to time by the Fund's Board of Directors and the Distributor.
Under the Distribution Agreement, the Distributor has agreed to accept
compensation for its services thereunder and under the Plans in the amount of
.60% of the average daily net assets of the relevant Class on an annualized
basis in any year. Pursuant to the conditions of an exemptive order granted by
the Securities and Exchange Commission, the Distributor has agreed to waive its
fee with respect to a Bedford Class on any day to the extent necessary to assure
that the fee required to be accrued by such Class does not exceed the income of
such Class on that day. In addition, the Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor
may reallocate an amount up to the full fee that it receives to financial
institutions, including broker/dealers, based upon the aggregate investment
amounts maintained by and services provided to shareholders of any relevant
Class serviced by such financial institutions. The Distributor may also
reimburse broker/dealers for other expenses incurred in the promotion of the
sale of Fund shares. The Distributor and/or broker/dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in
effect, to accrue and pay to the Distributor on behalf of each Bedford Class the
fee agreed to under the Distribution Agreement. Payments under the Plans are not
based on expenses actually incurred by the Distributor, and the payments may
exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Bedford Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital
gains) earned by each Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of 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.
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<PAGE>
TAXES
- --------------------------------------------------------------------------------
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio will generally
constitute tax-exempt income for shareholders for federal income tax purposes.
It is possible, depending upon the Portfolio's investments, that a portion of
the Portfolio's distributions could be taxable to shareholders as ordinary
income or capital gains, but it is not expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio are
exempt for federal income tax purposes, they will generally constitute taxable
income for state and local income tax purposes except that, subject to
limitations that vary depending on the state, distributions from interest paid
by a state or municipal entity may be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio generally will not be deductible
for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by
the Municipal Money Market Portfolio may constitute an item of tax preference
for purposes of determining federal alternative minimum tax liability.
Exempt-interest dividends will also be considered along with other adjusted
gross income in determining whether any Social Security or railroad retirement
payments received by you are subject to federal income taxes.
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.
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<PAGE>
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 each of its Money Market,
Municipal Money Market and Government Obligations Money Market Portfolios to
expand its marketing alternatives and to broaden its range of services to
different investors. The expenses of the various classes within these Portfolios
vary based upon the services provided, which may affect performance. Each class
of Common Stock of the Fund has a separate Rule 12b-1 distribution plan. Under
the Distribution 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 a Portfolio of the
Fund. An investor may contact the Fund's Distributor by calling 1-800-888-9723
to request more information concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE BEDFORD CLASSES OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET AND GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIOS AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE BEDFORD CLASSES OF THESE PORTFOLIOS.
- 30 -
<PAGE>
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the aggregate
and not by class on all matters, except where otherwise required by law.
Further, shareholders of all investment portfolios of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples of when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
As of November 16, 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).
- 31 -
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
-----------------
CONTENTS
PAGE
INTRODUCTION................................. 1
FINANCIAL HIGHLIGHTS......................... 3
INVESTMENT OBJECTIVES AND POLICIES........... 7
YEAR 2000....................................12
INVESTMENT LIMITATIONS.......................12
PURCHASE AND REDEMPTION OF SHARES............14
NET ASSET VALUE..............................20
MANAGEMENT...................................21
DISTRIBUTION OF SHARES.......................23
DIVIDENDS AND DISTRIBUTIONS..................24
TAXES........................................24
DESCRIPTION OF SHARES........................25
OTHER INFORMATION............................26
INVESTMENT ADVISER
BlackRock Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
================================================================================
CASH PRESERVATION
PORTFOLIOS
OF
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
AND
MUNICIPAL MONEY
MARKET PORTFOLIO
Prospectus
December 29, 1998
================================================================================
<PAGE>
CASH PRESERVATION PORTFOLIOS
OF
THE RBB FUND, INC.
The Cash Preservation Portfolios consist of two classes of common stock
of The RBB Fund, Inc. (the "Fund"), an open-end management investment company.
The shares of the Cash Preservation Classes offered by this Prospectus represent
interests in a taxable money market portfolio and a municipal money market
portfolio. The investment objectives of each investment portfolio described in
this Prospectus are as follows:
MONEY MARKET PORTFOLIO - to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of principal.
It seeks to achieve such objective by investing in a diversified portfolio of
U.S. dollar-denominated money market instruments.
MUNICIPAL MONEY MARKET PORTFOLIO - to provide as high a level of
current interest income exempt from federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular federal
income tax but which may constitute an item of tax preference for purposes of
the federal alternative minimum tax.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
BlackRock Institutional Management Corporation serves as investment
adviser for these Portfolios and PNC Bank, National Association serves as
custodian for the Fund. PFPC Inc. serves as administrator and transfer and
dividend disbursing agent for the Fund. Provident Distributors, Inc. acts as
distributor for the Fund.
This Prospectus contains concise information that a prospective investor needs
to know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the SEC
Internet Website (http://www.sec.gov).
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen separate
investment portfolios. Each of the two classes (collectively, the "Cash
Preservation Classes") of the Fund's shares ("Cash Preservation Shares" or
"Shares") offered by this Prospectus represents interests in one of the
following of such investment portfolios: the Money Market Portfolio and the
Municipal Money Market Portfolio (together, the "Portfolios").
The MONEY MARKET PORTFOLIO'S investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
U.S. dollar denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets.
The MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular federal income tax but which may
constitute an item of tax preference for purposes of the federal alternative
minimum tax.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
The Portfolios' investment adviser is Blackrock Institutional
Management Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank")
serves as custodian to the Fund, and PFPC Inc. ("PFPC") serves as the
administrator to the Portfolios and the transfer and dividend disbursing agent
to the Fund. Provident Distributors, Inc. (the "Distributor") acts as
distributor of the Fund's Shares.
An investor may purchase Shares of either of the Cash Preservation
Classes by mail, bank wire or by payment from insurance policies. An investor
may redeem Shares of either of the Cash Preservation Classes by mail, Fund
check, or by telephone. For more detailed information of how to purchase or
redeem Cash Preservation Shares, please refer to the section of this Prospectus
entitled "Purchase and Redemption of Shares."
-1-
<PAGE>
An investment in either of the Cash Preservation Classes is subject to
certain risks, as set forth in detail under "Investment Objectives and
Policies." Either or both of the Portfolios, to the extent set forth under
"Investment Objectives and Policies," may engage in the following investment
practices: the use of repurchase agreements and reverse repurchase agreements,
the purchase of securities on a "when-issued" or "forward commitment" basis and
the purchase of stand-by commitments. All of these transactions involve certain
special risks, as set forth under "Investment Objectives and Policies."
FEE TABLE
The Fee Table below contains a summary of the annual operating expenses of the
Cash Preservation Classes of the Portfolios based on expenses incurred for the
fiscal year ended August 31, 1998, as a percentage of average daily net assets.
An example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES (CASH PRESERVATION CLASSES)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
Management Fees (after waivers)(1).......... .24% .08%
12b-1 Fees(1)............................... .40 .40
Other Expenses (after waivers)(1)........... .31 .50
Total Fund Operating Expenses
(Cash Preservation Classes) (after
waivers)(1)............................... .95% .98%
==== ====
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio and Municipal Money Market Portfolio, Management Fees
would be .37% and .34%, respectively, Other Expenses would be 9.08% and
22.75%, respectively, and Total Fund Operating Expenses would be 9.84%
and 23.49% respectively.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market*................... $10 $30 $53 $117
Municipal Money Market*......... $10 $31 $54 $120
*Other classes of these Portfolios are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses (Cash Preservation Classes)" remain the same in the years
shown. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
- 2-
<PAGE>
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 Cash Preservation Classes of
the Fund will bear directly or indirectly. (For more complete descriptions of
the various costs and expenses, see "Management--Investment Adviser" and
"Distribution of Shares" below.) Expense figures are based on actual costs and
fees charged to each class. The Fee Table reflects a voluntary waiver of
Management Fees for each Portfolio. However, there can be no assurance that any
future waivers of Management Fees will not vary from the figures reflected in
the Fee Table. In addition, the investment adviser is currently voluntarily
assuming additional expenses of the Portfolios. There can be no assurance that
the investment adviser will continue to assume such expenses. Assumption of
additional expenses will have the effect of lowering a Portfolio's overall
expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield"
and "effective yield." TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The Municipal Money Market Portfolio's "tax-equivalent yield" may
also be quoted from time to time, which shows the level of taxable yield needed
to produce an after-tax equivalent to such Portfolio's tax-free yield. This is
done by increasing such Portfolio's yield (calculated as above) by the amount
necessary to reflect the payment of federal income tax at a stated tax rate.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of either of the Cash Preservation Classes will
fluctuate and is not necessarily representative of future results. Any fees
charged by broker/dealers directly to their customers in connection with
investments in the Cash Preservation Classes are not reflected in the total
return and yields of the Cash Preservation Shares, and such fees, if charged,
will reduce the actual return received by shareholders on their investments. The
total return and yield on Shares of the Cash Preservation Classes may differ
from the total return and yields on shares of other classes of the Fund that
also represent interests in the same Portfolio depending on the allocation of
expenses to each of the classes of that Portfolio.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the
investment results of the Cash Preservation Classes representing interests in
the Money Market and Municipal Money Market Portfolios for the periods
indicated. The financial data included in this table for each of the periods
- 3 -
<PAGE>
ended August 31, 1994 through August 31, 1998 are part of the Fund's financial
statements for each of the Portfolios, which have been incorporated by reference
into the Statement of Additional Information and have been audited by
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the Fund's independent
accountants. The financial data for each of the Portfolios for the periods ended
August 31, 1989, 1990, 1991, 1992 and 1993 are a part of previous financial
statements audited by PricewaterhouseCoopers. The financial data should be read
in conjunction with the financial statements and notes thereto. Further
information about the performance of the Portfolios is available in the Annual
Report to Shareholders. Both the Statement of Additional Information and the
Annual Report to Shareholders may be obtained free of charge by calling the
telephone number on page 1 of this Prospectus.
- 4 -
<PAGE>
CASH PRESERVATION CLASSES
<TABLE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MONEY MARKET PORTFOLIO
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------------
Net asset value,
beginning of period........... $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ----- ----- ----- ----- ----- ------
Income from investment operations:
Net investment income 0.0474 0.0464 0.0471 0.0487 0.0278 0.0243 0.0375
Net gains on securities
(both realized and unrealized) -- -- -- -- -- -- 0.0007
------ ------- -------- -------- -------- ------- -------
Total from
investment operations. 0.0474 0.0464 0.0471 0.0487 0.0278 0.0243 0.0382
------ ------- -------- -------- -------- ------- -------
Less distributions
Dividends (from net investment
income) (0.0474) (0.0464) (0.0471) (0.0487) (0.0278) (0.0243) (0.0375)
Distributions
(from capital gains).......... -- -- -- -- -- -- (0.0007)
------ ------- -------- -------- -------- ------- --------
Total distributions (0.0474) (0.0464) (0.0471) (0.0487) (0.0278) (0.0243) (0.0382)
------ ------- -------- -------- -------- ------- --------
Net asset value, end of period.... $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ===== ===== ===== ===== ===== =====
Total return....... 4.86% 4.74% 4.81% 4.98% 2.81% 2.46% 3.89%
Ratios/Supplemental Data
Net assets, end of period (000) $ 226 $ 242 $ 202 $ 236 $ 231 $ 1,229 $ 1,233
Ratios of expenses to
average net assets.......... .95%(a) .95%(a) .95%(a) .95%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets 4.74% 4.64% 4.71% 4.87% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
---------------------------------------------
<S> <C> <C> <C>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31,
1991 1990 1989
---------------------------------------------
Net asset value,
beginning of period........... $1.00 $1.00 $1.00
----- ----- -----
Income from investment operations:
Net investment income 0.0626 0.0763 0.0780
Net gains on securities
(both realized and unrealized) -- -- --
------- ------- -------
Total from
investment operations. 0.0626 0.0763 0.0780
------- ------- -------
Less distributions
Dividends (from net investment
income) (0.0626) (0.0763) (0.0780)
Distributions
(from capital gains).......... -- -- --
-------- ------- -------
Total distributions (0.0626) (0.0763) (0.0780)
-------- ------- -------
Net asset value, end of period.... $1.00 $1.00 $1.00
===== ===== =====
Total return....... 6.45% 7.90% 8.81%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $ 1,412 $ 1,799 $ 2,213
Ratios of expenses to
average net assets.......... .95%(a) .94%(a) .95%(a)(b)
Ratios of net investment income
to average net assets 6.26% 7.63% 8.59%(b)
</TABLE>
(a) Without the waiver of advisory and transfer agency fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been 9.84%,
10.68%, 12.08%, 9.34%, 2.52%, 2.25%, 2.30%, 2.13% and 1.69% for the years
ended August 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992, 1991 and 1990,
respectively, and 1.59% annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Cash Preservation Class of Shares
within the Portfolio.
- 5 -
<PAGE>
CASH PRESERVATION CLASSES
<TABLE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------------
Net asset value,
beginning of period........... $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ----- ----- ----- ----- ----- ------
Income from investment operations:
Net investment income 0.0274 0.0272 0.0274 0.0281 0.0174 0.0174 0.0266
Net gains on securities
(both realized and unrealized) -- -- -- -- -- -- --
------ ------- -------- -------- -------- ------- -------
Total from
investment operations. 0.0274 0.0272 0.0274 0.0281 0.0174 0.0174 0.0266
------ ------- -------- -------- -------- ------- -------
Less distributions
Dividends (from net investment
income) (0.0274) (0.0272) (0.0274) (0.0281) (0.0174) (0.0174) (0.0266)
Distributions
(from capital gains).......... -- -- -- -- -- -- --
------ ------- -------- -------- -------- ------- --------
Total distributions (0.0274) (0.0272) (0.0274) (0.0281) (0.0174) (0.0174) (0.0266)
------ ------- -------- -------- -------- ------- --------
Net asset value, end of period.... $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ===== ===== ===== ===== ===== =====
Total return....... 2.82% 2.76% 2.78% 2.84% 1.75% 1.75% 2.69%
Ratios/Supplemental Data
Net assets, end of period (000) $ 92 $ 97 $ 116 $ 161 $ 201 $ 157 $ 214
Ratios of expenses to
average net assets.......... .98%(a) .98%(a) .98%(a) .98%(a) .98%(a) 98%(a) .98%(a)
Ratios of net investment income
to average net assets 2.78% 2.72% 2.74% 2.81% 1.74% 1.74% 2.66%
</TABLE>
<TABLE>
---------------------------------------------
<S> <C> <C> <C>
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31,
1991 1990 1989
---------------------------------------------
Net asset value,
beginning of period........... $1.00 $1.00 $1.00
----- ----- -----
Income from investment operations:
Net investment income 0.0408 0.0499 0.0497
Net gains on securities
(both realized and unrealized) -- -- --
------- ------- -------
Total from
investment operations. 0.0408 0.0499 0.0497
------- ------- -------
Less distributions
Dividends (from net investment
income) (0.0408) (0.0499) (0.0497)
Distributions
(from capital gains).......... -- -- --
-------- ------- -------
Total distributions (0.0408) (0.0499) (0.0497)
-------- ------- -------
Net asset value, end of period.... $1.00 $1.00 $1.00
===== ===== =====
Total return....... 4.16% 5.11% 5.53%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $ 281 $ 236 $ 36
Ratios of expenses to
average net assets.......... .97%(a) .98%(a) .94%(a)(b)
Ratios of net investment income
to average net assets 4.08% 4.99% 5.49%(b)
</TABLE>
(a) Without the waiver of advisory, administration and transfer agency fees and
without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets for the Municipal Money Market Portfolio
would have been 23.15% 26.58%, 19.20%, 10.80%, 11.52%, 8.95%, 5.91%, 5.59%
and 15.08% for the years ended August 31, 1998, 1997, 1996, 1995, 1994,
1993, 1992, 1991 and 1990, respectively, and 51.02% annualized for the
period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Cash Preservation Class of Shares
within the Portfolio.
- 6 -
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. Portfolio obligations held by the Money Market
Portfolio have remaining maturities of 397 days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." There is no
assurance that the Portfolio will achieve its investment objective. The
following descriptions illustrate the types of Money Market Instruments in which
the Money Market Portfolio invests.
BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
The Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (i)
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organizations")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. 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.
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Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able (at any time or during specified
periods not exceeding 13 months, depending upon the note involved) to demand
payment of the principal of a note. The notes are not typically rated by credit
rating agencies, but issuers of variable rate demand notes must satisfy the same
criteria as set forth above for issuers of commercial paper. If an issuer of a
variable rate demand note defaulted on its payment obligation, the Portfolio
might be unable to dispose of the note because of the absence of an active
secondary market. For this or other reasons, the Portfolio might suffer a loss
to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
Default by or bankruptcy of the seller would, however, expose the Portfolio to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation.
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and, instrumentalities
or issued by private companies. Asset-backed securities also include adjustable
rate securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. For this
and other reasons, an asset-backed security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a Portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
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<PAGE>
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
WHEN-ISSUED SECURITIES. The Portfolio may purchase portfolio securities
on a "when-issued" basis. When issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset at the time the commitment is entered into and are subject
to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the Portfolio's
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include: (1) U.S. Government securities, (2)
securities that are rated at the time of purchase in the two highest rating
categories by at least twoRating Organizations (e.g., commercial paper rated
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<PAGE>
"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,
(4) securities issued by issuers (or, in certain cases guaranteed by persons)
with short-term debt having such ratings, and (5) securities that are not rated
and are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest").There is no assurance that
the investment objective of the Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
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<PAGE>
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Portfolio's
investment adviser, suitable obligations bearing Tax-Exempt Interest or AMT
Interest are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source, such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Portfolio's assets are concentrated in Municipal Obligations
that are payable from the revenues of similar projects or are issued by issuers
located in the same state, the Portfolio will be subject to the peculiar risks
presented by the laws and economic conditions relating to such states or
projects to a greater extent than it would be if its assets were not so
concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
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<PAGE>
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis as described under "Investment Objectives
and Policies--Money Market Portfolio --When-Issued Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-By Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio--Eligible
Securities" and "Investment Objectives and Policies in the Statement of
Additional Information."
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Money Market and Municipal Money Market Portfolios' investment
objectives and policies described above may be changed by the Fund's Board of
Directors without shareholder approval. The Portfolios may not, however, change
the following investment limitations (except as noted) without such a vote of
their respective shareholders. (A more detailed description of the following
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<PAGE>
investment limitations, together with other investment limitations that cannot
be changed without a vote of shareholders, is contained in the Statement of
Additional Information under "Investment Objectives and Policies.")
The Portfolios may not:
1. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and
instrumentalities, if immediately after and as a result of such
purchase more than 5% of the value of a Portfolio's total assets would
be invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by a
Portfolio, except that up to 25% of the value of a Portfolio's total
assets may be invested without regard to such 5% limitation.
2. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements and then in amounts not in
excess of 10% of the value of a Portfolio's assets at the time of such
borrowing, and only if after such borrowing there is
asset coverage of at least 300% for all borrowings of a Portfolio; or
mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowing and in amounts not in excess of
10% of the value of a Portfolio's assets at the time of
such borrowing; or purchase portfolio securities while borrowing in
excess of 5% of a Portfolio's net assets are outstanding.
(This borrowing provision is not for investment leverage, but solely
to facilitate management of a Portfolio's securities by
enabling a Portfolio to meet redemption requests where the liquidation
of portfolio securities is deemed to be disadvantageous
or inconvenient.)
The Money Market Portfolio may not
1. Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5%
of the value of the Portfolio's assets and may make time deposits.
2. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which
would cause, at the time of purchase, more than 25% of the value of its
total assets to be invested in the obligations of issuers in any other
industry.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Money Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that the
Money Market Portfolio may invest more than 5% of its total
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<PAGE>
assets in First Tier Securities of one issuer for a period of up to
three business days. "First Tier Securities" include eligible
securities that (i) if rated by more than one Rating Organization, are
rated (at the time of purchase) by two or more Rating Organizations in
the highest rating category for such securities, (ii) if rated by
only one Rating Organization, are rated by such Rating Organization
in its highest rating category for such securities, (iii) have no
short-term rating and are comparable in priority and security to a
class of short-term obligations of the issuer of such securities that
have been rated in accordance with (i) or (ii) above, or (iv) are
Unrated Securities that are determined to be of comparable quality to
such securities. Purchases of First Tier Securities that come within
categories (ii) and (iv) above will be approved or ratified by
the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier
Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or
$1 million.
The Municipal Money Market Portfolio may not:
1. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested at
the time of purchase in obligations of issuers in the same industry.
In addition, without shareholder approval, the Portfolio may not change
its policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
PURCHASE PROCEDURES
Cash Preservation Shares are sold without a sales load on a continuous
basis by the Distributor. The Distributor is located at Four Falls Corporate
Center, Conshohocken, Pennsylvania. Investors may purchase Cash Preservation
Shares by mail, wire or exchange from another Cash Preservation Class as
described below. The minimum initial investment in each Portfolio is $1,000.
Subsequent investments must be at least $100 ($1,000 if the investment is
transmitted by wire). The Fund reserves the right to reject any purchase order.
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<PAGE>
Shareholders whose shares are held in the street name account of a
broker/dealer and who desire to transfer such shares to the street name account
of another broker/dealer should contact their current broker/dealer.
Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by the Fund by 12:00 noon Eastern
Time, and orders as to which payment has been converted into Federal Funds by
12:00 noon Eastern Time, will be executed as of 12:00 noon that Business Day.
Orders which are accompanied by Federal Funds and received by the Fund after
12:00 noon Eastern Time but prior to the close of regular trading on the NYSE
(generally 4:00 p.m. Eastern Time) and orders as to which payment has been
converted into Federal Funds after 12:00 noon Eastern Time but prior to the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE on that Business Day but
will not be entitled to receive dividends declared on such Business Day. Orders
which are accompanied by Federal Funds and received by the Fund as of the close
of regular trading on the NYSE or later, and orders as to which payment has been
converted to Federal Funds as of the close of regular trading on the NYSE or
later on a Business Day will be processed as of 12:00 noon Eastern Time on the
following Business Day.
INITIAL INVESTMENT
BY MAIL - You may purchase Shares in either of the Cash Preservation
Classes by mail by completing and signing the attached application (the
"Application"), specifying the Portfolio in which you wish to invest, and
mailing it, together with a check payable to the order of "Cash Preservation" to
Cash Preservation Portfolios, c/o PFPC, P.O. Box 8916, Wilmington, Delaware
19899. The check must also specify the name of the Portfolio in which you wish
to invest. An Application will be returned to an investor unless it contains the
name of the Authorized Dealer from whom it was obtained.
BY BANK WIRE - You may purchase Shares in either of the Cash
Preservation Classes by having your bank wire Federal Funds to the Fund's
custodian, PNC Bank. Your bank may impose a charge for this service. The Fund
currently does not charge for effecting wire transfers but reserves the right to
do so in the future. In order to ensure prompt receipt of your Federal Funds
wire, it is important that you follow these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 430-9618
and provide your name, address, telephone number, Social Security or Tax
Identification Number, the Cash Preservation Class selected, the amount being
wired, and by which bank. PFPC will then provide you with a Fund account number.
(Investors with existing accounts should also notify PFPC prior to wiring
funds.)
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<PAGE>
B. Instruct your bank to wire the specified amount, together with your
assigned account number, to the custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number
with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Complete and sign the Application and mail it to the address shown
thereon. PFPC will not process initial purchases until it receives a fully
completed and signed Application. An Application will be returned to an investor
unless it contains the name of the Authorized Dealer (a dealer who has entered
into a dealer agreement with the Distributor) from whom it was obtained
generally.
Federal Funds must be received by PFPC by 12:00 noon Eastern Time for
it to process an order as of 12:00 noon on such day. Federal Funds received
after 12:00 noon but prior to the close of regular trading on the NYSE
(generally 4:00 p.m. Eastern Time) on a Business Day will be processed as of the
close of regular trading on the NYSE on that Business Day but the Shares
acquired will not be entitled to receive dividends declared on such Business
Day. Federal Funds received after the close of regular trading on the NYSE on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
BY PAYMENT FROM INSURANCE POLICIES - If you are a recipient of certain
insurance policy payments, you may purchase Shares by completing and signing an
Application, including the section which authorizes your insurance company to
forward policy payments to the Cash Preservation Class indicated on the
Application, and mailing it to PFPC at the address shown thereon. An Application
will be returned to an investor unless it contains the name of the Authorized
Dealer from whom it was obtained.
Cash Preservation Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or an Authorized Dealer. To determine whether the benefits of an
IRA are available and/or appropriate, an investor should consult with a tax
adviser.
SUBSEQUENT INVESTMENTS
Once an account has been opened, additional investments may be made by
mail, wire, exchange, or the automatic investment program. The minimum
subsequent investment is $100 ($1,000 if payment is by wire).
BY MAIL - Payment may be made by check or a Federal Reserve Draft
payable to the order of "Cash Preservation." The check or draft must also
specify the name of the Portfolio in which you wish to invest. Mail your payment
to Cash Preservation c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899.
Federal Reserve Drafts are available at national banks or any state bank which
is a member of the Federal Reserve System.
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<PAGE>
BY BANK WIRE - Follow steps A and B above given under "Initial
Investment - By Bank Wire."
BY EXCHANGE - Follow the procedures given under "Redemption and
Exchange of Shares -- Exchange Privilege" below.
BY AUTOMATIC INVESTING - Additional investments may be made
automatically by authorizing PFPC to withdraw funds from your bank account.
Investors desiring to participate in the automatic investing program should call
PFPC at (800) 430-9618 to obtain the appropriate form.
REDEMPTION AND EXCHANGE OF SHARES
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
BY MAIL - An investor may redeem any number of Shares by sending a
written request, together with any share certificates issued to the investor, to
the Fund's transfer agent, PFPC, P.O. Box 8916, Wilmington, Delaware 19899
Attention: Cash Preservation Portfolios. It is recommended that such request be
sent by registered or certified mail if share certificates accompany the
request. Redemption requests must be signed by each shareholder in the same
manner as the Shares are registered. Redemption requests for joint accounts
require the signature of each joint owner. On redemption requests of $5,000 or
more, each signature must be guaranteed according to the procedures described
below under "Exchange Privilege."
BY FUND CHECK - An investor may request that the Fund provide
redemption checks drawn on a particular Cash Preservation Class. SHAREHOLDERS
HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THIS CHECK WRITING PRIVILEGE
BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION REQUESTS. Checks will
be sent only to the registered owner(s) and only to the address of record.
Investors may issue checks made payable to the order of any person in the amount
of $100 or more. The redemption is not effective until the check is processed
and cleared by the transfer agent, and dividends are earned until the redemption
is effected. Because dividends accrue daily, a check should not be used to close
an account as a small balance is likely to result. There is no charge to the
investor for redemption by check. If a shareholder who has check writing
privileges exchanges funds from one Cash Preservation Class into another Cash
Preservation Class, he or she will automatically receive a checkbook for the new
account (allow three to four weeks for delivery). The Fund or PNC Bank may
terminate this redemption service at any time, and neither shall incur any
liability for honoring checks, for effecting redemptions to pay checks, or for
returning checks which have not been accepted.
PAYMENT OF REDEMPTION PROCEEDS
Redemption proceeds will be mailed by check to your registered address
unless you have designated in your Application or Telephone Authorization Form
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<PAGE>
that such proceeds are to be sent by wire transfer to a specified checking or
savings account. If proceeds are to be sent by wire transfer, a telephone
redemption request received prior to the close of regular trading on the NYSE
will result in redemption proceeds being wired to the investor's bank account on
the next day that a wire transfer can be effected. The minimum redemption for
proceeds sent by wire transfer is $1,000. There is no maximum redemption for
proceeds sent by wire transfer. The Fund may modify this redemption service at
any time or charge a service fee upon prior notice to shareholders. No fee is
currently contemplated.
ADDITIONAL REDEMPTION INFORMATION
The Fund ordinarily will make payment for all Shares redeemed within
seven days after receipt by the Fund's transfer agent of a request in proper
form. However, Shares purchased by check will not be redeemed for a period up to
fifteen days after their purchase, pending a determination that the check has
cleared. This procedure does not apply to Shares purchased by wire payment.
During the period prior to the time the Shares are redeemed, dividends on such
Shares will accrue and be payable, and an investor will be entitled to exercise
all other rights of beneficial ownership.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in a Cash Preservation Class involuntarily, on
thirty days' notice, if such account drops below $500 and during such 30-day
period the shareholder does not increase such account to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
Shareholders who wish to exchange Shares of one Cash Preservation Class
for another Cash Preservation Class may do so by mail or by telephone. In
addition to exchanges between Cash Preservation Classes, shareholders may
exchange Shares of a Cash Preservation Class for shares of the RBB Class of the
Government Securities Portfolio (the "Participating Class") by mail or telephone
provided they have completed the appropriate section of the Application
beforehand. Shares of the Participating Class may be acquired by exchange at the
next determined public offering price, including sales charges, if any,
applicable to such shares. In order to establish a systematic withdrawal plan
for the new account, an exchanging shareholder must file a written request. The
Fund and PFPC reserve the right to limit, amend or terminate these exchange
privileges at any time upon 60 days written notice to shareholders. No exchange
fee is currently imposed for exchanges; however, the Fund reserves the right to
charge shareholders an exchange fee of $5.00 for each exchange. In the case of
shareholders holding share certificates, the certificates must accompany the
request for an exchange. An exchange of Shares will be treated as a sale for
federal tax purposes.
DETAILED INSTRUCTIONS REQUIRED. A request for an exchange of Shares
must be sufficiently detailed to enable PFPC to complete the exchange in
accordance with the shareholder's wishes. The request must name the Portfolio
and account number from which the exchange is to be made. It must also name the
Portfolio to which the exchange is to be made and the account number, if to an
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<PAGE>
existing account. The request must specify the amount of money or Shares to be
exchanged. New accounts will be established with the same registration and
address, and with the same options as the account from which the exchange is
made -- an Application is not needed. If the registration or address of the new
account is to be different in any respect, the request must be in writing with
all signatures guaranteed. A signature guarantee may be obtained from a domestic
bank or trust company, broker, dealer, clearing agency or savings associations
who are participants in a medallion program recognized by the Securities
Transfer Association. The three recognized medallion programs are the Securities
Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program
(SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (MSP).
Signature guarantees that are not part of these programs will not be accepted.
EXCHANGE BY MAIL - Send a written request (together with any share
certificates issued to the investor) to: Cash Preservation c/o PFPC, P.O. Box
8916, Wilmington, Delaware 19899. The request must be signed by all shareholders
exactly as their names appear on the Fund's records.
ACCOUNT MINIMUMS. If the exchange is to a new account, the dollar value
of Shares acquired must equal or exceed the Portfolio's minimum for a new
account; if to an existing account, the dollar value must equal or exceed the
Portfolio's minimum for subsequent investments. If any amount remains in the
Cash Preservation Class from which the exchange is being made, such amount must
not drop below the minimum account value required by that Portfolio.
TELEPHONE TRANSACTIONS
Shareholders are automatically provided with this option when opening
an account, unless they indicate on the Application that they do not wish to use
this privilege. SHAREHOLDERS HOLDING SHARE CERTIFICATES MAY NOT REDEEM OR
EXCHANGE SHARES BY TELEPHONE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL
EXCHANGE AND REDEMPTION REQUESTS. To add this feature to an existing account
that previously did not provide for this option, a Telephone Exchange
Authorization Form must be filed with PFPC. This form is available from PFPC.
Once this election has been made, the shareholder may simply contact PFPC by
telephone to request the redemption or exchange by calling (800) 430-9618.
Neither the Fund, the Portfolios, the Distributor, PFPC nor any other Fund
Agent, will be liable for any loss, liability, cost or expense for following the
Fund's telephone transaction procedures described below or for following
instructions communicated by telephone that they reasonably believe to be
genuine.
The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) permitting exchanges only if the two account registrations are
identical; (5) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (6) sending a written confirmation for
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<PAGE>
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (7) maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, trustee, custodian or other agent,
additional documentation or information regarding the scope of a caller's
authority is required. Finally, for telephone transactions in accounts held
jointly, additional information regarding other account holders is required.
Telephone transactions will not be permitted in connection with IRA or other
retirement plan accounts or by attorney-in-fact under power of attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE, is closed on weekends and
the customary national business holidays of New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays on which the NYSE is
closed, as well as Veterans' Day and Columbus Day. The net asset value per share
of each class of a Portfolio is calculated by adding the value of the
proportionate interest of the class in the Portfolio's securities, cash and
other assets, deducting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value per share of each class of the Fund is determined independently of
any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value
of $1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
- 20 -
<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 separate investment portfolios. Each
of the Cash Preservation Classes represents interests in one of the following
such investment portfolios: the Money Market Portfolio and the Municipal Money
Market Portfolio.
INVESTMENT ADVISER
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware,
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios
and is responsible for all purchases and sales of portfolio securities. In
entering into Portfolio transactions for a Portfolio with a broker, BIMC may
take into account the sale by such broker of shares of the Fund, 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 such Portfolio, and to maintain the Portfolio's
financial accounts and records. These administrative responsibilities have been
delegated to PFPC, as described below.
For the services provided to and expenses assumed by it with respect to
the Money Market Portfolio, BIMC is entitled to receive the following fees,
computed daily and payable monthly based on a Portfolio's average daily net
assets: .45% of the first $250 million; .40% of the next $250 million; and .35%
of net assets in excess of $500 million. For the services provided to and
expenses assumed by it with respect to the Municipal Money Market Portfolio,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on the Portfolio's average daily net assets: .35% of the first
$250 million; .30% of the next $250 million; and .25% of net assets in excess of
$500 million. BIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio.
- 21 -
<PAGE>
For the Fund's fiscal year ended August 31, 1998, the Fund paid
investment advisory fees aggregating .24% and .08% of the average net assets of
the Money Market Portfolio and the Municipal Money Market Portfolio,
respectively. For that same period, BIMC waived approximately .13% and .26% of
the average net assets of the Money Market Portfolio and the Municipal Money
Market Portfolio, respectively.
PNC Bank was formerly sub-adviser to the Portfolios and provided
research, credit analysis and recommendations with respect to the Portfolios'
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 Portfolios to BIMC. The sub-advisory fees
paid by BIMC to PNC Bank had no effect on the services provided by BIMC and the
fees payable by the Portfolios for these services are described further in the
Statement of Additional Information under "Management of the Company."
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money Market
Portfolio and generally assists such Portfolio in all aspects of its
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at .10% of average daily net assets of the
Municipal Money Market Portfolio. Pursuant to its advisory agreement with the
Fund with respect to the Money Market Portfolio, BIMC provides administrative
services to such Portfolio pursuant to the same terms, but has delegated to PFPC
all of its accounting and administrative obligations under such advisory
agreement. The Fund has agreed to pay directly to PFPC the fees for accounting
and administrative 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 such Portfolio to BIMC. PFPC's
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
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 registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
- 22 -
<PAGE>
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. (the "Distributor"), with a principal
business address at Four Falls Corporate Center, Conshohocken, Pennsylvania
19428, acts as distributor of the Shares of each of the Cash Preservation
Classes of the Fund pursuant to a distribution agreement dated May 29, 1998 (the
"Distribution Agreement").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will be allocated among all investment portfolios of the Fund based
on the relative net assets of the investment portfolios at the time such
expenses were accrued. The Cash Preservation Classes of the Fund pay their own
distribution fees, and may pay a different share than other classes of the Fund
of other expenses (excluding advisory and custodial fees) if these expenses are
actually incurred in a different amount by the Cash Preservation Classes or if
they receive different services.
The investment adviser may assume additional expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolios for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing a Portfolio's expense ratio and of lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1998 the Fund's total
expenses were 9.84% of the average daily net assets with respect to the Cash
Preservation Class of the Money Market Portfolio (not taking into account
waivers and reimbursements of 8.89%) and were 23.15% of the average daily net
assets with respect to the Cash Preservation Class of the Municipal Money Market
Portfolio (not taking into account waivers and reimbursements of 22.18%).
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Cash Preservation Class a distribution fee, which is accrued daily and
paid monthly, of up to .65% on an annualized basis of the average daily net
assets of the relevant Cash Preservation Class. The actual amount of such
compensation under the Plans is agreed upon by the Fund's Board of Directors and
by the Distributor. Under each of the Distribution Agreement, the Distributor
- 23 -
<PAGE>
has agreed to accept compensation for its services thereunder and under the
relevant Plan in the amount of .40% on an annualized basis of the average daily
net assets of the relevant Cash Preservation Class in any year. Such
compensation may be increased, up to the amount permitted in the Plan, with the
approval of the Fund's Board of Directors. Pursuant to the conditions of an
exemptive order granted by the Securities and Exchange Commission (the "SEC"),
the Distributor has agreed to waive its fee with respect to a Cash Preservation
Class on any day to the extent necessary to assure that the fee required to be
accrued by such Class does not exceed the income of such Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor
may reallocate an amount up to the full fee that it receives to financial
institutions, including to Authorized Dealers, based upon the aggregate
investment amounts maintained by and services provided to shareholders of any
relevant Class serviced by such financial institutions. The Distributor may also
reimburse Authorized Dealers for other expenses incurred in the promotion of the
sale of Fund shares. The Distributor and/or Authorized Dealers pay for the cost
of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in
effect, to accrue and pay to the Distributor on behalf of each Cash Preservation
Class the fee agreed to under the Distribution Agreement. Payments under the
Plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Cash Preservation Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term capital
gains) earned by each Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of net asset value made as of the close of regular
trading on the NYSE. Net short-term capital gains, if any, will be distributed
at least annually.
- 24 -
<PAGE>
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.
Distributions from the Municipal Money Market Portfolio will generally
constitute tax-exempt income for shareholders for federal income tax purposes.
It is possible, depending upon the Portfolio's investments, that a portion of
the Portfolio's distributions could be taxable to shareholders as ordinary
income or capital gains, but it is not expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio are
exempt for federal income tax purposes, they will generally constitute taxable
income for state and local income tax purposes except that, subject to
limitations that vary depending on the state, distributions from interest paid
by a state or municipal entity may be exempt from tax in that state.
- 25 -
<PAGE>
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio generally will not be deductible
for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by
the Municipal Money Market Portfolio may constitute an item of tax preference
for purposes of determining federal alternative minimum tax liability.
Exempt-interest dividends will also be considered along with other adjusted
gross income in determining whether any Social Security or railroad retirement
payments received by you are subject to federal income taxes.
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 each of its Money Market
Portfolio and Municipal Money Market Portfolio to expand its marketing
alternatives and to broaden its range of services to different investors. The
expenses of the various classes within these Portfolios vary based upon the
services provided, which may affect performance. Each class of Common Stock of
the Fund has a separate Rule 12b-1 distribution plan. Under the Distribution
Agreement and pursuant to each of the distribution plans, the Distributor is
entitled to receive from each class as compensation for distribution services
provided to that class a distribution fee based on average daily net assets. A
salesperson or any other person entitled to receive compensation for servicing
Fund shares may receive different compensation with respect to different classes
in a Portfolio of the Fund. An investor may contact the Fund's distributor by
calling 1-800-888-9723 to request more information concerning other classes
available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE CASH PRESERVATION CLASSES OF THE
MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE CASH PRESERVATION CLASSES OF THESE PORTFOLIOS.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
- 26 -
<PAGE>
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the aggregate
and not by class on all matters, except where otherwise required by law.
Further, shareholders of all investment portfolios of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples of when the 1940 Act requires voting by investment
portfolio or class.) Shareholders of the Fund are entitled to one vote for each
full share held (irrespective of class or portfolio) and fractional votes for
fractional shares held. Voting rights are not cumulative and, accordingly, the
holders of more than 50% of the aggregate shares of Common Stock of the Fund may
elect all of the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
the Fund.
OTHER INFORMATION
- --------------------------------------------------------------------------------
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809 (800) 430-9618.
- 27 -
<PAGE>
================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED
HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
------------------------------
CONTENTS
Page
INTRODUCTION............................ 3 Prospectus
FINANCIAL HIGHLIGHTS.................... 6 THE BEDFORD FAMILY
INVESTMENT OBJECTIVES AND POLICIES......10
YEAR 2000...............................18
INVESTMENT LIMITATIONS..................18
PURCHASE AND REDEMPTION OF SHARES.......21
NET ASSET VALUE.........................25
MANAGEMENT..............................26
DISTRIBUTION OF SHARES..................28
DIVIDENDS AND DISTRIBUTIONS.............29
TAXES...................................29
DESCRIPTION OF SHARES...................30
OTHER INFORMATION.......................31
Money Market Portfolio
----------------------
Municipal Money Market
Investment Adviser Portfolio
BlackRock Institutional Management Corporation
Wilmington, Delaware
----------------------
Distributor Government Obligations
Provident Distributors, Inc. Money Market Portfolio
Conshohocken, Pennsylvania
Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania
----------------------
Administrator and Transfer Agent New York Municipal
PFPC Inc. Money Market Portfolio
Wilmington, Delaware ----------------------
Counsel
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Independent Accountants
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 29, 1998
===============================================================================
<PAGE>
THE BEDFORD FAMILY
of
The RBB Fund, Inc.
The four classes of common stock (each, a "Bedford Class") of The RBB
Fund, Inc. (the "Fund"), an open-end management investment company, offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (together, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
Money Market Portfolio -- to provide as high a level of current
interest income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
Municipal Money Market Portfolio -- to provide as high a level of
current interest income exempt from federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular federal
income tax but which may constitute an item of tax preference for purposes of
the federal alternative minimum tax.
Government Obligations Money Market Portfolio -- to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in
short-term U.S. Treasury bills, notes and other obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
New York Municipal Money Market Portfolio--to provide as high a level
of current income that is exempt from federal, New York State and New York City
personal income taxes as is consistent with preservation of capital and
liquidity. It seeks to achieve its objective by investing primarily in Municipal
Obligations, the interest on which is exempt from regular federal income tax and
is not an item of tax preference for purposes of the federal alternative minimum
tax ("Tax-Exempt Interest") and is exempt from New York State and New York City
personal income taxes.
The New York Municipal Money Market Portfolio may invest a significant
percentage of its assets in a single issuer, and therefore investment in this
Portfolio may be riskier than an investment in other types of money market
funds.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. There can be no
assurance that the Portfolios will be able to maintain a stable net asset value
of $1.00 per share.
<PAGE>
BlackRock Institutional Management Corporation serves as investment
adviser for the Portfolios, PNC Bank, National Association serves as custodian
for the Fund and PFPC Inc. serves as administrator and transfer and dividend
disbursing agent for the Fund. Provident Distributors, Inc. acts as distributor
for the Fund.
This Prospectus contains concise information that a prospective
investor needs to know before investing. Please keep it for future reference. A
Statement of Additional Information, dated December 29, 1998, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
this Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the SEC
Internet Website (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen separate
investment portfolios. Each of the four classes of the Fund's shares
(collectively, the "Bedford Shares" or "Shares") offered by this Prospectus
represents interests in one of the following of such investment portfolios: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio.
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets.
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular federal income tax but which may
constitute an item of tax preference for purposes of the federal alternative
minimum tax.
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and enters into repurchase agreements relating to
such obligations.
The New York Municipal Money Market Portfolio's investment objective is
to provide as high a level of current income that is exempt from federal, New
York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. To achieve its objective, the Portfolio
invests primarily in Municipal Obligations, the interest on which is exempt from
regular federal income tax and is not an item of tax preference for purposes of
the federal alternative minimum tax ("Tax-Exempt Interest") and is exempt from
New York State and New York City personal income taxes.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
<PAGE>
The Portfolios' investment adviser is BlackRock Institutional
Management Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank")
serves as custodian to the Fund and PFPC Inc. ("PFPC") serves as the
administrator and the transfer and dividend disbursing agent to the Fund.
Provident Distributors, Inc. (the "Distributor") acts as distributor of the
Fund's Shares.
An investor may purchase and redeem Shares of any of the Bedford
Classes through his broker or by direct purchases or redemptions. See "Purchase
and Redemption of Shares."
An investment in any of the Bedford Shares is subject to certain risks,
as set forth in detail under "Investment Objectives and Policies." Any or all of
the Portfolios, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase of
mortgage-related securities, the purchase of securities on a "when-issued" or
"forward commitment" basis, the purchase of stand-by commitments and the lending
of securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
FEE TABLE
Annual Fund Operating Expenses (Bedford Classes)
as a percentage of average daily net assets
The Fee Table below contains a summary of the annual operating expenses
of the Bedford Classes of the Portfolios based on expenses incurred for the
fiscal year ended August 31, 1998, as a percentage of average daily net assets.
An example based on the summary is also shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Municipal Government New York
Money Money Obligations Municipal
Market Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
--------- --------- ------------ -------------
Management Fees (after waivers)(1)................. .24% .08% .30% .02%
12b-1 Fees ........................................ .54% .58% .57% .57%
Other Expenses .................................... .19% .23% .13% .25%
---- ---- ----- -----
Total Fund Operating Expenses (Bedford Classes)
(after waivers)(1)............................... .97% .89% .975% .84%
</TABLE>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio and New York Municipal Money Market
Portfolio, Management Fees would be .36%, .34%, .42% and .35%,
respectively, and Total Fund Operating Expenses would be 1.10%. 1.15%,
1.10% and 1.13%, respectively.
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Money Market*.............................................. $10 $31 $54 $119
Municipal Money Market*.................................... $ 9 $28 $49 $110
Government Obligations Money Market*....................... $10 $31 $54 $120
New York Municipal Money Market*........................... $ 9 $27 $47 $105
</TABLE>
* Other classes of these Portfolios are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses (Bedford Classes)" remain the same in the years shown. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Long-term Shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Bedford Classes of the Fund
will bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management -- Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on actual costs and fees charged to
each class. The Fee Table reflects a voluntary waiver of Management Fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management Fees will not vary from the figures reflected in the Fee Table. To
the extent that any service providers assume additional expenses of the
Portfolios, such assumption will have the effect of lowering a Portfolio's
overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield"
and "effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of federal,
New York State and New York City personal income taxes at stated rates.
<PAGE>
The total returns yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of any of the Bedford Classes will fluctuate
and is not necessarily representative of future results. Any fees charged by
broker/dealers directly to their customers in connection with investments in
Bedford Shares are not reflected in the total return and yield of Shares of the
Bedford Classes, and such fees, if charged, will reduce the actual return
received by shareholders on their investments. The total return and yield on
Shares of the Bedford Classes may differ from total return and yields on shares
of other classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the
investment results of the Bedford Classes representing interests in the Money
Market, Municipal Money Market and Government Obligations Money Market
Portfolios for the periods indicated. The financial data included in this table
for each of the periods ended August 31, 1994 through August 31, 1998 are a part
of the Fund's financial statements for each of the Portfolios, which are
incorporated by reference into the Statement of Additional Information and have
been audited by PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the
Fund's independent accountants. The financial data for each of the Portfolios
for the periods ended August 31, 1989, 1990, 1991, 1992 and 1993 are a part of
previous financial statements audited by PricewaterhouseCoopers. The financial
data should be read in conjunction with the financial statements and notes
thereto. Further information about the performance of the Portfolios is
available in the Annual Report to Shareholders. Both the Statement of Additional
Information and the Annual Report to Shareholders may be obtained free of charge
by calling the telephone number on page 1 of this Prospectus. As of the date of
this Prospectus, the Bedford Class of the New York Municipal Money Market
Portfolio had not commenced operations.
<PAGE>
The Bedford Family
The RBB Fund, Inc. Financial Highlights (c)
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Money Market Portfolio
-------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1998 August 31, 1997 August 31, 1996 August 31, 1995 August 31, 1994
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- ---------- -------- --------
Income from investment operations:
Net investment income.......... 0.0473 0.0462 0.0469 0.0486 0.0278
Net gains on securities (both
realized and unrealized)..... -- -- -- -- --
-------- --------- ---------- -------- --------
Total from investment
operations............... 0.0473 0.0462 0.0469 0.0486 0.0278
-------- --------- ---------- -------- --------
Less distributions
Dividends (from net investment
income)...................... (0.0473) (0.0462) (0.0469) (0.0486) (0.0278)
Distributions (from capital
gains)....................... -- -- -- -- --
-------- --------- ---------- -------- --------
Total distributions........ (0.0473) (0.0462) (0.0469) (0.0486) (0.0278)
-------- --------- ---------- -------- --------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========= ========== ======== ========
Total return..................... 4.84% 4.72% 4.79% 4.97% 2.81%
Ratios/Supplemental Data
Net assets, end of period (000) $762,739 $1,392,911 $1,109,334 $935,821 $710,737
Ratios of expenses to average
net assets................... .97%(a) .97%(a) .97%(a) .96%(a) .95%(a)
Ratios of net investment income
to average net assets........... 4.73% 4.62% 4.69% 4.86% 2.78%
</TABLE>
<TABLE>
<CAPTION>
For the Period
September 30, 1988
For the For the For the For the (Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990 August 31, 1989
--------------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- -------- -------- ------- --------
Income from investment operations:
Net investment income.......... 0.0243 0.0375 0.0629 0.0765 0.0779
Net gains on securities (both
realized and unrealized)..... -- 0.0007 -- -- --
--------- -------- -------- ------- --------
Total from investment
operations............... 0.0243 0.0382 0.0629 0.0765 0.0779
--------- -------- -------- ------- --------
Less distributions
Dividends (from net investment
income)...................... (0.0243) (0.0375) (0.0629) (0.0765) (0.0779)
Distributions (from capital
gains)....................... -- (0.0007) -- -- --
--------- -------- -------- ------- --------
Total distributions........ (0.0243) (0.0382) (0.0629) (0.0765) (0.0779)
--------- -------- -------- ------- --------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ======== ========
Total return..................... 2.46% 3.89% 6.48% 7.92% 8.81%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $782,153 $736,842 $747,530 $709,757 $152,311
Ratios of expenses to average
net assets................... .95%(a) .95%(a) .92%(a) .92%(a) .93%(a)(b)
Ratios of net investment income
to average net assets.......... 2.43% 3.75% 6.29% 7.65% 8.61%(b)
</TABLE>
(a) Without the waiver of advisory and administration fees, and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been
1.10%, 1.12%, 1.14%, 1.17% and 1.16% for the years ended August 31, 1998,
1997, 1996, 1995, 1994, 1993, 1992, 1991 and 1990, respectively, and 1.27%
annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within the
Portfolio.
<PAGE>
The Bedford Family
The RBB Fund, Inc. Financial Highlights (c)
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Municipal Money Market Portfolio
-----------------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1998 August 31, 1997 August 31, 1996 August 31, 1995 August 31, 1994
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- --------
Income from investment operations:
Net investment income.... 0.0286 0.0285 0.0288 0.0297 0.0195
Net gains on securities (both
realized and unrealized) -- -- -- -- --
------- -------- -------- -------- --------
Total from investment
operations......... 0.0286 0.0285 0.0288 0.0297 0.0195
------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)................ (0.0286) (0.0285) (0.0288) (0.0297) (0.0195)
Distributions (from capital
gains)................. -- -- -- -- --
------- -------- -------- -------- --------
Total distributions.. (0.0286) (0.0285) (0.0288) (0.0297) (0.0195)
-------- -------- -------- --------
Net asset value, end of period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ========== ======== ======== ========
Total return............... 2.97% 2.88% 2.92% 3.01% 1.97%
Ratios/Supplemental Data
Net assets, end of period (000) $147,633 $213,034 $201,940 $198,425 $182,480
Ratios of expenses to average
net assets............. .89%(a) .85%(a) .84%(a) .82%(a) .77%(a)
Ratios of net investment income
to average net assets..... 2.86% 2.85% 2.88% 2.97% 1.95%
</TABLE>
<TABLE>
<CAPTION>
For the Period
September 30, 1988
For the For the For the For the (Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990 August 31, 1989
--------------- --------------- --------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- -------- -------- -------
Income from investment operations:
Net investment income.... 0.0195 0.0287 0.0431 0.0522 0.0513
Net gains on securities (both
realized and unrealized) -- -- -- -- --
-------- ------- -------- -------- -------
Total from investment
operations......... 0.0195 0.0287 0.0431 0.0522 0.0513
-------- ------- -------- -------- -------
Less distributions
Dividends (from net investment
income)................ (0.0195) (0.0287) (0.0431) (0.0522) (0.0513)
Distributions (from capital
gains)................. -- -- -- -- --
-------- ------- -------- -------- -------
Total distributions.. (0.0195) (0.0287) (0.0431) (0.0522) (0.0513)
-------- ------- -------- -------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =======
Total return............... 1.96% 2.90% 4.40% 5.35% 5.72%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $215,577 $176,950 $215,140 $195,566 $85,806
Ratios of expenses to average
net assets............. .77%(a) .77%(a) .74%(a) .75%(a) 73%(a)(b)
Ratios of net investment income
to average net assets..... 1.95% 2.87% 4.31% 5.22% 5.70%(b)
</TABLE>
(a) Without the waiver of advisory and administration fees, and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Municipal Money Market Portfolio would have
been 1.15%, 1.14%, 1.12%, 1.14%, 1.12%, 1.16%, 1.15%, 1.13% and 1.14% for
the years ended August 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992,
1991 and 1990, respectively, and 1.27% annualized for the period ended
August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within the
Portfolio.
<PAGE>
The Bedford Family
The RBB Fund, Inc. Financial Highlights (c)
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Government Obligations Money Market Portfolio
---------------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1998 August 31, 1997 August 31, 1996 August 31, 1995 August 31, 1994
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- --------- --------- -------- --------
Income from investment operations:
Net investment income...... 0.0463 0.0449 0.0458 0.0475 0.0270
Net gains on securities (both
realized and unrealized). -- -- -- -- --
------- --------- --------- -------- --------
Total from investment
operations........... 0.0463 0.0449 0.0458 0.0475 0.0270
------- --------- --------- -------- --------
Less distributions
Dividends (from net investment
income).................. (0.0463) (0.0449) (0.0458) (0.0475) (0.0270)
Distributions (from capital
gains)................... -- -- -- -- --
------- --------- --------- -------- --------
Total distributions.... (0.0463) (0.0449) (0.0458) (0.0475) (0.0270)
--------- --------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ========= ========= ========= =========
Total return................. 4.74% 4.59% 4.68% 4.86% 2.73%
Ratios/Supplemental Data
Net assets, end of period (000) $128,447 $209,715 $ 192,599 $163,398 $166,418
Ratios of expenses to average
net assets............... .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income to
average net assets....... 4.63% 4.49% 4.58% 4.75% 2.70%
</TABLE>
<TABLE>
<CAPTION>
For the Period
September 30, 1988
For the For the For the For the (Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990 August 31, 1989
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- --------- --------- ---------
Income from investment operations:
Net investment income...... 0.0231 0.0375 0.0604 0.0748 0.0725
Net gains on securities (both
realized and unrealized). -- 0.0009 -- -- --
-------- -------- --------- --------- ---------
Total from investment
operations........... 0.0231 0.0384 0.0604 0.0748 0.0725
-------- -------- --------- --------- ---------
Less distributions
Dividends (from net investment
income).................. (0.0231) (0.0375) (0.0604) (0.0748) (0.0725)
Distributions (from capital
gains)................... -- (0.0009) -- -- --
-------- -------- --------- --------- ---------
Total distributions.... (0.0231) (0.0384) (0.0604) (0.0748) (0.0725)
-------- -------- --------- --------- ---------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total return................. 2.33% 3.91% 6.21% 7.74% 8.64%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $213,741 $225,101 $368,899 $209,378 $ 66,281
Ratios of expenses to average
net assets............... .975%(a) .975%(a) .95%(a) .95%(a) .96%(a)(b)
Ratios of net investment income to
average net assets....... 2.31% 3.75% 6.04% 7.48% 8.34%(b)
</TABLE>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net
assets for the Government Obligations Money Market Portfolio would have
been 1.10%, 1.09%, 1.10%, 1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17%
for the years ended August 31, 1998, 1997, 1996, 1995, 1994, 1993,1992,
1991 and 1990, respectively, and 1.40% annualized for the period ended
August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within the
Portfolio.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
Money Market Portfolio
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. Portfolio obligations held by the Money Market
Portfolio have remaining maturities of 397 days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." There is no
assurance that the Portfolio will achieve its investment objective. The
following descriptions illustrate the types of Money Market Instruments in which
the Money Market Portfolio invests.
BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
The Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (i)
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. 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
<PAGE>
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 security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a Portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
<PAGE>
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and Policies --
Municipal Money Market Portfolio -- Municipal Obligations."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
WHEN-ISSUED SECURITIES. The Portfolio may purchase portfolio securities
on a "when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset at the time the commitment is entered into and are subject
to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the Portfolio's
investment adviser pursuant to 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 at least two Rating Organizations ("Rating Organizations") (e.g.,
commercial paper rated "A-1" or "A-2" by Standard & Poor's Ratings Services
("S&P")), (3) securities that are rated at the time of purchase by the only
Rating Organization rating the security in one of its two highest rating
categories for such securities, (4) securities issued by issuers (or, in certain
cases guaranteed by persons) with short-term debt having such ratings, and (5)
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
<PAGE>
eligible rated securities. For a more complete description of eligible
securities, see "Investment Objectives and Policies" in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies -- Illiquid Securities" in
the Statement of Additional Information.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities, the interest on which is Tax-Exempt Interest, although to
the extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Portfolio's
investment adviser, suitable obligations bearing Tax-Exempt Interest or AMT
Interest are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
<PAGE>
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
<PAGE>
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis as described under "Investment Objectives
and Policies -- Money Market Portfolio -- When-Issued Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio as described under
"Investment Objectives and Policies -- Money Market Portfolio -- Stand-By
Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies -- Money Market Portfolio -- Eligible
Securities" and "Investment Objectives and Policies" in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies -- Illiquid Securities" in the Statement of Additional Information.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury, others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal. There is no assurance that the investment objective of the Portfolio
will be achieved.
Due to fluctuations in interest rates, the market values of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 days and the adjustments
<PAGE>
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a more complete description of repurchase agreements, see "Investment Objectives
and Policies -- Money Market Portfolio -- Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by
entering into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions and to meet redemptions. For a more complete description of
reverse repurchase agreements, see "Investment Objectives and Policies -- Money
Market Portfolio -- Reverse Repurchase Agreements."
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. Mortgage-related
securities consist of mortgage loans which are assembled into pools, the
interests in which are issued and guaranteed by an agency or instrumentality of
the U.S. Government, though not necessarily by the U.S. Government itself. The
Fund may also acquire asset-backed securities as described under "Investment
Objectives and Policies -- Money Market Portfolio -- Asset Backed Securities."
LENDING OF SECURITIES. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies--Money Market Portfolio -- Illiquid Securities" and "Investment
Objectives and Policies -- Illiquid Securities" in the Statement of Additional
Information.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 days or less
<PAGE>
("short-term" obligations). Dividends paid by the Portfolio which are derived
from interest attributable to tax-exempt obligations of the State of New York
and its political subdivisions, as well as of certain other governmental issuers
such as Puerto Rico ("New York Municipal Obligations"), will be excluded from
gross income for federal income tax purposes and exempt from New York State and
New York City personal income taxes, but will be subject to corporate franchise
taxes. Dividends derived from interest on tax-exempt obligations of other
governmental issuers will be excluded from gross income for federal income tax
purposes, but will be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods
or when acceptable securities are unavailable for investment by the Fund, at
least 65% of the Fund's assets will be invested in New York Municipal
Obligations. There is no assurance that the investment objective of the New York
Municipal Money Market Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio --
Municipal Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative
Minimum Tax Securities. Investors should be aware of the possibility of federal,
state and local alternative minimum or minimum income tax liability on interest
from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations the interest on which is
paid solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio such as described
under "Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
<PAGE>
TAXABLE INVESTMENTS. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's Investor Service, Inc. ("Moody's") or S&P; commercial paper rated in the
highest grade by Moody's or S&P; and certificates of deposit issued by United
States branches of United States banks with assets of $1 billion or more. At no
time will more than 20% of the Portfolio's total assets be invested in taxable
short-term securities unless the Portfolio's investment adviser has determined
to temporarily adopt a defensive investment policy in the face of an anticipated
softening in the market for Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market Portfolio
will only purchase "eligible securities." For a more complete description of
eligible securities, see "Investment Objectives and Policies -- Money Market
Portfolio -- Eligible Securities" and "Investment Objectives and Policies" in
the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio should be limited by its intention to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended, and by its policies restricting
investments to obligations with short-term maturities and obligations which
qualify as eligible securities.
The Portfolio's ability to meet its investment objective is dependent
upon the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic
problems that could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and lower market prices for their
outstanding debt obligations. Although several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's in recent years, the most
recent actions of S&P and Moody's have been to place the debit obligations of
New York State and New York City on Credit Watch with positive implications and
to update the debit obligations of New York City, respectively.
<PAGE>
Strong demand for New York Municipal Obligations has also at times had the
effect of permitting New York Municipal Obligations to be issued with yields
relatively lower, and after issuance to trade in the market at prices relatively
higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of other issuers of
New York Municipal Obligations. Although no issuers of New York Municipal
Obligations were as of the date of this Prospectus in default with respect to
the payment of their debt obligations, the occurrence of any such default could
adversely affect the market values and marketability of all New York Municipal
Obligations and, consequently, the net asset value of the Portfolio's shares.
Some of the significant financial considerations relating to the Fund's
investments in New York Municipal Obligations are summarized in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of
its net assets in illiquid securities. For a more complete description of
illiquid securities, see "Investment Objectives and Policies -- Money Market
Portfolio -- Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- -------------------------------------------------------------------------------
The Money Market, Municipal Money Market, Government Obligations Money
Market and New York Municipal Money Market Portfolios' respective investment
objectives and the policies described above may be changed by the Fund's Board
of Directors without shareholder approval. The Portfolios may not, however,
change the following investment limitations (except as noted) without such a
vote of their respective shareholders. (A more detailed description of the
following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
<PAGE>
The Portfolios may not borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in amounts not
in excess of 10% of the value of a Portfolio's assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or hypothecate any
of its assets except in connection with any such borrowing and in amounts not in
excess of 10% of the value of a Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess of 5% of
the Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of a Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
The Money Market and Municipal Money Market Portfolios may not:
1. Purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities, if immediately after and as a result of such purchase more
than 5% of the value of its total assets would be invested in the securities of
such issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by a Portfolio, except that up to 25% of the value of a
Portfolio's total assets may be invested without regard to such 5% limitation.
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments,
some of which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5% of the
value of the Portfolio's assets and may make time deposits.
2. Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Money Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government securities,
to 5% of its total assets, except that the Money Market Portfolio may invest
more than 5% of its total assets in First Tier Securities of one issuer for a
period of up to three Business Days (as defined below). "First Tier Securities"
include eligible securities that (i) if rated by more than one Rating
Organization, are rated (at the time of purchase) by two or more Rating
<PAGE>
Organizations in the highest rating category for such securities, (ii) if rated
by only one Rating Organization, are rated by such Rating Organization in its
highest rating category for such securities, (iii) have no short-term rating and
are comparable in priority and security to a class of short-term obligations of
the issuer of such securities that have been rated in accordance with (i) or
(ii) above, or (iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First Tier Securities that
come within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second
Tier Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second
Tier Securities of one issuer to the greater of 1% of its total assets or $1
million.
The Municipal Money Market Portfolio may not:
1. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested in obligations at the
time of purchase to be invested in issuers in the same industry.
In addition, without shareholder approval, the Portfolio may not
change its policy of investing during normal market conditions at least 80% of
its net assets in obligations the interest on which is Tax-Exempt Interest or
AMT Interest.
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral, consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
<PAGE>
The New York Municipal Money Market Portfolio may not:
Purchase any securities which would cause 25% or more of the
value of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that this limitation shall not apply to Municipal
Obligations or governmental guarantees of Municipal Obligations; and provided,
further, that for the purpose of this limitation only, private activity bonds
that are considered to be issued by non-governmental users shall not be deemed
to be Municipal Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
New York Municipal Money Market Portfolio will meet the following limitation on
its investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
The New York Municipal Money Market Portfolio will not purchase
any put if after the acquisition of the put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments issued by
or subject to puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the New York Municipal
Money Market Portfolio's total assets. A "put" means a right to sell a specified
underlying instrument within a specified period of time and at a specified
exercise price that may be sold, transferred or assigned only with the
underlying instrument.
Opinions relating to the validity of Municipal Obligations and to
the exemption of interest thereon from federal income tax (and, with respect to
New York Municipal Obligations, to the exemption of interest thereon from New
York State and New York City personal income tax) are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the Fund nor its
investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
GENERAL. Bedford Shares are sold without a sales load on a continuous
basis by the Distributor. The Distributor is located at Four Falls Corporate
Center, Conshohocken, Pennsylvania. Investors may purchase Bedford Shares
through an account maintained by the investor with his brokerage firm (the
"Account") and may also purchase Shares directly by mail or
<PAGE>
wire. The minimum initial investment is $1,000, and the minimum subsequent
investment is $100. The Fund in its sole discretion may accept or reject any
order for purchases of Bedford Shares.
All payments for initial and subsequent investments should be in
U.S. dollars. Purchases will be effected at the net asset value next determined
after PFPC, the Fund's transfer agent, has received a purchase order in good
order and the Fund's custodian has Federal Funds immediately available to it. In
those cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by the Fund by 12:00 noon Eastern
Time, and orders as to which payment has been converted into Federal Funds by
12:00 noon Eastern Time, will be executed as of 12:00 noon that Business Day.
Orders which are accompanied by Federal Funds and received by PFPC after 12:00
noon Eastern Time but prior to the close of regular trading on the NYSE
(generally 4:00 p.m. Eastern Time), and orders as to which payment has been
converted into Federal Funds after 12:00 noon Eastern Time but prior to the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE on that Business Day,
but will not be entitled to receive dividends declared on such Business Day.
Orders which are accompanied by Federal Funds and received by the Fund as of the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be effected
through an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Bedford Shares will be recorded by the broker and will
be reflected in the Account statements provided by the broker to such investors.
A broker may impose minimum investment Account requirements. Even if a broker
does not impose a sales charge for purchases of Bedford Shares, depending on the
terms of an investor's Account with his broker, the broker may charge an
investor's Account fees for automatic investment and other services provided to
the Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker, and this Prospectus should be read
in conjunction with any information received from a broker. Shareholders whose
shares are held in the street name account of a broker and who desire to
transfer such shares to the street name account of another broker should contact
their current broker.
A broker may offer investors maintaining Accounts the ability to
purchase Bedford Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Bedford Class designated by the investor
as the "Primary Bedford Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program
<PAGE>
should be directed to the broker. A participant in a Purchase Program may change
the designation of the Primary Bedford Class at any time by so instructing his
broker.
If a broker makes special arrangements under which orders for Bedford
Shares are received by PFPC prior to 12:00 noon Eastern Time, and the broker
guarantees that payment for such Shares will be made in available Federal Funds
to the Fund's custodian prior to the close of regular trading on the NYSE on the
same day, such purchase orders will be effective and Shares will be purchased at
the offering price in effect as of 12:00 noon Eastern Time on the date the
purchase order is received by PFPC.
DIRECT PURCHASES. An investor may also make direct investments at any
time in any Bedford Class he selects through any broker that has entered into a
dealer agreement with the Distributor (a "Dealer"). An investor may make an
initial investment in any of the Bedford Classes by mail by fully completing and
signing an application obtained from a Dealer (the "Application"), specifying
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Bedford Family" to the Bedford Family, c/o PFPC, P.O. Box
8950, Wilmington, Delaware 19899. The check must specify the name of the
Portfolio for which shares are being purchased. An Application will be returned
to the investor unless it contains the name of the Dealer from whom it was
obtained. Subsequent purchases may be made through a Dealer or by forwarding
payment to the Fund's transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Bedford Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
may impose a charge for this service. The Fund does not currently charge for
effecting wire transfers but reserves the right to do so in the future. In order
to ensure prompt receipt of an investor's Federal Funds wire, for an initial
investment, it is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800)533-7719
(in Delaware call collect (302) 791-1196), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the Bedford
Class selected, the amount being wired, and by which bank or Dealer. PFPC will
then provide an investor with a Fund account number. (Investors with existing
accounts should also notify PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, PA
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the
Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
<PAGE>
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a fully
completed and signed Application.
For subsequent investments, an investor should follow steps A and B
above.
RETIREMENT PLANS. Bedford Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns
Bedford Shares through an Account may redeem Bedford Shares in his Account in
accordance with instructions and limitations pertaining to his Account by
contacting his broker. If such notice is received by PFPC by 12:00 noon Eastern
Time on any Business Day, the redemption will be effective as of 12:00 noon
Eastern Time on that day. Payment of the redemption proceeds will be made after
12:00 noon Eastern Time on the day the redemption is effected, provided that the
Fund's custodian is open for business. If the custodian is not open, payment
will be made on the next bank business day. If the redemption request is
received between 12:00 noon and the close of regular trading on the NYSE on a
Business Day, the redemption will be effective as of the close of regular
trading on the NYSE on such Business Day and payment will be made on the next
bank business day following receipt of the redemption request. If all Shares are
redeemed, all accrued but unpaid dividends on those Shares will be paid with the
redemption proceeds.
An investor's brokerage firm may also redeem each day a sufficient
number of Shares of the Primary Bedford Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
REDEMPTION OF SHARES OWNED DIRECTLY. A direct investor may redeem any
number of Shares by sending a written request to The Bedford Family c/o PFPC,
P.O. Box 8950, Wilmington, Delaware 19899. Redemption requests must be signed by
each shareholder in the same manner as the Shares are registered. Redemption
requests for joint accounts require the signature of each joint owner. On
redemption requests of $5,000 or more, each signature must be guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities
<PAGE>
Transfer Association. The three recognized medallion programs are Securities
Transfer Agents Medallion (STAMP), Stock Exchanges Medallion Program (SEMP) and
New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees that are not part of these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by call (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine.
The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
Proceeds of a telephone redemption request will be mailed by check to
an investor's registered address unless he has designated in his Application or
Telephone Authorization Form that such proceeds are to be sent by wire transfer
to a specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next day that a wire transfer can be effected.
The minimum redemption for proceeds sent by wire transfer is $2,500. There is no
maximum for proceeds sent by wire transfer. The Fund may modify this redemption
service at any time or charge a service fee upon prior notice to shareholders,
although no fee is currently contemplated.
REDEMPTION BY CHECK. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100: however, a broker may establish a higher minimum. An
<PAGE>
investor wishing to use this check writing redemption procedure should complete
specimen signature cards (available from PFPC), and then forward such signature
cards to PFPC. PFPC will then arrange for the checks to be honored by PNC Bank.
Investors who own Shares through an Account should contact their brokers for
signature cards. Investors of joint accounts may elect to have checks honored
with a single signature. Check redemptions will be subject to PNC Bank's rules
governing checks. An investor will be able to stop payment on a check
redemption. The Fund or PNC Bank may terminate this redemption service at any
time, and neither shall incur any liability for honoring checks, for effecting
redemptions to pay checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make
payment for all Shares redeemed within seven days after receipt by PFPC of a
redemption request in proper form. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed for a period of up to fifteen days after their purchase, pending
a determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in a Bedford Class involuntarily, on thirty
days' notice, if such account falls below $500 and during such 30-day notice
period the amount invested in such account is not increased to at least $500.
Payment for Shares redeemed may be postponed or the right of redemption
suspended as provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
- -------------------------------------------------------------------------------
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the proportionate interest of each class in the
value of the securities, cash and other assets of the Portfolio, subtracting the
accrued and actual
<PAGE>
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value per share of each class of the Fund is
determined independently of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value
of $1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate seventeen investment portfolios. Each of the
Bedford Classes represents interests in one of the following portfolios: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio.
INVESTMENT ADVISER
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios
and is responsible for all purchases and sales of portfolio securities. In
entering into Portfolio transactions for a Portfolio with a broker, BIMC may
take into account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreements between BIMC and RBB, with
respect to the Money Market and Government Obligations Money Market Portfolios,
respectively, provide for BIMC to also assist generally in supervising the
operations of such Portfolios, and to maintain such Portfolio's financial
accounts and records. These administrative responsibilities have been delegated
to PFPC as described below.
<PAGE>
For the services provided to and expenses assumed by it for the benefit
of each of the Money Market and Government Obligations Money Market Portfolios,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of net assets in excess of $500
million.
For the services provided and expenses assumed by it with respect to
the Municipal Money Market and New York Municipal Money Market Portfolios, BIMC
is entitled to receive the following fees, computed daily and payable monthly
based on a Portfolio's average daily net assets: .35% of the first $250 million;
.30% of the next $250 million; and .25% of net assets in excess of $500 million.
BIMC may in its discretion from time to time agree to waive voluntarily
all or any portion of its advisory fee for any Portfolio.
For the Fund's fiscal year ended August 31, 1998, the Fund paid
investment advisory fees aggregating .24% of the average net assets of the Money
Market Portfolio, .08% of the average net assets of the Municipal Money Market
Portfolio and .30% of the average net assets of the Government Obligations Money
Market Portfolio. For that same year, BIMC waived approximately .13%, .26% and
.12% of average net assets of the Money Market Portfolio, Municipal Money Market
Portfolio and the Government Obligations Money Market Portfolio, respectively.
PNC Bank was formerly sub-adviser to the Money Market, Municipal Money
Market and Government Obligations Portfolios and provided research, credit
analysis and recommendations with respect to each such 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 each such 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 such Portfolios 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 serves as the administrator for the Municipal Money Market and New
York Municipal Money Market Portfolios and generally assists those Portfolios in
all aspects of their administration and operations, including matters relating
to the maintenance of financial records and accounting. PFPC is entitled to an
administration fee, computed daily and payable monthly at .10% of the average
daily net assets of each of these Portfolios. Pursuant to its advisory
agreements with the Fund with respect to the Money Market and Government
Obligations Money Market Portfolios, BIMC provides administrative services to
such Portfolios pursuant to the same terms, but has delegated to PFPC all of its
accounting and administrative obligations
<PAGE>
under such advisory agreements. The Fund has agreed to pay directly to PFPC the
fees for accounting and administrative services to the Money Market and
Government Obligations Money Market Portfolios which PFPC would have received
directly from BIMC. Such arrangement has no effect on the total advisory and
administrative fees payable by such Portfolios to BIMC. PFPC's principal
business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
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, West Conshohocken, Pennsylvania 19428, acts as
Distributor of the Shares of each of the Bedford Classes of the Fund pursuant to
a distribution agreement dated May 29, 1998 (the "Distribution Agreement").
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. The Bedford Classes
of the Fund pay their own distribution fees and may pay a different share than
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Bedford Class or if they receive different services.
The investment adviser may assume expenses of the Portfolios from time
to time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1998, the Fund's total
expenses were 1.10% of the average net assets with respect to the Bedford Class
of the Money Market Portfolio (not taking into account waivers of .13%), were
1.15% of the average net assets with respect to the Bedford Class of the
Municipal Money Market Portfolio (not taking into account waivers of .26%) and
were 1.10% of the average net assets with respect to the Bedford Class of the
Government Obligations Money Market Portfolio (not taking into account waivers
of .125%).
<PAGE>
DISTRIBUTION OF SHARES
- -------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Bedford Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the relevant Bedford Class. The actual amount of such compensation is agreed
upon from time to time by the Fund's Board of Directors and the Distributor.
Under the Distribution Agreement, the Distributor has agreed to accept
compensation for its services thereunder and under the Plans in the amount of
.60% of the average daily net assets of the relevant Class on an annualized
basis in any year. Pursuant to the conditions of an exemptive order granted by
the Securities and Exchange Commission, the Distributor has agreed to waive its
fee with respect to a Bedford Class on any day to the extent necessary to assure
that the fee required to be accrued by such Class does not exceed the income of
such Class on that day. In addition, the Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor
may reallocate an amount up to the full fee that it receives to financial
institutions, including broker/dealers, based upon the aggregate investment
amounts maintained by and services provided to shareholders of any relevant
Class serviced by such financial institutions. The Distributor may also
reimburse broker/dealers for other expenses incurred in the promotion of the
sale of Fund shares. The Distributor and/or broker/dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in
effect, to accrue and pay to the Distributor on behalf of each Bedford Class the
fee agreed to under the Distribution Agreement. Payments under the Plans are not
based on expenses actually incurred by the Distributor, and the payments may
exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
- -------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Bedford Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital
gains) earned by each Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of 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.
<PAGE>
TAXES
- -------------------------------------------------------------------------------
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New
York Municipal Money Market Portfolio will generally constitute tax-exempt
income for shareholders for federal income tax purposes. It is possible,
depending upon the Portfolios' investments, that a portion of each Portfolio's
distributions could be taxable to shareholders as ordinary income or capital
gains, but it is not expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio and
the New York Municipal Money Market Portfolio are exempt for federal income tax
purposes, they will generally constitute taxable income for state and local
income tax purposes except that, subject to limitations that vary depending on
the state, distributions from interest paid by a state or municipal entity may
be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal income tax purposes,
in most cases does not result in an exemption under the tax laws of any other
state or local authority.
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.
<PAGE>
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 each of its Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios to expand its marketing alternatives and to
broaden its range of services to different investors. The expenses of the
various classes within these Portfolios vary based upon the services provided,
which may affect performance. Each class of Common Stock of the Fund has a
separate Rule 12b-1 distribution plan. Under the Distribution 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 a Portfolio of the Fund. An investor may contact
the Fund's Distributor by calling 1-800-888-9723 to request more information
concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE BEDFORD CLASSES OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE BEDFORD
CLASSES OF THESE PORTFOLIOS.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the aggregate
and not by class on all matters, except where otherwise required by law.
Further, shareholders of all investment portfolios of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information
<PAGE>
under "Additional Information Concerning Fund Shares" for examples of when the
1940 Act requires voting by investment portfolio or by class.) Shareholders of
the Fund are entitled to one vote for each full share held (irrespective of
class or portfolio) and fractional votes for fractional shares held. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate shares of Common Stock of the Fund may elect all of the directors.
As of November 16, 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).
<PAGE>
ESTABLISHED 1832
JMS, INC.
PROSPECTUS
THE JANNEY
MONTGOMERY SCOTT
MONEY FUNDS
MONEY MARKET PORTFOLIO
________________________________
MUNICIPAL
MONEY MARKET PORTFOLIO
________________________________
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
________________________________
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
________________________________
DECEMBER 29, 1998
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON HAS HAVING BEEN AUTHORIZED BY THE FUND
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
FINANCIAL HIGHLIGHTS............................. 5
INVESTMENT OBJECTIVES AND POLICIES...............10
YEAR 2000........................................19
INVESTMENT LIMITATIONS...........................19
PURCHASE AND REDEMPTION OF SHARES................22
NET ASSET VALUE..................................25
MANAGEMENT.......................................25
DISTRIBUTION OF SHARES...........................28
DIVIDENDS AND DISTRIBUTIONS......................29
TAXES............................................29
DESCRIPTION OF SHARES............................30
OTHER INFORMATION................................32
INVESTMENT ADVISER
BlackRock Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
OF THE RBB FUND, INC.
The Janney Montgomery Scott Money Funds consists of four classes of
common stock (collectively, the "Janney Classes") of The RBB Fund, Inc. (the
"Fund"), an open-end management investment company incorporated under the laws
of the State of Maryland on February 29, 1988. The Fund is currently operating
or proposing to operate seventeen separate investment portfolios. The shares of
the classes (collectively, the "Janney Shares" or "Shares") offered by this
Prospectus represent interests in a taxable money market portfolio, a municipal
money market portfolio, a U.S. Government obligations money market portfolio,
and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO - to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of principal.
It seeks to achieve such objective by investing in a diversified portfolio of
U.S. dollar-denominated money market instruments.
MUNICIPAL MONEY MARKET PORTFOLIO - to provide as high a level of
current interest income exempt from federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular federal
income tax but which may constitute an item of tax preference for purposes of
the federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO - to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in
short-term U.S. Treasury bills, notes and other obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO - to provide as high a level
of current income that is exempt from federal, New York State and New York City
personal income taxes as is consistent with preservation of capital and
liquidity. It seeks to achieve its objective by investing primarily in Municipal
Obligations, the interest on which is exempt from the regular federal income tax
and is not an item of tax preference for purposes of the federal alternative
minimum tax ("Tax-Exempt Interest") and is exempt from New York State and New
York City personal income taxes and which meet certain ratings criteria and
present minimal credit risks. The New York Municipal Money Market Portfolio may
invest a significant percentage of its assets in a single issuer, and therefore
investment in this Portfolio may be riskier than an investment in other types of
money market funds.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
An investor may purchase and redeem Shares of any of the Janney Classes
through Janney Montgomery Scott ("JMS"). See "Purchase and Redemption
of Shares."
BlackRock Institutional Management Corporation ("BIMC") serves as
investment adviser for the Portfolios and PNC Bank National Association ("PNC
Bank") serves as custodian for the Fund. PFPC Inc. ("PFPC") serves as
administrator and transfer and dividend disbursing agent for the Fund. Provident
Distributors, Inc. (the "Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a prospective
investor needs to know before investing. Please keep it for future reference. A
Statement of Additional Information, dated December 29, 1998, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
this Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800)430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the SEC
Internet Website (http://www.sec.gov).
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
- 2 -
<PAGE>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (JANNEY SHARES)
The Fee Table below contains a summary of the annual operating expenses
of the Janney Classes of the Portfolios based on expenses incurred for the
fiscal year ended August 31, 1998, as a percentage of average daily net assets.
An example based on the summary is also shown.
<TABLE>
<S> <C> <C> <C> <C>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market Money Market
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------- ------------
Management Fees (after waivers)(1)
12b-1 Fees(1).................... .24% .08% .30% .05%
Other Expenses (after .60 .58 .57 .56
waivers)(1)....................
Total Fund Operating .16 .20 .13 .19
Expenses (Janney
Classes) (after
waivers and
reimbursements)(1)............. 1.00% .86% 1.00% .80%
===== ==== ===== ====
</TABLE>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio and New York Municipal Money Market
Portfolio, Management Fees would be .36%, .34%, .44%, and .35%,
respectively; Other Expenses would be .25%, .24%, .21%, and .29%,
respectively; and Total Fund Operating Expenses would be 1.21%, 1.16%,
1.23%, and 1.20%, respectively.
- 3 -
<PAGE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market*................................................. $10 $32 $55 $122
Municipal Money Market*....................................... $ 9 $27 $48 $106
Government Obligations Money Market*.......................... $10 $32 $55 $122
New York Municipal Money Market*.............................. $ 8 $26 $44 $ 99
</TABLE>
*Other classes of these Portfolios are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses (Janney Classes)" remain the same in the years shown. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Janney Classes of the Fund
will bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management--Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on actual costs and fees charged to
each class. The Fee Table reflects a voluntary waiver of Management Fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management Fees will not vary from the figures reflected in the Fee Table. To
the extent that any service providers assume additional expenses of the
Portfolios, such assumption will have the effect of lowering a Portfolio's
overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield",
and "effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
- 4 -
<PAGE>
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of federal,
New York State and New York City personal income taxes at stated rates.
The Total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of any of the Janney Classes will fluctuate and
is not necessarily representative of future results. Any fees charged by JMS
directly to their customers in connection with investments in the Janney Classes
are not reflected in the total return and yields of the Janney Shares, and such
fees, if charged, will reduce the actual return received by shareholders on
their investments. The total return and yield on Shares of the Janney Classes
may differ from total return and yields on shares of other classes of the Fund
that also represent interests in the same Portfolio depending on the allocation
of expenses to each of the classes of that Portfolio. See "Expenses."
- 5 -
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the
investment results of the Janney Classes representing interests in the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios for the periods indicated. The financial data
included in this table for each of the periods ended August 31, 1995 through
1998 are part of the Fund's financial statements for each of the Portfolios,
which are incorporated by reference into the Statement of Additional Information
and have been audited by PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"),
the Fund's independent accountants. The financial data should be read in
conjunction with such financial statements and notes thereto. Further
information about the performance of the Portfolios is available in the Annual
Report to Shareholders. Both the Annual Report to Shareholders and the Statement
of Additional Information may be obtained free of charge by calling the
telephone number on page 1 of this Prospectus.
- 6 -
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C> <C>
FOR THE PERIOD
JUNE 12, 1995
FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
Net asset value, beginning of period....... $ 1.00 $1.00 $1.00 $1.00
----- ----- -----
Income from investment operations:
Net investment income.................. 0.0469 0.0459 0.0465 0.0112
-------- ------ ------ ------
Total from investment
operations.................... 0.0469 0.0459 0.0465 0.0112
-------- ------ ------ ------
Less distributions
Dividends (from net investment
income).............................. (0.0469) (0.0459) (0.0465) (0.0112)
-------- -------- -------- --------
Total distributions............. (0.0469) (0.0459) (0.0465) (0.0112)
-------- -------- -------- --------
Net asset value, end of period............. $ 1.00 $1.00 $1.00 $1.00
======== ===== ===== =====
Total Return............................. 4.81% 4.69% 4.76% 5.30%(b)
Ratios/Supplemental Data
Net assets, end of period (000).......... $904,526 $736,855 $561,865 $443,645
Ratios of expenses to average
net assets........................... 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets................... 4.69% 4.59% 4.65% 5.04%(b)
</TABLE>
(a) Without the waiver of advisory, administration and transfer agent fees
and without the reimbursement of certain operating expenses, the ratios
of expenses to average net assets for the Money Market Portfolio would
have been 1.21%, 1.22%, 1.23%, and 1.23% for the years ended August 31,
1998, 1997 and 1996 and the period ended August 31, 1995, respectively.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Class of shares within the
Money Market Portfolio.
- 7 -
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C> <C>
FOR THE PERIOD
JUNE 12, 1995
FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
Net asset value, beginning of period....... $ 1.00 $1.00 $1.00 $1.00
-------- ----- ----- -----
Income from investment operations:
Net investment income.................. 0.0290 0.0285 0.0278 0.0063
-------- ------ ------ ------
Total from investment
operations.................... 0.0290 0.0285 0.0278 0.0063
-------- ------ ------ ------
Less distributions
Dividends (from net investment
income).............................. (0.0290) (0.0285) (0.0278) (0.0063)
-------- -------- -------- --------
Total distributions............. (0.0290) (0.0285) (0.0278) (0.0063)
-------- -------- -------- --------
Net asset value, end of period............. $ 1.00 $1.00 $1.00 $1.00
======== ===== ===== =====
Total Return............................. 2.94% 2.89% 2.81% 2.87%(b)
Ratios/Supplemental Data
Net assets, end of period (000).......... $97,445 $108,826 $89,428 $113,256
Ratios of expenses to average
net assets........................... 0.86%(a) 0.85%(a) 0.94%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets................... 2.90% 2.85% 2.78% 2.83%(b)
</TABLE>
(a) Without the waiver of advisory, administration and transfer agent fees
and without the reimbursement of certain operating expenses, the ratios
of expenses to average net assets for the Municipal Money Market
Portfolio would have been 1.16%, 1.13%, 1.23%, and 1.30%, for the years
ended August 31, 1998, 1997 and 1996 and the period ended August 31,
1995, respectively.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Class of shares within
the Municipal Money Market Portfolio.
- 8 -
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C> <C>
FOR THE PERIOD
JUNE 12, 1995
FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
Net asset value, beginning of period....... $ 1.00 $1.00 $1.00 $1.00
-------- ----- ----- -----
Income from investment operations:
Net investment income.................. 0.0460 0.0447 0.0456 0.0109
-------- ------ ------ ------
Total from investment
operations.................... 0.0460 0.0447 0.0456 0.0109
-------- ------ ------ ------
Less distributions
Dividends (from net investment
income).............................. (0.0460) (0.0447) (0.0456) (0.0109)
-------- -------- -------- --------
Total distributions............. (0.0460) (0.0447) (0.0456) (0.0109)
-------- -------- -------- --------
Net asset value, end of period........... $ 1.00 $1.00 $1.00 $1.00
======== ===== ===== =====
Total Return............................. 4.71% 4.56% 4.66% 5.03%(b)
Ratios/Supplemental Data
Net assets, end of period (000)........ $379,065 $352,950 $306,757 $302,585
Ratios of expenses to average
net assets........................... 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets................... 4.60% 4.47% 4.56% 4.91%(b)
</TABLE>
(a) Without the waiver of advisory, administration and transfer agent fees
and without the reimbursement of certain operating expenses, the ratios
of expenses to average net assets for the Government Obligations Money
Market Portfolio would have been 1.23%, 1.23%, 1.25%, and 1.28%, for the
years ended August 31, 1998, 1997 and 1996 and the period ended August
31, 1995, respectively.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Class of shares within
the Government Obligations Money Market Portfolio.
- 9 -
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<S> <C> <C> <C> <C>
FOR THE PERIOD
JUNE 9, 1995
FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
Net asset value, beginning of period..... $ 1.00 $1.00 $1.00 $1.00
------- ----- ----- -----
Income from investment operations:
Net investment income.................. 0.0273 0.0276 0.0262 0.0062
------ ------ ------ ------
Total from investment
operations.................... 0.0273 0.0276 0.0262 0.0062
------ ------ ------ ------
Less distributions
Dividends (from net investment
income).............................. (0.0273) (0.0276) (0.0262) (0.0062)
-------- -------- -------- --------
Total distributions............. (0.0273) (0.0276) (0.0262) (0.0062)
-------- -------- -------- --------
Net asset value, end of period........... $1.00 $1.00 $1.00 $1.00
======== ===== ===== =====
Total Return............................. 2.77% 2.80% 2.65% 2.72%(b)
Ratios/Supplemental Data
Net assets, end of period (000)........ $31,055 $30,442 $20,032 $14,671
Ratios of expenses to average
net assets........................... 0.80%(a) 0.80%(a) 0.93%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets................... 2.73% 2.76% 2.62% 2.68%(b)
</TABLE>
(a) Without the waiver of advisory, administration and transfer agent fees
and without the reimbursement of certain operating expenses, the ratios
of expenses to average net assets for the New York Municipal Money
Market Portfolio would have been 1.20%, 1.13%, 1.25%, and 1.28%, for the
years ended August 31, 1998, 1997 and 1996 and the period ended August
31, 1995, respectively.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Class of shares within
the New York Municipal Money Market Portfolio.
- 10 -
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. Portfolio obligations held by the Money Market
Portfolio have remaining maturities of 397 days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities". There is no
assurance that the Portfolio will achieve its investment objective. The
following descriptions illustrate the types of Money Market Instruments in which
the Money Market Portfolio invests.
BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
The Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper (i) rated
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization; or (ii) issued by issuers (or, in certain
cases guaranteed by persons) with short-term debt having such ratings. 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.
- 11 -
<PAGE>
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 security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a Portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
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at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
WHEN-ISSUED SECURITIES. The Portfolio may purchase portfolio securities
on a "when-issued" basis. When issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset at the time the commitment is entered into and are subject
to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the Portfolio's
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include: (1) U.S. Government securities, (2)
securities that are rated at the time of purchase in the two highest rating
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<PAGE>
categories by at least two Rating Organizations ("Rating Organizations") (e.g.,
commercial paper rated "A-1" or "A-2" by Standard & Poor's Ratings Services
("S&P"), (3) securities that are rated at the time of purchase by the only
Rating Organization rating the security in one of its two highest rating
categories for such securities, (4) securities issued by issuers (or, in certain
cases guaranteed by persons) with short-term debt having such ratings, and (5)
securities that are not rated and are issued by an issuer that does not have
comparable obligations rated by a Rating Organization ("Unrated Securities"),
provided that such securities are determined to be of comparable quality to
eligible rated securities. For a more complete description of eligible
securities, see "Investment Objectives and Policies" in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
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<PAGE>
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods, or if, in the opinion of the Portfolio's
investment adviser, suitable obligations bearing Tax-Exempt Interest or AMT
Interest are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
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<PAGE>
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis as described under "Investment Objectives
and Policies--Money Market Portfolio--When-Issued Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio--Eligible
Securities" and "Investment Objectives and Policies" in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies--Money Market Portfolio--Illiquid Securities " and "Investment
Objectives and Policies--Illiquid Securities" in the Statement of Additional
Information.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal. There is no assurance that the investment objective of the Portfolio
will be achieved.
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<PAGE>
Due to fluctuations in interest rates, the market values of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 days and the adjustments
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a more complete description of repurchase agreements, see "Investment Objectives
and Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by
entering into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions and to meet redemptions. For a more complete description of
reverse repurchase agreements, see "Investment Objectives and Policies--Money
Market Portfolio--Reverse Repurchase Agreements."
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. Mortgage-related
securities consist of mortgage loans which are assembled into pools, the
interests in which are issued and guaranteed by an agency or instrumentality of
the U.S. Government, though not necessarily by the U.S. Government itself. The
Fund may also acquire asset-backed securities as described under "Investment
Objectives and Policies--Money Market Portfolio--Asset-Backed Securities."
LENDING OF SECURITIES. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies--Money Market Portfolio--Illiquid Securities" and "Investment
Objectives and Policies--Illiquid Securities" in the Statement of Additional
Information.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income that is exempt from
federal, New York State and New York City personal income taxes as is consistent
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<PAGE>
with preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria and present minimal credit risks to the Portfolio. Portfolio
obligations held by the New York Municipal Money Market Portfolio will have
remaining maturities of 397 days or less ("short-term obligations"). Dividends
paid by the Portfolio which are derived from interest attributable to tax-exempt
obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ("New York Municipal
Obligations"), will be excluded from gross income for federal income tax
purposes and exempt from New York State and New York City personal income taxes,
but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio--Municipal
Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative
Minimum Tax Securities. Investors should be aware of the possibility of federal,
state and local alternative minimum or minimum income tax liability on interest
from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations the interest on which is
paid solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Portfolio may invest in
tax-exempt derivative securities such as tender option bonds, custodial
receipts, participations, beneficial interests in trusts and partnership
interests. For a more complete description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis as described under "Investment Objectives
and Policies--Money Market Portfolio--When-Issued Securities."
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<PAGE>
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio such as described
under "Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's Investors Service, Inc. ("Moody's") or S&P; commercial paper rated in
the highest grade by Moody's or S&P; and certificates of deposit issued by
United States branches of United States banks with assets of $1 billion or more.
At no time will more than 20% of the Portfolio's total assets be invested in
taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of an
anticipated softening in the market for Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines. For a
more complete description of eligible securities, see "Investment Objectives and
Policies--Money Market Portfolio--Eligible Securities" and "Investment
Objectives and Policies" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio would be mitigated by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities.
The Portfolio's ability to meet its investment objective is dependent
upon the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic problems
that could seriously affect their ability and that of other issuers of New York
Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and fewer markets for their
outstanding debt obligations. Although, several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
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York City have been downgraded by S&P and Moody's. In recent years, the most
recent actions of S&P and Moody's have been to place the debt obligations of
New York State and New York City on creditwatch with positive implications and
to upgrade the debt obligations of New York City, respectively. Strong demand
for New York Municipal Obligations has also at times had the effect of
permitting New York Municipal Obligations to be issued with yields relatively
lower, and after issuance to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by such issuers
of New York Municipal Obligations could result in defaults or declines in the
market values of those issuers' existing obligations and, possibly, in the
obligations of other issuers of New York Municipal Obligations. Although no
issuers of New York Municipal Obligations were as of the date of this Prospectus
in default with respect to the payment of their debt obligations, the occurrence
of any such default could adversely affect the market values and marketability
of all New York Municipal Obligations and consequently, the net asset value of
the Portfolio's shares. Some of the significant financial considerations
relating to the Fund's investments in New York Municipal Obligations are
summarized in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies--Money Market Portfolio--Illiquid Securities " and "Investment
Objectives and Policies--Illiquid Securities" in the Statement of Additional
Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Money Market, Municipal Money Market, Government Obligations Money
Market and New York Municipal Money Market Portfolios' respective investment
objectives and the policies described above may be changed by the Fund's Board
of Directors without shareholder approval. The Portfolios may not, however,
change the following investment limitations (except as noted) without such a
vote of their respective shareholders. (A more detailed description of the
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<PAGE>
following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
The Portfolios may not borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in amounts not
in excess of 10% of the value of a Portfolio's assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or hypothecate any
of its assets except in connection with any such borrowing and in amounts not in
excess of 10% of the value of a Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess of 5% of
the Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of a Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
The Money Market and Municipal Money Market Portfolios may not:
1. Purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its
agencies and instrumentalities, if immediately after and as a
result of such purchase more than 5% of the value of its total
assets would be invested in the securities of such issuer, or more
than 10% of the outstanding voting securities of such issuer would
be owned by a Portfolio, except that up to 25% of the value of a
Portfolio's total assets may be invested without regard to such 5%
limitation.
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market
Instruments, some of which may be subject to repurchase agreements,
but the Portfolio may make interest-bearing savings deposits in
amounts not in excess of 5% of the value of the Portfolio's assets
and may make time deposits.
2. Purchase any securities which would cause, at the time
of purchase, less than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the
banking industry, or in obligations, such as repurchase agreements,
secured by such obligations (unless the Portfolio is in a temporary
defensive position) or which would cause, at the time of purchase,
more than 25% of the value of itstotal assets to be invested in the
obligations of issuers in any other industry.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Money Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of
the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that the
Money Market Portfolio may invest more than 5% of its total assets
in First Tier
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Securities of one issuer for a period of up to three Business Days
(as defined below). "First Tier Securities" include eligible
securities that (i) if rated by more than one Rating Organization,
are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such
Rating Organization in its highest rating category for such
securities, (iii) have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the
issuer of such securities that have been rated in accordance with
(i) or (ii) above, or (iv) are Unrated Securities that are
determined to be of comparable quality to such securities. Purchases
of First Tier Securities that come within categories (ii) and (iv)
above will be approved or ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of
Second Tier Securities, which are eligible securities other than
First Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of
Second Tier Securities of one issuer to the greater of 1% of its
total assets or $1 million.
The Municipal Money Market Portfolio may not:
1. Purchase any securities which would cause more than 25%
of the value of the total assets of the Portfolio to be invested in
obligations at the time of purchase to be invested in issuers in
the same industry.
In addition, without shareholder approval, the Portfolio may not change
its policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
2. Make loans except that the Portfolio may purchase or
hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral,
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to
at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be
loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the
securities loaned, may not (together with all non-qualifying
income) exceed 10% of the Portfolio's annual gross income (without
offset for realized capital gains) unless, in the opinion of
counsel to the Fund, such amounts are qualifying income under
federal income tax provisions applicable to regulated investment
companies.
- 22 -
<PAGE>
The New York Municipal Money Market Portfolio may not:
1. Purchase any securities which would cause 25% or more
of the value of the Portfolio's total assets at the time of
purchase to be invested in the securities of issuers conducting
their principal business activities in the same industry; provided
that this limitation shall not apply to Municipal Obligations or
governmental guarantees of Municipal Obligations; and provided,
further, that for the purpose of this limitation only, private
activity bonds that are considered to be issued by non-governmental
users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
In addition, without shareholder approval, the Portfolio may not change
its policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
PURCHASE PROCEDURES
GENERAL. Janney Shares are sold without a sales load on a continuous
basis. Investors may purchase Janney Shares through an account maintained by the
investor with JMS ("the Account"). The Fund in its sole discretion may accept or
reject any order for purchases of Janney Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. JMS is responsible for the prompt transmission of the order to the
Fund's transfer agent. Purchases will be effected at the net asset value next
determined after PFPC, the Fund's transfer agent, has received a purchase order
in good order from JMS and the Fund's custodian has Federal Funds immediately
available to it. In those cases where payment is made by check, Federal Funds
will generally become available two Business Days after the check is received by
JMS. A "Business Day" is any day that both the New York Stock Exchange (the
"NYSE") and the Federal Reserve Bank of Philadelphia (the "FRB") are open. On
any Business Day, orders which are accompanied by Federal Funds and received by
PFPC by 12:00 noon Eastern Time, and orders as to which payment has been
converted into Federal Funds by 12:00 noon Eastern Time, will be executed as of
12:00 noon that Business Day. Orders which are accompanied by Federal Funds and
received by the Fund after 12:00 noon Eastern Time but prior to the close of
regular trading on the NYSE (generally 4:00 p.m. Eastern Time), and orders as to
which payment has been converted into Federal Funds after 12:00 noon Eastern
Time but prior to the close of regular trading on the NYSE on any Business Day
of the Fund, will be executed as of the close of regular trading on the NYSE on
that Business Day, but will not be entitled to receive dividends declared on
such Business Day. Orders which are accompanied by Federal Funds and received by
the Fund as of the close of regular trading on the NYSE or later, and orders as
to which payment has been converted to Federal Funds as of the close of regular
trading on the NYSE or later on a Business Day will be processed as of 12:00
noon Eastern Time on the following Business Day.
- 23 -
<PAGE>
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be effected
through an investor's Account with JMS through procedures established in
connection with the requirements of Accounts at JMS. In such event, beneficial
ownership of Janney Shares will be recorded by JMS and will be reflected in the
Account statements provided by JMS to such investors. JMS may impose minimum
investment Account requirements. Although JMS does not impose a sales charge for
purchases of Janney Shares, depending on the terms of an investor's Account with
JMS, JMS may charge an investor's Account fees for automatic investment and
other services provided to the Account. Information concerning Account
requirements, services and charges should be obtained from JMS, and this
Prospectus should be read in conjunction with any information received from JMS.
JMS may offer investors the ability to purchase Janney Shares under an
automatic purchase program (a "Purchase Program") established by it. An investor
who participates in a Purchase Program will have his "free-credit" cash balances
in his Account with JMS automatically invested in Shares of Janney Class
designated by the investor as the "Primary Janney Class" for his Purchase
Program. The frequency of investments and the minimum investment requirement may
be established by JMS and the Fund. In addition, JMS may require a minimum
amount of cash and/or securities to be deposited in an Account for participants
in its Purchase Program. The description of the particular JMS's Purchase
Program should be read for details, and any inquiries concerning an Account
under a Purchase Program should be directed to JMS. A participant in a Purchase
Program may change the designation of the Primary Janney Class at any time by so
instructing JMS.
If JMS makes special arrangements under which orders for Janney Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the JMS guarantees
that payment for such Shares will be made in available Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, on the same
day, such purchase orders will be effective and Shares will be purchased at the
offering price in effect as of 12:00 noon Eastern Time on the date the purchase
order is received by PFPC.
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns
Janney Shares through an Account may redeem Janney Shares in his Account in
accordance with instructions and limitations pertaining to his Account by
contacting JMS. It is the responsibility of JMS to transmit purchase and
redemption orders to PFPC and credit its investors' accounts with the redemption
proceeds on a timely basis. If such notice is received by PFPC by 12:00 noon
- 24 -
<PAGE>
Eastern Time on any Business Day, the redemption will be effective as of 12:00
noon Eastern Time on that day. Payment of the redemption proceeds will be made
after 12:00 noon Eastern Time on the day the redemption is effected, provided
that the Fund's custodian is open for business. If the custodian is not open,
payment will be made on the next bank business day. If the redemption request is
received between 12:00 noon and the close of regular trading on the NYSE on a
Business Day, the redemption will be effective as of the close of regular
trading on the NYSE on such Business Day and payment will be made on the next
bank business day following receipt of the redemption request. If all Shares are
redeemed, all accrued but unpaid dividends on those Shares will be paid with the
redemption proceeds.
JMS will also redeem each day a sufficient number of Shares of the
Primary Janney Class to cover debit balances created by transactions in the
Account or instructions for cash disbursements. Janney Shares will be redeemed
on the same day that a transaction occurs that results in such a debit balance
or charge.
JMS reserves the right to waive or modify criteria for participation in
an Account or to terminate participation in an Account for any reason.
REDEMPTION BY CHECK. The Fund provides investors with forms of drafts
("checks") payable through PNC Bank. These checks may be made payable to the
order of anyone. An investor wishing to use this check writing redemption
procedure should complete specimen signature cards (available from PFPC), and
then forward such signature cards to JMS. JMS will then arrange for the checks
to be honored by PNC Bank. Investors who own Janney Shares through an Account
should contact JMS for signature cards. Investors of joint accounts may elect to
have checks honored with a single signature. Check redemptions will be subject
to PNC Bank's rules governing checks. An investor will be able to stop payment
on a check redemption. The Fund or PNC Bank may terminate this redemption
service at any time, and neither shall incur any liability for honoring checks,
for effecting redemptions to pay checks, or for returning checks which have not
been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make
payment for all Shares redeemed within seven days after receipt by PFPC of a
redemption request in proper form. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed for a period of up to fifteen days after their purchase, pending
a determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
- 25 -
<PAGE>
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in a Janney Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such thirty day notice
period the amount invested in such account is not increased to at least $500.
Payment for Shares redeemed may be postponed or the right of redemption
suspended as provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the proportionate interest of each class in the
value of the securities, cash and other assets of the Portfolio, subtracting the
accrued and actual liabilities of the class and dividing the result by the
number of outstanding shares of the class. The net asset value per share of each
class of the Fund is determined independently of any of the Fund's other
classes.
The Fund seeks to maintain for each of the Portfolios a net asset value
of $1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate seventeen investment portfolios. Each of the
Janney Classes represents interests in one of the following portfolios: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio.
- 26 -
<PAGE>
INVESTMENT ADVISER
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios
and is responsible for all purchases and sales of portfolio securities. In
entering into Portfolio transactions for a Portfolio with a broker, BIMC may
take into account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. the agreements between BIMC and RBB, with
respect to the money market and government obligations money market portfolios,
respectively, provide for BIMC to also assist generally in supervising the
operations of such portfolios, and to maintain such portfolios' financial
accounts and records. these administrative responsibilities have been delegated
to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit
of each of the Money Market and Government Obligations Money Market Portfolios,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of net assets in excess of $500
million.
For the services provided and expenses assumed by it with respect to
the Municipal Money Market and New York Municipal Money Market Portfolios, BIMC
is entitled to receive the following fees, computed daily and payable monthly
based on the Portfolio's average daily net assets: .35% of the first $250
million; .30% of the next $250 million; and .25% of net assets in excess of $500
million.
BIMC may in its discretion from time to time agree to waive voluntarily
all or any portion of its advisory fee for any Portfolio.
- 27 -
<PAGE>
For the Fund's fiscal year ended August 31, 1998, the Fund paid
investment advisory fees aggregating .24% of the average net assets of the Money
Market Portfolio, .08% of the average net assets of the Municipal Money Market
Portfolio, .30% of the average net assets of the Government Obligations Money
Market Portfolio and .05% of the average net assets of the New York Municipal
Money Market Portfolio. For that same year, BIMC waived approximately .13%,
.26%, .14%, and .30% of the average net assets of the Money Market Portfolio,
the Municipal Money Market Portfolio, the Government Obligations Money Market
Portfolio and the New York Municipal Money Market Portfolio, respectively.
PNC Bank was formerly sub-adviser to the money market, municipal money
market and government obligations portfolios and provided research, credit
analysis and recommendations with respect to each such 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 each such portfolio to BIMC. The sub-advisory fees paid by BIMC to
PNC Bank had no effect on the investment advisory fees payable by such
portfolios 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 serves as the administrator for the Municipal Money Market and New
York Municipal Money Market Portfolios and generally assists those Portfolios in
all aspects of its administration and operations, including matters relating to
the maintenance of financial records and accounting. PFPC is entitled to an
administration fee, computed daily and payable monthly at .10% of the average
daily net assets of each of these Portfolios. Pursuant to its advisory
agreements with the Fund with respect to the Money Market and Government
Obligations Money Market Portfolios, BIMC provides administrative services to
such Portfolios pursuant to the same terms, but has delegated to PFPC all of its
accounting and administrative obligations under such advisory agreements. The
Fund has agreed to pay directly to PFPC the fees for accounting and
administrative services to the Money Market and Government Obligations Money
Market Portfolios which PFPC would have received directly from BIMC. Such
arrangement has no effect on the total advisory and administrative fees payable
by such Portfolios to BIMC. PFPC's principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809.
- 28 -
<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 registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
DISTRIBUTOR
Provident Distributors, Inc. (the "Distributor"), with a principal
business address at Four Falls Corporate Center, Conshohocken, Pennsylvania,
19428, acts as distributor of the Shares of each of the Janney Classes of the
Fund pursuant to a distribution agreement dated May 29, 1998 (the "Distribution
Agreement).
EXPENSES
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. The Janney Classes of
the Fund pay their own distribution fees and may pay a different share than
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Janney Classes or if they receive different services.
The investment adviser may assume expenses of the Portfolios from time
to time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of lowering yield to
investors.
For the Fund's fiscal year ended August 31, 1998, the Fund's total
expenses were 1.21% of the average net assets with respect to the Janney Class
of the Money Market Portfolio (not taking into account waivers and
reimbursements of .27%), 1.16% of the average net assets with respect to the
Janney Class of the Municipal Money Market Portfolio (not taking into account
waivers and reimbursements of .30%), 1.23% of the average net assets with
respect to the Janney Class of the Government Obligations Money Market Portfolio
- 29 -
<PAGE>
(not taking into account waivers and reimbursements of .23%) and 1.20% of the
average net assets with respect to the Janney Class of the New York Municipal
Money Market Portfolios (not taking into account waivers and reimbursements of
.40%).
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Janney Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the relevant Janney Class. The actual amount of such compensation is agreed upon
from time to time by the Fund's Board of Directors and the Distributor. Under
the Distribution Agreement, the Distributor has agreed to accept compensation
for its services thereunder and under the Plans in the amount of .60% of the
average daily net assets of the relevant Class on an annualized basis in any
year. Pursuant to the conditions of an exemptive order granted by the Securities
and Exchange Commission, the Distributor has agreed to waive its fee with
respect to a Janney Class on any day to the extent necessary to assure that the
fee required to be accrued by such Class does not exceed the income of such
Class on that day. In addition, the Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor
may re-allocate an amount up to the full fee that it receives to financial
institutions, including Dealers, based upon the aggregate investment amounts
maintained by and services provided to shareholders of any relevant Class
serviced by such financial institutions. The Distributor may also reimburse
Dealers for other expenses incurred in the promotion of the sale of Fund shares.
The Distributor and/or Dealers pay for the cost of printing (excluding
typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Fund as well as for related direct mail, advertising
and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in
effect, to accrue and pay to the Distributor on behalf of each Janney Class the
fee agreed to under the Distribution Agreement. Payments under the Plans are not
based on expenses actually incurred by the Distributor, and the payments may
exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Janney Class unless a
shareholder elects otherwise.
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<PAGE>
The net investment income (not including any net short-term capital
gains) earned by each Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of net asset value made as of the close of regular
trading on the NYSE. Net short-term capital gains, if any, will be distributed
at least annually.
TAXES
- --------------------------------------------------------------------------------
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New
York Municipal Money Market Portfolio will generally constitute tax-exempt
income for shareholders for federal income tax purposes. It is possible,
depending upon the Portfolios' investments, that a portion of the Portfolios'
distributions could be taxable to shareholders as ordinary income or capital
gains, but it is not expected that this will be the case.
- 31 -
<PAGE>
Although distributions from the Municipal Money Market Portfolio and
the New York Municipal Money Market Portfolio are exempt for federal income tax
purposes, they will generally constitute taxable income for state and local
income tax purposes except that, subject to limitations that vary depending on
the state, distributions from interest paid by a state or municipal entity may
be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
- 32 -
<PAGE>
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal income tax purposes,
in most cases does not result in an exemption under the tax laws of any other
state or local authority.
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).
- 33 -
<PAGE>
The Fund offers multiple classes of shares in each of its Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios to expand its marketing alternatives and to
broaden its range of services to different investors. The expenses of the
various classes within these Portfolios vary based upon the services provided,
which may affect performance. Each class of Common Stock of the Fund has a
separate Rule 12b-1 distribution plan. Under the Distribution 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 a Portfolio of the Fund. An investor may contact
the Fund's Distributor by calling 1-800-888-9723 to request more information
concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE JANNEY CLASSES OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE JANNEY
CLASSES OF THESE PORTFOLIOS.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the aggregate
and not by class on all matters, except where otherwise required by law.
Further, shareholders of all investment portfolios of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
- 34 -
<PAGE>
As of November 16, 1998, to the Fund's knowledge, no person held of
record beneficially 25% or more of the outstanding shares of all of the classes
of the Fund.
- 35 -
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to Janney
Montgomery Scott, 1801 Market Street, Philadelphia, PA 19103-1675; toll free
1-800-JANNEYS.
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
-----------------------
CONTENTS
PAGE
INTRODUCTION....................................... 3
INVESTMENT OBJECTIVE AND POLICIES.................. 5
INVESTMENT LIMITATIONS............................. 9
YEAR 2000.......................................... 9
PURCHASE AND REDEMPTION OF SHARES..................11
NET ASSET VALUE....................................13
MANAGEMENT.........................................14
DIVIDENDS AND DISTRIBUTIONS........................16
TAXES..............................................17
DESCRIPTION OF SHARES..............................18
OTHER INFORMATION..................................19
INVESTMENT ADVISER
BlackRock Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
================================================================================
RBB SELECT
MONEY MARKET PORTFOLIO
PROSPECTUS AND SUMMARY
DESCRIPTION FOR THE SELECT SHARES
OF THE MONEY MARKET PORTFOLIO
December 29, 1998
================================================================================
<PAGE>
RBB
SELECT MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
The Select Class consists of one class of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company. The shares offered
by this Prospectus ("Select Shares" or "Shares") represent interests in the
Fund's Money Market Portfolio.
The investment objective of the Money Market Portfolio is to provide as
high a level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in a diversified portfolio of U.S. dollar-denominated money market
instruments.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
BlackRock Institutional Management Corporation serves as investment
adviser for the Portfolio, PNC Bank, National Association ("PNC Bank") serves as
custodian for the Fund and PFPC Inc. serves as administrator and transfer and
dividend disbursing agent for the Fund. Provident Distributors, Inc. acts as
distributor for the Fund.
Select Shares are sold by the Fund's distributor to investment advisers
maintaining accounts with PNC Bank or its affiliates. Select Shares will also be
sold to customers, including individuals, trusts, partnerships and corporations,
who maintain accounts with PNC Bank or its affiliates, and who have authorized
PNC Bank or its affiliates to invest their assets in the Fund. Shares are sold
and redeemed without any purchase or redemption charge imposed by the Fund,
although PNC Bank or its affiliates may charge their customers in connection
with the management of their accounts.
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 29, 1998 has been filed with
the Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge by calling the Fund at
1-800-430-9618. The Prospectus and Statement of Additional Information are also
available for reference, along with other related material on the SEC Internet
Website (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS December 29, 1998
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<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen investment
portfolios. Shares of the Select Class ("Select Class" or "Class") of the Fund
offered by this Prospectus represent interests in the Fund's Money Market
Portfolio (the "Money Market Portfolio" or the "Portfolio").
The investment objective of the Portfolio is to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and which present minimal credit risks. In
pursuing its investment objective, the Money Market Portfolio invests in a broad
range of government, bank and commercial obligations that may be available in
the money markets.
The Portfolio seeks to maintain a net asset value of $1.00 per share;
however, there can be no assurance that it will be able to maintain a stable net
asset value of $1.00 per share.
The Portfolio's investment adviser is BlackRock Institutional
Management Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank")
serves as custodian to the Fund and PFPC Inc. ("PFPC") serves as administrator
and transfer and dividend disbursing agent to the Fund. Provident Distributors,
Inc. (the "Distributor") acts as distributor of the Fund's shares.
An investment in the Portfolio is subject to certain risks, as set
forth in detail under "Investment Objective and Policies." The Portfolio, to the
extent set forth under "Investment Objective and Policies," may engage in the
following investment practices: the use of repurchase agreements and reverse
repurchase agreements; the purchase of asset-backed securities; the purchase of
securities on a "when-issued" or "forward commitment" basis; the purchase of
stand-by commitments; and the lending of securities. All of these transactions
involve certain special risks, as set forth under "Investment Objective and
Policies."
For detailed information of how to purchase or redeem Select Shares,
please refer to the section of this Prospectus entitled "Purchase and Redemption
of Shares."
FEE TABLE
The following table illustrates the estimated annual operating expenses
for Select Shares of the Portfolio (after expected fee waivers and expense
reimbursements) for the current fiscal period. An example based on the summary
is also shown.
- 3 -
<PAGE>
ANNUAL FUND OPERATING EXPENSES (SELECT SHARES) MONEY MARKET
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS PORTFOLIO
Management Fees (after waivers)(1)................................... .22%
Other Expenses....................................................... .05%
---
Total Fund Operating Expenses
(after waivers)(1)................................................... .27%
====
(1) Management Fees are based on average daily net assets and are
calculated daily and paid monthly. Before waivers, Management Fees
would be .37% and Total Fund Operating Expenses would be .42%.
EXAMPLE*
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS
------ -------
Money Market Portfolio* $3 $9
*Other classes of this Portfolio are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in Select Shares of the Fund will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management-Investment Adviser" below.) The figure shown
in the Fee Table for "Management Fees" is based on actual fees incurred by the
Portfolio during its last fiscal year. "Other Expenses" is estimated for the
current fiscal year. The Fee Table reflects a voluntary waiver of Management
Fees for the Portfolio. However, there can be no assurance that any future
waivers of Management Fees will not vary from the figure reflected in the Fee
Table. In addition, the investment adviser is currently voluntarily assuming
additional expenses of the Portfolio. There can be no assurance that the
investment adviser will continue to assume such expenses. Assumption of
additional expenses will have the effect of lowering a Portfolio's overall
expense ratio and increasing its yield to investors.
From time to time the Portfolio may advertise the "total return",
"yield" and "effective yield" of its Select Shares. TOTAL RETURN AND YIELD
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND WILL NOT BE INDICATIVE OF
FUTURE PERFORMANCE. The "yield" of the Portfolio refers to the income generated
- 4 -
<PAGE>
by an investment in Select Shares of the Portfolio over a seven-day period
(which period shall be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in Select
Shares of 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 total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment, operating expenses and
market conditions. The total return and yield on Shares will fluctuate and is
not necessarily representative of future results. Any fees charged by PNC Bank
or its affiliates directly to their customers in connection with their
investment accounts will not be reflected in the total return and yields on the
Portfolio's Shares, and such fees, if charged, will reduce the actual return
received by customers on their investments. The total return and yield on Shares
of the Select Class may differ from total return and total return and yields on
shares of other classes of the Portfolio depending on the allocation of expenses
to each of the classes of the Portfolio.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. Portfolio obligations held by the Money Market
Portfolio have remaining maturities of 397 days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." There is no
assurance that the Portfolio will achieve its investment objective. The
following descriptions illustrate the types of Money Market Instruments in which
the Money Market Portfolio invests.
BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
The Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
- 5 -
<PAGE>
COMMERCIAL PAPER. The Portfolio may purchase commercial paper (i) rated
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. 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 a U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase variable rate
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able (at any time or during specified
periods not exceeding 13 months, depending upon the note involved) to demand
payment of the principal of a note. The notes are not typically rated by credit
rating agencies, but issuers of variable rate demand notes must satisfy the same
criteria as set forth above for issuers of commercial paper. If an issuer of a
variable rate demand note defaulted on its payment obligation, the Portfolio
might be unable to dispose of the note because of the absence of an active
secondary market. For this or other reasons, the Portfolio might suffer a loss
to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
Default by or bankruptcy of the seller would, however, expose the Portfolio to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation.
- 6 -
<PAGE>
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued and guaranteed by U.S. Government Agencies and instrumentalities
or issued by private companies. Asset backed securities also include adjustable
rate securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. For this
and other reasons, an asset-backed security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see Statement of Additional Information
under "Investment Objectives and Policies."
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
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
- 7 -
<PAGE>
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 (or whose issuer or, in certain cases, guarantor, is
rated) at the time of purchase in the two highest rating categories by at least
two Rating Organizations ("Rating Organizations") (e.g., commercial paper rated
"A-1" or "A-2" by Standard & Poor's Ratings Services ("S&P")), (3) securities
that are rated (or whose issuer or, in certain cases, guarantor, is 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, (4) securities issued
by issuers (or, in certain cases guaranteed by persons) with short-term debt
having such ratings, and (5) securities (including guarantees) that are not
rated and are issued by an issuer that does not have comparable obligations
rated by a Rating Organization ("Unrated Securities"), provided that such
securities are determined to be of comparable quality to eligible rated
securities. For a more complete description of eligible securities, see
"Investment Objectives and Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies - Illiquid Securities" in the
Statement of Additional Information.
- 8 -
<PAGE>
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Portfolio's investment objective and policies described above may
be changed by the Fund's Board of Directors without shareholder approval. The
Portfolio may not, however, change the investment limitations summarized below
without such a vote of shareholders. (A more detailed description of the
following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market
Instruments, some of which may be subject to repurchase agreements, but
the Portfolio may make interest-bearing savings deposits in amounts not
in excess of 5% of the value of the Portfolio's assets and may make
time deposits.
2. Borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements and then in amounts not in
excess of 10% of the value of the Portfolio's assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowing and in amounts not in excess of 10% of the
value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is
not for investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.)
- 9 -
<PAGE>
3. Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the banking
industry, or in obligations, such as repurchase agreements, secured by
such obligations (unless the Portfolio is in a temporary defensive
position) or which would cause, at the time of purchase, more than 25%
of the value of its total assets to be invested in the obligations of
issuers in any other industry.
4. Purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
and instrumentalities, if immediately after and as a result of such
purchase more than 5% of the value of its total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's total
assets may be invested without regard to such 5% limitation.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Portfolio will meet the following limitations on its investments in addition to
the fundamental investment limitations described above. These limitations may be
changed without a shareholder vote.
1. The Portfolio will limit its purchases of the securities
(other than securities with certain types of guarantees) 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"
generally include eligible securities that (i) if rated (or guaranteed
by a person which has been 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 (or
guaranteed by a person which has been 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 have a guarantee which satisfies
this standard), or (iv) are Unrated Securities that are determined to
be of comparable quality to such securities (or have a guarantee which
satisfies this standard). The Portfolio's compliance with this
diversification requirement is deemed to be compliance with the
fundamental diversification limit in paragraph 4 above.
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.
- 10 -
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
PURCHASE PROCEDURES
GENERAL. Select Shares are sold without a sales load on a continuous
basis. The minimum initial investment by an investor is $200 million. The Fund
reserves the right to waive this minimum investment requirement in its sole
discretion. There is no minimum subsequent investment. The Fund in its sole
discretion may accept or reject any order for purchases of Select Shares.
Investors may purchase Select Shares through an account maintained by
the investor with PNC Bank or its affiliates ("the Account"). All payments for
initial and subsequent investments should be in U.S. dollars. PNC Bank or its
affiliates are responsible for the prompt transmission of its customers' orders
to the Fund's transfer agent. Purchases will be effected at the net asset value
next determined after PFPC, the Fund's transfer agent, has received a purchase
order in good order from PNC Bank or its affiliates and the Fund's custodian has
Federal Funds immediately available to it. In those cases where payment is made
by check, Federal Funds will generally become available two Business Days after
the check is received by PNC Bank or its affiliates. A "Business Day" is any day
that both the New York Stock Exchange (the "NYSE") and the Federal Reserve Bank
of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which payment has been converted into Federal Funds by 12:00
noon Eastern Time, will be executed as of 12:00 noon that Business Day. Orders
which are accompanied by Federal Funds and received by the Fund after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day, but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
PURCHASES THROUGH AN ACCOUNT. Purchases of Select Shares may be
effected through an investor's Account with PNC Bank or its affiliates through
procedures established in connection with the requirements of Accounts at PNC
Bank or its affiliates. In such event, beneficial ownership of Shares will be
recorded by PNC Bank or its affiliates and will be reflected in the Account
statements provided by PNC Bank or its affiliates to such investors. PNC Bank or
its affiliates may impose minimum investment Account requirements. Although PNC
Bank or its affiliates do not impose a sales charge for purchases of Shares,
depending on the terms of an investor's Account with PNC Bank or its affiliates,
PNC Bank or its affiliates 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 PNC Bank or
- 11 -
<PAGE>
its affiliates, and this Prospectus should be read in conjunction with any
information received from PNC Bank or its affiliates.
PNC Bank or its affiliates may offer investors the ability to purchase
Select Shares under an automatic purchase program (a "Purchase Program")
established by PNC Bank or its affiliates. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account with
PNC Bank or its affiliates automatically invested in Shares of the Portfolio.
The frequency of investments and the minimum investment requirement may be
established by PNC Bank or its affiliates and the Fund. In addition, PNC Bank or
its affiliates may require a minimum amount of cash and/or securities to be
deposited in an Account for participants in the Purchase Program. The
description of the Purchase Program should be read for details, and any
inquiries concerning an Account or a Purchase Program should be directed to PNC
Bank or its affiliates.
If PNC Bank or its affiliates makes special arrangements under which
orders for Select Shares are received by PFPC prior to 12:00 noon Eastern Time,
and PNC Bank or its affiliates guarantees that payment for such Shares will be
made in available Federal Funds to the Fund's custodian prior to the close of
regular trading on the NYSE, on the same day, such purchase orders will be
effective and Shares will be purchased at the offering price in effect as of
12:00 noon Eastern Time on the date the purchase order is received by PFPC.
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns
Select Shares through an Account may redeem Select Shares in his Account in
accordance with instructions and limitations pertaining to his Account by
contacting PNC Bank or its affiliates. It is the responsibility of PNC Bank or
its affiliates to transmit purchase and redemption orders to PFPC and credit its
investors' accounts with the redemption proceeds on a timely basis. If such
notice is received by PFPC by 12:00 noon Eastern Time on any Business Day, the
redemption will be effective as of 12:00 noon Eastern Time on that day. Payment
of the redemption proceeds will be made after 12:00 noon Eastern Time on the day
the redemption is effected, provided that the Fund's custodian is open for
business. If the custodian is not open, payment will be made on the next bank
business day. If the redemption request is received between 12:00 noon and the
close of regular trading on the NYSE on a Business Day, the redemption will be
effective as of the close of regular trading on the NYSE on such Business Day
and payment will be made on the next bank business day following receipt of the
redemption request. If all Shares are redeemed, all accrued but unpaid dividends
on those Shares will be paid with the redemption proceeds.
PNC Bank or its affiliates will also redeem each day a sufficient
number of Shares to cover debit balances created by transactions in the Account
- 12 -
<PAGE>
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.
PNC Bank or its affiliates reserves the right to waive or modify
criteria for participation in an Account or to terminate participation in an
Account for any reason.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make
payment for all Shares redeemed within seven days after receipt by PFPC of a
redemption request in proper form. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed for a period of up to fifteen days after their purchase, pending
a determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in the Select Class involuntarily, on thirty
days' notice, if such account falls below $500 million and during such thirty
day notice period the amount invested in such account is not increased to at
least $500 million. 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 Select Class of the Portfolio for
the purpose of pricing purchase and redemption orders is determined twice each
day, once as of 12:00 noon Eastern Time and once as of the close of regular
trading on the NYSE on each weekday with the exception of those holidays on
which either the NYSE or the FRB is closed. Currently, the NYSE is closed on
weekends and the customary national business holidays of New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE is closed as well as Veterans' Day and Columbus Day. The
net asset value per share of each class of the Portfolio is calculated by adding
the value of the proportionate interest of the class in the securities, cash and
other assets of the Portfolio, deducting actual and accrued liabilities of the
class and dividing the result by the number of outstanding shares of the class.
The net asset value of each class of the Portfolio is calculated independently
of each other class.
The Fund seeks to maintain 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.
- 13 -
<PAGE>
With the approval of the Board of Directors, the Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each of its investment
portfolios are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate seventeen separate investment
portfolios. The Select 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. PNC
Bank and its subsidiaries currently manage over $45.9 billion of assets, of
which approximately $31.4 billion are mutual funds. PNC Bank, a national bank
whose principal business address is 1600 Market Street, Philadelphia,
Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp, Inc. PNC
Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary of PNC
Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolio, BIMC manages such Portfolio and
is responsible for all purchases and sales of Portfolio securities. In entering
into Portfolio transactions for the Portfolio with a broker, BIMC may take into
account the sale by such broker of shares by the Fund, 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 described below.
For the services provided to and expenses assumed by it for the benefit
of the Money Market 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 the average daily net assets of such Portfolio in excess of $500 million.
BIMC may in its discretion from time to time agree to waive voluntarily all or
any portion of its advisory fee for the Portfolio.
- 14 -
<PAGE>
For the period ended August 31, 1998, the Fund paid investment advisory
fees aggregating .24% of the average net assets of the Portfolio. For the same
period, BIMC waived fees of approximately .13% of the average net assets of the
Portfolio.
PNC Bank was formerly sub-adviser to the 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."
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. 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."
ADMINISTRATOR
Pursuant to its advisory agreement with the Fund, BIMC provides
administrative services to the Portfolio, and is entitled to an administration
fee, computed daily and payable monthly at .10% of average daily net assets of
the Portfolio. BIMC has delegated to PFPC all of its accounting and
administrative obligations under such advisory agreement. The Fund has agreed to
pay directly to PFPC the fees for accounting and administrative 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 such Portfolio to BIMC. PFPC's principal business address is 400 Bellevue
Parkway, Wilmington, Delaware 19809.
DISTRIBUTOR
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as Distributor
for the Fund pursuant to a distribution agreement dated May 29, 1998 (the
"Distribution Agreement").
- 15 -
<PAGE>
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 on
the relative net assets of the investment portfolios at the time such expenses
were accrued. The Select Class of the Portfolio may pay a different share than
other classes of the Portfolio of other expenses (excluding advisory and
custodial fees) if those expenses are actually incurred in a different amount by
the Select Class.
The investment adviser may assume expenses of the Portfolio from time
to time. In certain circumstances, it may assume such expenses on the condition
that it be reimbursed by the Portfolio for such amounts prior to the end of a
fiscal year. The assumption of expenses by the investment adviser will have the
effect of lowering the Portfolio's expense ratio and of increasing its yield to
investors.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities, but such banking
laws and regulations do not prohibit such a holding company or affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company, or from purchasing shares of such a company as
agent for and upon the order of such a customer. PNC Bank, BIMC and PFPC are
subject to such banking laws and regulations. In addition, state securities laws
on this issue may differ from the interpretations of federal law expressed
herein and banks and financial institutions may be required to register as
dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of banks in connection with the provision of support
services to their customers, the Fund might be required to alter materially or
cause the Fund to discontinue its arrangements with banks generally and change
its method of operations with respect to the Select Shares. It is not
anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per share or result in a financial loss to any
customer.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Portfolio to the Portfolio's
shareholders. All distributions are reinvested in the form of additional full
and fractional Shares of the Select Class unless a shareholder elects otherwise.
- 16 -
<PAGE>
The net investment income (not including any net short-term capital
gains) earned by the Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of net asset value made as of the close of regular
trading of the NYSE. Net short-term capital gains, if any, will be distributed
at least annually.
TAXES
- --------------------------------------------------------------------------------
Distributions from the 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.
- 17 -
<PAGE>
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 the Money Market
Portfolio to expand its marketing alternatives and to broaden its range of
services to different investors. The expenses of the various classes within the
Portfolio vary based upon the services provided, which may affect performance. 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 RELATE EXCLUSIVELY TO THE SELECT CLASS OF THE MONEY MARKET
PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO THE SELECT SHARES OF THE PORTFOLIO.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to the Portfolio with each other
share that represents an interest in the Portfolio, even where a share has a
different class designation than another share representing an interest in the
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
- 18 -
<PAGE>
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of the Portfolio will vote in the aggregate and not
by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples of when the 1940 Act requires voting by investment portfolio or by
class.) Shareholders of the Fund are entitled to one vote for each full share
held (irrespective of class or portfolio) and fractional votes for fractional
shares held. Voting rights are not cumulative and, accordingly, the holders of
more than 50% of the aggregate shares of Common Stock of the Fund may elect all
of the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
the Fund.
OTHER INFORMATION
- --------------------------------------------------------------------------------
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholders may direct inquiries to the Fund's
transfer agent, 400 Bellevue Parkway, Wilmington, DE 19809, or call
1-800-430-9618.
- 19 -
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
------------------------------
CONTENTS
Page
----
INTRODUCTION............................................ 3
FINANCIAL HIGHLIGHTS.................................... 5
INVESTMENT OBJECTIVE AND POLICIES....................... 7
YEAR 2000...............................................10
INVESTMENT LIMITATIONS..................................10
PURCHASE AND REDEMPTION OF SHARES.......................12
NET ASSET VALUE.........................................16
DISTRIBUTION OF SHARES..................................17
SHAREHOLDER SERVICING...................................17
MANAGEMENT..............................................18
DIVIDENDS AND DISTRIBUTIONS.............................21
TAXES...................................................21
DESCRIPTION OF SHARES...................................21
OTHER INFORMATION.......................................22
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
================================================================================
ROBERTSON
STEPHENS
Money Market Portfolio
Prospectus and Summary
Description for the Sansom Street Shares
of the Money Market Portfolio
December 29, 1998
================================================================================
<PAGE>
MONEY MARKET PORTFOLIO
of
THE RBB FUND, INC.
The Sansom Street Family consists of three classes of common stock of The
RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of one such class are offered by this Prospectus and represent interests
in the Fund's Money Market Portfolio.
The investment objective of the Money Market Portfolio is to provide as
high a level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in a diversified portfolio of U.S. dollar-denominated money market
instruments.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
BlackRock Institutional Management Corporation serves as investment adviser
for the Portfolio, PNC Bank National Association serves as custodian for the
Fund and PFPC Inc. serves as administrator and transfer and dividend disbursing
agent for the Fund. Provident Distributors, Inc. acts as distributor for the
Fund.
Sansom Street Shares are sold by the Fund's distributor to customers
maintaining accounts with banks affiliated with PNC Bank Corp. (the "Banks").
Sansom Street Shares will be sold to customers, including individuals, trusts,
partnerships and corporations, who maintain accounts (such as custody, trust or
escrow accounts) with the Banks, and who have authorized the Banks to invest in
the Fund. Shares are sold and redeemed without any purchase or redemption charge
imposed by the Fund, although the Banks may receive compensation from the Fund
for services provided in connection with the purchase or redemption of shares.
See "Shareholder Servicing." Sansom Street Shares are also sold through any
broker that has entered into a dealer agreement with the Fund's distributor.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge by calling the Fund at (800)
430-9618. The Prospectus and Statement of Additional Information are also
available for reference, along with other related material on the SEC Internet
Website (http://www.sec.gov).
<PAGE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
-2-
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen investment
portfolios. Shares ("Sansom Street Shares" or "Shares") of the Sansom Street
Class ("Sansom Street Class" or "Class") of the Fund offered by this Prospectus
represent interests in the Fund's Money Market Portfolio (the "Money Market
Portfolio" or the "Portfolio").
The investment objective of the Portfolio is to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and which present minimal credit risks. In
pursuing its investment objective, the Money Market Portfolio invests in a broad
range of government, bank and commercial obligations that may be available in
the money markets.
The Portfolio seeks to maintain a net asset value of $1.00 per share;
however, there can be no assurance that it will be able to maintain a stable net
asset value of $1.00 per share.
The Portfolio's investment adviser is BlackRock Institutional Management
Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank") serves as
custodian to the Fund and PFPC Inc. ("PFPC") serves as administrator and
transfer and dividend disbursing agent to the Fund. Provident Distributors, Inc.
(the "Distributor") acts as distributor of the Fund's shares.
An investment in the Portfolio is subject to certain risks, as set forth in
detail under "Investment Objective and Policies." The Portfolio, to the extent
set forth under "Investment Objective and Policies," may engage in the following
investment practices: the use of repurchase agreements and reverse repurchase
agreements, the purchase of asset-backed securities, the purchase of securities
on a "when-issued" or "forward commitment" basis, the purchase of stand-by
commitments and the lending of securities. All of these transactions involve
certain special risks, as set forth under "Investment Objective and Policies."
For detailed information of how to purchase or redeem Sansom Street Shares,
please refer to the section of this Prospectus entitled "Purchase and Redemption
of Shares."
-3-
<PAGE>
FEE TABLE
The Fee Table below contains a summary of annual operating expenses
incurred by the Sansom Street Class of the Money Market Portfolio after fee
waivers and expense reimbursements for the fiscal year ended August 31, 1998 as
a percentage of average daily net assets. An example based on the summary is
also shown.
Annual Fund Operating Expenses (Sansom Street Class)
as a percentage of average daily net assets
<TABLE>
<CAPTION>
Money Market
Portfolio
------------
<S> <C>
Management Fees (after waivers)(1).............................................. .24%
12b-1 Fees(1) .................................................................. .05%
Other Expenses.................................................................. .20%
----
Total Fund Operating Expenses (Sansom Street Class)
(after waivers)(1).............................................................. .49%
====
</TABLE>
(1) Management Fees and 12b-1 Fees are each based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Management Fees would be .37% and Total Fund Operating
Expenses would be .62%.
Example
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio*............... $5 $16 $27 $62
</TABLE>
* Other Classes of this Portfolio are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating
Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Sansom Street Class of the
Fund will bear directly or indirectly. (For more complete descriptions of the
various costs and expenses, see "Management-Investment Adviser," "Distribution
of Shares" and "Shareholder Servicing" below.) Expense figures are based on
actual costs and fees incurred by the Class. The Fee Table
-4-
<PAGE>
reflects a voluntary waiver of Management Fees for the Portfolio. However, there
can be no assurance that any future waivers of Management Fees will not vary
from the figure reflected in the Fee Table. In addition, the investment adviser
is currently voluntarily assuming additional expenses of the Class. There can be
no assurance that the investment adviser will continue to assume such expenses.
Assumption of additional expenses will have the effect of lowering a Portfolio's
overall expense ratio and increasing its yield to investors.
From time to time the Portfolio advertises its "total return, "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Portfolio refers to the income generated by an investment in the Portfolio over
a seven-day period (which period shall be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment, operating expenses and
market conditions. The total return and yield on Shares of the Sansom Street
Class will fluctuate and is not necessarily representative of future results.
Any fees charged by the Banks or broker-dealers directly to their customers in
connection with investments in the Portfolio are not reflected in the total
return and yields on the Portfolio's shares, and such fees, if charged, will
reduce the actual return received by customers on their investments. The total
return and yield on Shares of the Sansom Street Class may differ from total
return and yields on shares of other classes of the Fund that also represent
interests in the same Portfolio depending on the allocation of expenses to each
of the classes of that Portfolio.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Sansom Street Class for the periods indicated. The financial data
included in this table for each of the periods ended August 31, 1994 through
August 31, 1998, are a part of the Fund's financial statements for the Portfolio
which are incorporated by reference into the Statement of Additional Information
and have been audited by PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"),
the Fund's independent accountants. The financial data for such Portfolio for
the periods ended August 31, 1989, 1990, 1991, 1992 and 1993 are a part of
previous financial statements audited by PricewaterhouseCoopers. The financial
data included in this table should be read in conjunction with the financial
statement and related notes. Further information about the Portfolio is
available in the Fund's Annual Report to Shareholders. Both the Statement of
Additional Information and the Annual Report to Shareholders may be obtained
from the Fund free of charge by calling the telephone number on page 1 of this
Prospectus.
-5-
<PAGE>
Sansom Street Class
THE RBB FUND, INC.
Financial Highlights (c)
(For a Share Outstanding Throughout each Period)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
August 31, 1998 August 31, 1997 August 31, 1996 August 31, 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------ ------
Income from investment operations:
Net investment income........................... 0.0520 0.0510 0.0518 0.0543
Net gains on securities (both realized and
unrealized)................................... -- -- -- --
-------- ------- ------- -------
Total from investment operations............ 0.0520 0.0510 0.0518 0.0543
-------- ------- ------- -------
Less distributions
Dividends (from net investment income).......... (0.0520) (0.0510) (0.0518) (0.0543)
Distributions (from capital gains)................ -- -- -- --
-------- ------- ------- -------
Total distributions............................... (0.0520) (0.0510) (0.0518) (0.0543)
-------- ------- ------- -------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ======= ======= =======
Total return...................................... 5.34% 5.22% 5.30% 5.57%
Ratios/Supplemental Data
Net assets, end of period (000)................. $684,066 $570,018 $524,359 $441,614
Ratios of expenses to average net assets........ .49%(a) .49%(a) .48%(a) .39%(a)
Ratios of net investment income to average net
assets........................................ 5.20% 5.10% 5.18% 5.43%
<CAPTION>
Money Market Portfolio
---------------------------------------------------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
August 31, 1994 August 31, 1993 August 31, 1992 August 31, 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------ ------- -------
Income from investment operations:
Net investment income........................... 0.0334 0.0304 0.0435 0.0684
Net gains on securities (both realized and
unrealized)................................... -- -- 0.0007 --
------- ------- ------- -------
Total from investment operations.. ......... 0.0334 0.0304 0.0442 0.0684
------- ------- ------- -------
Less distributions
Dividends (from net investment income).......... (0.0334) (0.0304) (0.0435) (0.0684)
Distributions (from capital gains)................ -- -- (0.0007) --
------- ------- ------- -------
Total distributions.............................. (0.0334) (0.0304) (0.0442) (0.0684)
------- ------- ------- -------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return...................................... 3.39% 3.08% 4.51% 7.06%
Ratios/Supplemental Data
Net assets, end of period (000)................. $373,745 $190,794 $228,079 $138,418
Ratios of expenses to average net ...assets .39%(a) .34%(a) .35%(a) .37%(a)
Ratios of net investment income to average net
assets........................................ 3.34% 3.04% 4.35% 6.84%
<CAPTION>
----------------------------------------
For the Period
September 30, 1988
For the (Commencement of
Year Ended Operations) to
August 31, 1990 August 31, 1989
----------------------------------------
<S> <C> <C>
Net asset value, beginning of period.............. $ 1.00 $ 1.00
------- -------
Income from investment operations:
Net investment income........................... 0.0810 0.0818
Net gains on securities (both realized and
unrealized)................................... -- --
------- -------
Total from investment operations............ 0.0810 0.0818
------- -------
Less distributions
Dividends (from net investment income).......... (0.0810) (0.0818)
Distributions (from capital gains)................ -- --
------- -------
Total distributions............................... (0.0810) (0.0818)
------- --------
Net asset value, end of period.................... $ 1.00 $ 1.00
======= =======
Total return...................................... 8.40% 9.25%(b)
Ratios/Supplemental Data
Net assets, end of period (000)................. $106,743 $79,656
Ratios of expenses to average net assets........ .47%(a) .50%(a)(b)
Ratios of net investment income to average net
assets........................................ 8.10% 9.04%(b)
</TABLE>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .62%, .64%, .65%,
.59%, .60%, .60%, .61%, .61% and .73% for the years ended August 31, 1998,
1997, 1996, 1995, 1994, 1993, 1992, 1991, and 1990, respectively, and .83%
(annualized) for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Sansom Street Class of Shares
within the portfolio.
-6-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
Money Market Portfolio
The Money Market Portfolio's investment objective is to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. Portfolio obligations held by the Money Market Portfolio
have remaining maturities of 397 days or less (exclusive of securities subject
to repurchase agreements). In pursuing its investment objective, the Money
Market Portfolio invests in a diversified portfolio of U.S. dollar-denominated
instruments, such as government, bank and commercial obligations, that may be
available in the money markets ("Money Market Instruments") and that meet
certain ratings criteria and present minimal credit risks to the Money Market
Portfolio. See "Eligible Securities." There is no assurance that the investment
objective of the Portfolio will be achieved. The following descriptions
illustrate the types of Money Market Instruments in which the Money Market
Portfolio invests.
Bank Obligations. The Portfolio may purchase obligations of issuers in the
banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
The Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
Commercial Paper. The Portfolio may purchase commercial paper rated (at the
time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization; or (ii) issued by issuers (or, in certain
cases guaranteed by persons) with short-term debt having such ratings. 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 a U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
Variable Rate Demand Notes. The Portfolio may purchase variable rate demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustment in the interest rate. Although the
notes are not normally traded and there
-7-
<PAGE>
may be no active secondary market in the notes, the Portfolio will be able (at
any time or during specified periods not exceeding 13 months, depending upon the
note involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
Repurchase Agreements. The Portfolio may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
Default by or bankruptcy of the seller would, however, expose the Portfolio to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
U.S. Government Obligations. The Portfolio may purchase obligations issued
or guaranteed by the U.S. Government or its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
backed by the full faith and credit of the United States. Others are backed by
the right of the issuer to borrow from the U.S. Treasury or are backed only by
the credit of the agency or instrumentality issuing the obligation.
Asset-Backed Securities. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and instrumentalities
or issued by private companies. Asset backed securities also include adjustable
rate securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. For this
and other reasons, an asset-backed security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
-8-
<PAGE>
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Municipal Obligations. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see Statement of Additional Information
under "Investment Objectives and Policies."
Guaranteed Investment Contracts. The Portfolio may make investments in
obligations such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
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
at least two Rating Organizations ("Rating Organizations") (e.g., commercial
paper rated "A-1" or "A-2" by Standard & Poor's Ratings Services ("S&P")), (3)
securities that are rated at the time of purchase by the only Rating
Organization rating the security in one of its two highest rating categories for
such securities, (4) securities issued by issuers (or, in
-9-
<PAGE>
certain cases guaranteed by persons) with short-term debt having such ratings,
and (5) securities that are not rated and are issued by an issuer that does not
have comparable obligations rated by a Rating Organization ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to eligible rated securities. For a more complete description of
eligible securities, see "Investment Objectives and Policies" in the Statement
of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies --Illiquid Securities" in the
Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Portfolio's investment objective and policies described above may be
changed by the Fund's Board of Directors without shareholder approval. The
Portfolio may not, however, change the investment limitations summarized below
without such a vote of shareholders. (A more detailed description of the
following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
-10-
<PAGE>
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5% of
the value of the Portfolio's assets and may make time deposits.
2. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
3. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry.
4. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by the Portfolio, except that up to 25% of the value
of the Portfolio's total assets may be invested without regard to such 5%
limitation.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Portfolio
will meet the following limitations on its investments in addition to the
fundamental investment limitations described above. These limitations may be
changed without a shareholder vote.
1. The Portfolio will limit its purchases of the securities of any one
issuer, other than issuers of U.S. Government securities, to 5% of its
total assets, except that the Portfolio may invest more than 5% of its
total assets in First Tier Securities of one issuer for a period of up to
three Business Days (as defined below). "First Tier Securities" include
eligible securities that (i) if rated by more than one Rating Organization,
are rated (at the time of purchase) by two or more Rating Organizations in
the highest rating category for such securities, (ii) if rated by only one
Rating Organization, are rated by
-11-
<PAGE>
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
- --------------------------------------------------------------------------------
Purchase Procedures
Sansom Street Shares are sold without a sales load on a continuous basis by
the Fund's Distributor. Purchase of Shares may be made through the Banks acting
on behalf of their customers, including individuals, trusts, partnerships and
corporations who maintain accounts (such as custody, trust or escrow accounts)
with the Banks and who have authorized the Bank to invest in the Fund on the
customer's behalf. Investors may also purchase shares through any broker that
has entered into a dealer agreement with the Fund's Distributor (a "Dealer").
The minimum initial investment by an investor is $1,500. There is no minimum
subsequent investment.
Purchases of Shares may be effected through the customer's accounts at the
Banks or investor accounts with the Dealer through procedures established in
connection with the requirements of accounts at the Banks or at such Dealer.
Confirmations of share purchases and redemptions will be sent to the Banks or
such Dealer. Beneficial ownership of Sansom Street Shares will be recorded by
the Banks or such Dealer and reflected in the account statements provided by
such Banks or by such Dealer to investors. If you wish to purchase Sansom Street
Shares, contact your Bank or a Dealer.
The Banks may also impose minimum customer account requirements. Although
the Banks do not impose a sales charge for purchases of Sansom Street Shares,
depending upon the terms of the particular customer account, the Banks may
charge the account fees for automatic investment and other cash management
services. Information concerning these minimum account requirements, services
and any charges will be provided by the Banks before the customer authorizes the
initial purchase of shares. This Prospectus should be read in conjunction with
any information received from the Banks. See "Shareholder Servicing."
The shares of the Sansom Street Class of the Portfolio are also available
through Robertson Stephens, a registered broker-dealer that has entered into a
dealer Agreement with the Fund's Distributor. For distribution services with
respect to shares of the Portfolio held by this
-12-
<PAGE>
firm, the Fund's Distributor pays Robertson Stephens up to .25% of the annual
average value of such accounts. Purchases made through this program do not
require customers to pay a transaction fee.
Direct Purchases through a Dealer. An investor may make an initial
investment by mail by completing and signing an application obtained from a
Dealer (an "Application) and mailing it, together with a check payable to
"Sansom Street Money Market," to "Sansom Street Money Market," c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. An Application will be returned to the
investor unless it contains the name of the Dealer from whom it was obtained.
Subsequent purchases may be made through a Dealer or by forwarding payment to
the Fund's transfer agent at the foregoing address.
The Fund reserves the right to reject any purchase order.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
receipt of the purchase order in good order and Federal Funds are available to
the Fund. Purchase orders received after its close of business are priced at the
net asset value next determined on the following Business Day. In those cases in
which an investor pays for Shares by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. Purchase orders for Shares are
accepted only on Business Days.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Sansom Street Shares. Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or state securities commissions, are urged to consult their
legal advisers before investing fiduciary funds in Sansom Street Shares. See
"Management-Banking Laws."
Redemption of Shares
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. It is the responsibility of the Banks and the Dealers to transmit
promptly to PFPC a customer's redemption request. In the case of shareholders
holding share certificates, the certificates must accompany the redemption
request. Investors may redeem all or some of their shares in accordance with one
of the procedures described below.
Redemption of Shares In an Account for Bank Customers. A bank customer may
redeem all or part of his Sansom Street Shares in accordance with instructions
and limitations pertaining to his account at the Bank. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by PFPC. Payment for redemption orders received by PFPC on a Business Day
before 12:00 noon Eastern Time will be wired the same day in Federal Funds to
the customer's account at the Bank, provided that the Fund's custodian is
-13-
<PAGE>
open for business. If the custodian is not open, payment will be made on the
next bank business day. Payment for redemption orders which are received between
12:00 noon Eastern Time and the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time) on a Business Day will be wired in Federal Funds to the
customer's account on the next bank business day following receipt of the
redemption request. No charge for wiring redemption payments is imposed by the
Fund, although the Banks may charge their customer accounts for redemption
services. If all shares are redeemed, all accrued but unpaid dividends on those
share will be paid with the redemption proceeds.
Redemption of Shares in an Account for Non-Bank Customers. An investor who
beneficially owns Shares may redeem Shares in his account in accordance with
instructions and limitations pertaining to his Account by contacting his broker.
If such notice is received by PFPC by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds will be made after 12:00 noon Eastern Time on
the day the redemption is effected, provided that the Fund's custodian is open
for business. If the custodian is not open, payment will be made on the next
bank business day. If the redemption request is received between 12:00 noon and
the close of regular trading on the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading on the NYSE on such Business Day
and payment will be made on the next bank business day following receipt of the
redemption request. If all Shares are redeemed, all accrued but unpaid dividends
on those Shares will be paid with the redemption proceeds.
An investor's brokerage firm will also redeem each day a sufficient number
of Shares to cover debit balances created by transactions in the Account or
instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written requests to Sansom Street Money Market,
c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. It is recommended that such
requests be sent by registered or certified mail if share certificates accompany
the request. Redemption requests must be signed by each shareholder in the same
manner as the Shares are registered. Redemption requests for joint accounts
require the signature of each joint owner. On redemption requests of $5,000 or
more, a signature guarantee is required. A signature guarantee may be obtained
from a domestic bank or trust company, broker, dealer, clearing agency or
foreign association who are participants in a medallion program recognized by
the Securities Transfer Association. The three recognized medallion programs are
the Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (MSP). Signature guarantees that are not part of these programs will not
be accepted.
Direct investors may redeem Shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a
-14-
<PAGE>
telephone option to an existing account that previously did not provide for this
option, a Telephone Authorization Form must be filed with PFPC. This form is
available from PFPC. Once this election has been made, the shareholder may
simply contact PFPC by telephone to request the redemption by calling (888)
261-4073. Neither the Fund, the Portfolio, the Distributor, PFPC nor any other
Fund agent will be liable for any loss, liability, cost or expense for following
the procedures described below or for following instructions communicated by
telephone that they reasonably believe to be genuine.
The Fund's telephone transaction procedures include the following measures:
(1) requiring the appropriate telephone transaction privilege forms; (2)
requiring the caller to provide the names of the account owners, the account
social security number and the name of the Portfolio, all of which must match
the Fund's records; (3) requiring the Fund's service representative to complete
a telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers, financial
institutions, securities dealers, financial planners or other industry
professionals, additional documentation or information regarding the scope of a
caller's authority is required. Finally, for telephone transactions in accounts
held jointly, additional information regarding other account holders is
required. Telephone transactions will not be permitted in connection with IRA or
other retirement plan accounts or by an attorney-in-fact under power of
attorney.
Proceeds of a telephone redemption request will be mailed by check to an
investor's registered address unless he has designated in his Application or
Telephone Authorization Form that such proceeds are to be sent by wire transfer
to a specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. The minimum redemption
for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Fund may modify this redemption service at any time
or charge a service fee upon prior notice to shareholders, although no fee is
currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors with joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time,
-15-
<PAGE>
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
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cashed at other banks.
Other Redemption Information
The Fund ordinarily will make payment for all Shares redeemed within seven
days after receipt by the Fund's transfer agent of a request in proper form.
Although the Fund will redeem Shares purchased by check before the check clears,
payment of the redemption proceeds may be delayed for a period up to fifteen
days after their purchase, pending a determination that the check has cleared.
This procedure does not apply to Shares purchased by wire payment. Investors
should consider purchasing Shares using a certified or bank check or money order
if they anticipate an immediate need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in the Sansom Street Class involuntarily, on 30
days' notice, if such account drops below $500 and during such 30-day notice
period the shareholder does not increase such account to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of the Sansom Street Class of the Portfolio
for the purpose of pricing purchase and redemption orders is determined twice
each day, once as of 12:00 noon Eastern Time and once as of the close of regular
trading on the NYSE on each weekday with the exception of those holidays on
which either the NYSE or the FRB, is closed. Currently, the NYSE is closed on
weekends and the customary national business holidays of New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE is closed as well as Veterans' Day and Columbus Day. The
net asset value per share of each class of the Portfolio is calculated by adding
the value of the proportionate interest of the class in the securities, cash and
other assets of the Portfolio, deducting actual and accrued liabilities of the
class and dividing the result by the number of outstanding shares of the class.
The net asset value per share of each class of the Fund is determined
independently of any of the Fund's other classes.
-16-
<PAGE>
The Fund seeks to maintain for the Sansom Street Class of the Portfolio a
net asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, the Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and separate Plan of Distribution for the Sansom Street Class (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the
Distributor is entitled to receive from the Sansom Street Class a distribution
fee, which is accrued daily and paid monthly, of up to .20% on an annualized
basis of the daily net assets of the Sansom Street Class. The actual amount of
such compensation under the Plan is agreed upon by the Fund's Board of Directors
and by the Distributor. Pursuant to the conditions of an exemptive order granted
by the SEC, the Distributor has agreed to waive its fee with respect to the
Sansom Street Class on any day to the extent necessary to assure that the fee
required to be accrued by such Class does not exceed the income of such Class on
that day. In addition, the Distributor may, in its discretion, voluntarily waive
from time to time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor may
reallocate an amount up to the full fee that it receives to Dealers, based upon
the aggregate investment amounts maintained by and services provided to
shareholders of any relevant Class serviced by such financial institutions. The
Distributor may also reimburse Dealers for other expenses incurred in the
promotion of the sale of Fund shares. The Distributor and/or Dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Sansom Street Class the fee set
forth above. Payments under the Plan are not based on expenses actually incurred
by the Distributor, and the payments may exceed distribution expenses actually
incurred.
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund has and will continue to enter into service agreements with the
Banks pursuant to which the Banks will render certain support services to their
customers in consideration for payment of .25% (on an annualized basis) of the
average daily net asset value of such Shares.
-17-
<PAGE>
Such services may include aggregating and processing purchase and redemption
requests from their customers and placing net purchase and redemption orders
with PFPC; processing dividend payments from the Fund on behalf of their
customers; providing information periodically to their customers showing their
positions in the Sansom Street Class; providing sub-accounting with respect to
the Sansom Street Shares beneficially owned by their customers or the
information necessary for sub-accounting; and providing certain statistical and
factual information. In accordance with the conditions of an exemptive order
granted by the Securities and Exchange Commission, each service agreement will
provide that a Bank will waive its servicing fee with respect to the Sansom
Street Class on any day to the extent necessary to assure that the servicing fee
required to be accrued by that Class does not exceed the income of that Class on
that day. Their customers who are beneficial owners of Sansom Street Shares
should read this Prospectus in light of the terms governing their accounts with
the Banks.
MANAGEMENT
- --------------------------------------------------------------------------------
Board of Directors
The business and affairs of the Fund and each of its investment portfolios
are managed under the direction of the Fund's Board of Directors. The Fund
currently operates or proposes to operate seventeen separate investment
portfolios. The Sansom Street 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. PNC
Bank and its subsidiary currently manage over $45.9 billion of assets, of
which approximately $31.4 billion are mutual funds. PNC Bank, a national
bank whose principal business address is 1600 Market Street, Philadelphia,
Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp, Inc. PNC
Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary of PNC
Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolio, BIMC manages such Portfolio and is
responsible for all purchases and sales of Portfolio securities. In entering
into Portfolio transactions for the Portfolio with a broker, BIMC may take into
account the sale by such broker of shares by the Fund, subject to the
requirements of best execution. The agreement between BIMC and RBB with respect
to the
-18-
<PAGE>
Money Market Portfolio provides for BIMC to also assist generally in supervising
the operations of such Portfolio, and to maintain the Portfolio's financial
accounts and records. These administrative responsibilities have been delegated
to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit of
the Money Market 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 the average daily net assets of such Portfolio in excess of $500 million.
BIMC may in its discretion from time to time agree to waive voluntarily all or
any portion of its advisory fee for the Portfolio.
For the Fund's fiscal year ended August 31, 1998, the Fund paid investment
advisory fees aggregating .37% of the average net assets of the Portfolio. For
the same period, BIMC waived fees of approximately .13% of the average net
assets of the Portfolio.
Pursuant to it's advisory agreement with Fund relating to the Portfolio,
BIMC may enter into agreements with its affliates in which it delegates some or
all of its accounting and administrative obligations under the advisory
agreement. Any such arrangement has no effect on the advisory fees payable by
the Portfolio to BIMC. BIMC has delegated to PFPC all of its accounting and
administrative obligations under its advisory agreement with the Fund relating
to the Portfolio. PFPC generally assists the Portfolio in all aspects of its
administration and operation, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to receive from BIMC and
administration fee, computed daily and payable monthly at a rate of .10% of the
average daily net assets of the Portfolio. This has no effect on the advisory
fees payable by the Portfolio to BIMC. PFPC's principal address is 400 Bellevue
Parkway, Wilmington, Delaware 19809.
PNC Bank was formerly sub-adviser to the Money Market, Municipal Money
Market and Government Obligations Portfolios and provided research, credit
analysis and recommendations with respect to each such Portfolios 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 each such portfolio to BIMC. The sub-advisory fees paid by BIMC
to PNC Bank had no effect on the investment advisory fees payable by such
portfolios 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."
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank also serves as the Fund's custodian and PFPC, an indirect
wholly-owned subsidiary of PNC Bank Corp., serves as the Fund's transfer agent
and dividend disbursing agent. The services provided and the fees payable by the
Fund for these services are described in the Statement of Additional Information
under "Investment Advisory, Distribution and Servicing Arrangements."
Administrator
-19-
<PAGE>
Pursuant to its advisory agreement with the Fund with respect to the Money
Market Portfolio, BIMC provides administrative services to the Portfolio, and is
entitled to an administration fee, computed daily and payable monthly at .10% of
average daily net assets of the Portfolio. BIMC has delegated to PFPC all of its
accounting and administrative obligations under such advisory agreement. The
Fund has agreed to pay directly to PFPC the fees for accounting and
administrative 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 such Portfolio to BIMC. PFPC's
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
Distributor
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as distributor
for the Sansom Street Class of the Fund pursuant to a distribution agreement
dated May 29, 1998 (the "Distribution Agreement").
Expenses
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio of
the Fund will be allocated among all investment portfolios of the Fund based on
the relative net assets of the investment portfolios at the time such expenses
were accrued. The Sansom Street Classes of the Fund pay their own distribution
fees, and may pay a different share than other classes of the Fund of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Sansom Street Classes or if they receive
different services.
The investment adviser may assume expenses of the Portfolio from time to
time. In certain circumstances, it may assume such expenses on the condition
that it be reimbursed by the Portfolio for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
For the fiscal year ended August 31, 1998, the total expenses were .62% of
average net assets with respect to the Sansom Street Class of the Money Market
Portfolio (not taking into account waivers of .13%).
Banking Laws
-20-
<PAGE>
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engage in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities, but such banking
laws and regulations do not prohibit such a holding company or affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company, or from purchasing shares of such a company as
agent for and upon the order of such a customer. PNC Bank, BIMC, PFPC, as well
as the Banks, are subject to such banking laws and regulations. In addition,
state securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of Banks in connection with the provision of support
services to their customers, the Fund might be required to alter materials or
cause the fund to discontinue its arrangements with Banks generally and change
its method of operations with respect to the Sansom Street Shares. It is not
anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per share or result in a financial loss to any
customer.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Portfolio to the Portfolio's
shareholders. All distributions are reinvested in the form of additional full
and fractional Shares of the Sansom Street Class unless a shareholder elects
otherwise.
The net investment income (not including any net short-term capital gains)
earned by the Portfolio will be declared as a dividend on a daily basis and paid
monthly. Dividends are payable to shareholders of record immediately prior to
the determination of net asset value made as of the close of regular trading of
the NYSE. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
- --------------------------------------------------------------------------------
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.
-21-
<PAGE>
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 the Money Market Portfolio to
expand its marketing alternatives and to broaden its range of services to
different investors. The expenses of the various classes within these Portfolios
vary based upon the services provided, which may affect performance. Each class
of Common Stock of the Fund has a separate Rule 12b-1 distribution plan. Under
the Distribution Agreement and pursuant to each of the distribution plans, the
Distributor is entitled to receive from each class as compensation for
distribution services provided to that class a distribution fee based on average
daily net assets. A salesperson or any other person entitled to receive
compensation for servicing Fund shares may receive different compensation with
respect to different classes in a Portfolio of the Fund. An investor may contact
the Fund's Distributor by calling 1-800-888-9723 to request more information
concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE SANSOM STREET CLASS OF THE MONEY MARKET PORTFOLIO
AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THE SANSOM STREET CLASS OF THIS PORTFOLIO.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, shares of the Fund will be
fully paid and non-assessable.
-22-
<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 November 16, 1998, to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
the Fund.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll free (800) 430-9618.
-23-
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
------------------
CONTENTS
Page
INTRODUCTION..................................... 3
FINANCIAL HIGHLIGHTS............................. 7
INVESTMENT OBJECTIVES AND POLICIES...............11
YEAR 2000........................................18
INVESTMENT LIMITATIONS...........................18
PURCHASE AND REDEMPTION OF SHARES................20
NET ASSET VALUE..................................24
DISTRIBUTION OF SHARES...........................25
SHAREHOLDER SERVICING............................26
MANAGEMENT.......................................27
DIVIDENDS AND DISTRIBUTIONS......................30
TAXES............................................31
DESCRIPTION OF SHARES............................31
OTHER INFORMATION................................33
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
<TABLE>
<S> <C>
========================================================= ===================================================
The Sansom
Street
Family
Money Market Portfolio
Municipal Money
Market Portfolio
and
Government Obligations
Money Market Portfolio
Prospectus
December 29, 1998
</TABLE>
<PAGE>
THE SANSOM STREET FAMILY
of
The RBB Fund, Inc.
The Sansom Street Family consists of three classes of common stock of
The RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of the Sansom Street Classes offered by this Prospectus represent
interests in a taxable money market portfolio, a municipal money market
portfolio and a U.S. Government obligations money market portfolio. The
investment objectives of each investment portfolio described in this Prospectus
are as follows:
Money Market Portfolio -- to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
Municipal Money Market Portfolio -- to provide as high a level
of current interest income exempt from federal income taxes as is
consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular federal income tax but which may constitute an item of tax
preference for purposes of the federal alternative minimum tax.
Government Obligations Money Market Portfolio -- to provide as
high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve
such objective by investing in short-term U.S. Treasury bills, notes
and other obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and repurchase agreements relating
to such obligations.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. There can be no
assurance that the Portfolios will be able to maintain a stable net asset value
of $1.00 per share.
BlackRock Institutional Management Corporation serves as investment
adviser for these Portfolios and PNC Bank, National Association serves as
custodian for the Fund. PFPC Inc. serves as administrator and as transfer and
dividend disbursing agent for the Fund. Provident Distributors, Inc. acts as
distributor for the Fund.
<PAGE>
Sansom Street Shares are sold by the Fund's distributor to customers
maintaining accounts with banks affiliated with PNC Bank Corp. (the "Banks").
Sansom Street Shares will be sold to customers, including individuals, trusts,
partnerships and corporations, who maintain accounts (such as custody, trust or
escrow accounts) with the Banks, and who have authorized the Banks to invest in
the Fund. Shares are sold and redeemed without any purchase or redemption charge
imposed by the Fund, although the Banks may receive compensation from the Fund
and charge their customer accounts for services provided in connection with the
purchase or redemption of shares. See "Shareholder Servicing." Sansom Street
Shares are also sold through dealers that have entered into a dealer agreement
with the Fund's Distributor.
This Prospectus contains concise information that a prospective
investor needs to know before investing. Please keep it for future reference. A
Statement of Additional Information, dated December 29, 1998, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
this Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the SEC
Internet Website (http://www.sec.gov).
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
-2-
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate seventeen separate
investment portfolios. Each of the three classes (collectively, the "Sansom
Street Classes") of the Fund's shares (collectively, the "Sansom Street Shares"
or "Shares") offered by this Prospectus represents interests in one of the
following investment portfolios: the Money Market Portfolio, the Municipal Money
Market Portfolio and the Government Obligations Money Market Portfolio
(together, the "Portfolios").
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and which present minimal credit risks. In
pursuing its investment objective, the Money Market Portfolio invests in a broad
range of government, bank and commercial obligations that may be available in
the money markets.
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and which present
minimal credit risks. During periods of normal market conditions, at least 80%
of the net assets of the Portfolio will be invested in Municipal Obligations,
the interest on which is exempt from the regular federal income tax but which
may constitute an item of tax preference for purposes of the federal alternative
minimum tax.
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Government Obligations Money Market Portfolio invests exclusively
in short-term U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and
enters into repurchase agreements relating to such obligations.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
The Portfolios' investment adviser is BlackRock Institutional
Management Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank")
serves as custodian to the Fund and PFPC Inc. ("PFPC") serves as administrator
and transfer and dividend disbursing agent to the Fund. Provident Distributors,
Inc. (the "Distributor") acts as distributor of the Fund's shares.
-3-
<PAGE>
An investment in any of the Portfolios is subject to certain risks, as
set forth in detail under "Investment Objectives and Policies." Some or all of
the Portfolios, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase of
mortgage-related securities, the purchase of securities on a "when-issued" or
"forward commitment basis," the purchase of stand-by commitments and the lending
of securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
For detailed information of how to purchase or redeem Sansom Street
Shares, please refer to the section of this Prospectus entitled "Purchase and
Redemption of Shares."
-4-
<PAGE>
FEE TABLE
The Fee Table below contains a summary of the annual operating expenses
incurred by the Sansom Street Class of the Money Market Portfolio for the fiscal
year ended August 31, 1998 as a percentage of average daily net assets. The
figures shown for the Sansom Street Classes of the Municipal Money Market
Portfolio and Government Obligations Money Market Portfolio are based on
expenses expected to be incurred by such Classes of these Portfolios in the
current fiscal period in the event that Shares of these Classes are offered to
the public. No shares of these Classes were offered during the fiscal year ended
August 31, 1998. An example based on the summary is also shown.
Annual Fund Operating Expenses (Sansom Street Classes)
as a percentage of average daily net assets
<TABLE>
<CAPTION>
Government
Municipal Obligations
Money Market Money Market Money Market
Portfolio Portfolio Portfolio
--------- --------- ---------
<S> <C> <C> <C>
Management Fees (after waivers)(1)................. .24% .08% .30%
12b-1 Fees(1) ..................................... .05 .05 .05
Other Expenses..................................... .20 .30 .24
Total Fund Operating Expenses
(Sansom Street Classes)
(after waivers)(1)............................... .49% .43% .59%
=== === ===
</TABLE>
(1) Management Fees and 12b-1 Fees are each based on average daily net
assets and are calculated daily and paid monthly. Before waivers for
the Money Market Portfolio, Municipal Money Market Portfolio and
Government Obligations Money Market Portfolio, Management Fees would be
.37%, .34% and .42%, respectively, and Total Fund Operating Expenses
would be .62%, .69% and .71%, respectively.
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market*.............................................. $5 $16 $27 $62
Municipal Money Market*.................................... $4 $13 $22 $49
Government Obligations Money Market*....................... $6 $19 $33 $74
</TABLE>
* Other classes of these Portfolios are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION
-5-
<PAGE>
OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Sansom Street Classes of the
Fund will bear directly or indirectly. (For more complete descriptions of the
various costs and expenses, see "Management--Investment Adviser," "Distribution
of Shares" and "Shareholder Servicing" below.) Expense figures are based on
actual costs and fees charged to each class. The Fee Table reflects a voluntary
waiver of Management Fees for each Portfolio. However, there can be no assurance
that any future waivers of Management Fees will not vary from the figures
reflected in the Fee Table. In addition, the investment adviser is currently
voluntarily assuming additional expenses of the Money Market Portfolio. There
can be no assurance that the investment adviser will continue to assume such
expenses. Assumption of additional expenses will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield"
and "effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The Municipal Money Market Portfolio's "tax-equivalent yield" may
also be quoted from time to time, which shows the level of taxable yield needed
to produce an after-tax equivalent to such Portfolio's tax-free yield. This is
done by increasing the Portfolio's yield (calculated as above) by the amount
necessary to reflect the payment of federal income tax at a stated tax rate.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment, operating expenses and
market conditions. The total return and yield on Shares of each of the Sansom
Street Classes will fluctuate and is not necessarily representative of future
results. Any fees charged by the Banks or broker/dealers directly to their
customers in connection with investments in a Portfolio are not reflected in the
total return and yields on a Portfolio's Shares, and such fees, if charged, will
reduce the actual return received by shareholders on their investments. The
total return and yield on Shares of Sansom Street Classes may differ from total
return and yields on shares of other classes of the Fund that also represent
interests in the same Portfolio depending on the allocation of expenses to each
of the classes of that Portfolio.
-6-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the
investment results of the Sansom Street Classes for the periods indicated. The
financial data included in this table for each of the periods ended August 31,
1994 through August 31, 1998 are part of the Fund's financial statements for
each of the Portfolios, which have been incorporated by reference into the
Statement of Additional Information and have been audited by
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), the Fund's independent
accountants. The financial data for each such Portfolio for the periods ended
August 31, 1989, 1990, 1991, 1992 and 1993 are a part of previous financial
statements audited by PricewaterhouseCoopers. No financial data for the periods
ended August 31, 1994, 1995, 1996, 1997 and 1998 are included for the Sansom
Street Class of the Municipal Money Market Portfolio as no shares of such Class
had been sold to the public during these periods and for the Sansom Street Class
of the Government Obligations Money Market Portfolio as such Class ceased
operations on December 4, 1991. The financial data included in the table should
be read in conjunction with the financial statements and notes thereto. Further
information about the performance of the Portfolios is available in the Annual
Report to Shareholders. Both the Statement of Additional Information and the
Annual Report to Shareholders may be obtained free of charge by calling the
telephone number on page 1 of this Prospectus.
-7-
<PAGE>
Sansom Street Classes
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
Financial Highlights (c)
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Money Market Portfolio
------------------------------------------------------------------------------------------
For The For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1998 August 31, 1997 August 31, 1996 August 31, 1995 August 31, 1994
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- -------- --------
Income from investment operations:
Net investment income............. .0520 0.0510 0.0518 0.0543 0.0334
Net gains on securities (both
realized and unrealized) -- -- -- -- --
------- ------- -------- -------- --------
Total from investment
operations.................. .0520 0.0510 0.0518 0.0543 0.0334
------- ------- -------- -------- --------
Less distributions
Dividends (from net investment
income)......................... (.0520) (0.0510) (0.0518) (0.0543) (0.0334)
Distributions (from capital
gains).......................... -- -- -- -- --
------- ------- --------- --------- -------
Total distributions........... (.0520) (0.0510) (0.0518) (0.0543) (0.0334)
------- ------- --------- --------- -------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ========= ========= =========
Total return........................ 5.34% 5.22% 5.30% 5.57% 3.39%
Ratios/Supplemental Data
Net assets, end of period (000)... $684,066 $570,018 $524,359 $441,614 $373,745
Ratios of expenses to average
net assets...................... .49%(a) .49%(a) .48%(a) .39%(a) .39%(a)
Ratios of net investment income to
average net assets.............. 5.20% 5.10% 5.18% 5.43% 3.34%
</TABLE>
<TABLE>
<CAPTION>
Money Market Portfolio
---------------------------------------------------------------------------------------------
For the Period
September 30, 1988
For the For the For the For the (Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990 August 31, 1989
--------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income............. 0.0304 0.0435 0.0684 0.0810 0.0818
Net gains on securities (both
realized and unrealized)........ -- 0.0007 -- -- --
-------- -------- -------- -------- --------
Total from investment
operations.................. 0.0304 0.0442 0.0684 0.0810 0.0818
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)......................... (0.0304) (0.0435) (0.0684) (0.0810) (0.0818)
Distributions (from capital
gains).......................... -- (0.0007) -- -- --
-------- -------- -------- -------- --------
Total distributions........... (0.0304) (0.0442) (0.0684) (0.0810) (0.0818)
-------- -------- -------- -------- --------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =========
Total return........................ 3.08% 4.51% 7.06% 8.40% 9.25%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $190,794 $228,079 $138,418 $106,743 $79,656
Ratios of expenses to average
net assets...................... .34%(a) .35%(a) .37%(a) .47%(a) .50%(a)(b)
Ratios of net investment income to
average net assets.............. 3.04% 4.35% 6.84% 8.10% 9.04%(b)
</TABLE>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .62%, .64%, .65%, .59%,
.60%, .60%, .61%, .61% and .73% for the years ended August 31, 1998, 1997,
1996, 1995, 1994, 1993, 1992, 1991, and 1990, respectively, and .83%
annualized for the period ended August 31, 1989.
(b) Annualized
(c) Financial Highlights relate solely to the Sansom Street Class of Shares
within the Portfolio.
-8-
<PAGE>
Sansom Street Classes
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
Financial Highlights (c)
(For a Share Outstanding Throughout each Period)(d)
<TABLE>
<CAPTION>
Municipal Money Market Portfolio
-----------------------------------------------------------------------------------------
For the Period
September 30, 1988
For the For the For the For the (Commencement
Year Ended Year Ended Year Ended Year Ended of Operations) to
August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990 August 31, 1989
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ---------- ----------- ----------- -----------
Income from investment operations:
Net investment income............. 0.0233 0.0325 0.0471 0.0559 0.0537
Net gains on securities (both
realized and unrealized)........ -- -- -- -- --
-------- ----------- ------------- ------------- -------------
Total from investment
operations.................. 0.0233 0.0325 0.0471 0.0559 0.0537
-------- ----------- ----------- ----------- -----------
Less distributions
Dividends (from net investment
income)......................... (0.0233) (0.0325) (0.0471) (0.0559) (0.0537)
Distributions (from capital
gains).......................... -- -- -- -- --
-------- ----------- ------------- ------------- -------------
Total distributions........... (0.0233) (0.0325) (0.0471) (0.0559) (0.0537)
-------- ----------- ----------- ----------- -----------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== =========== =========== =========== ===========
Total return........................ 2.35% 3.30% 4.81% 5.74% 5.99%(b)
Ratios/Supplemental Data
Net assets, end of
period (000).................... $ 928 $3,025,781 $15,289,016 $24,781,689 $21,470,715
Ratios of expenses to average
net assets...................... .39%(a) .39%(a) .34%(a) .38%(a) .50%(a)(b)
Ratios of net investment income
to average net assets........... 2.33% 3.25% 4.71% 5.59% 5.93%(b)
</TABLE>
(a) Without the waiver of advisory, administration, and transfer agency fees and
without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets for the Municipal Money Market Portfolio is
not reported for the periods ended August 31, 1998, 1997, 1996, 1995 and
1994 and would have been 3.02%, .87%, .73% and .77% for the years ended
August 31, 1993, 1992, 1991, and 1990, respectively, and .95% annualized for
the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Sansom Street Class of Shares
within the Portfolio.
(d) No Shares of this class had been sold to the public during the periods ended
August 31, 1998, 1997, 1996, 1995 and 1994.
-9-
<PAGE>
Sansom Street Classes
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
Financial Highlights (c)
(For a Share Outstanding Throughout each Period)
<TABLE>
<CAPTION>
Government Obligations Money Market Portfolio
---------------------------------------------------------------------------
For the Period
October 18, 1988
For the For the For the (Commencement
Year Ended Year Ended Year Ended of Operations) to
August 31, 1992(d) August 31, 1991 August 31, 1990 August 31, 1989
------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ----------- ----------- -----------
Income from investment operations:
Net investment income............. 0.0153 0.0699 0.0843 0.0816
Net gains on securities (both
realized and unrealized)........ -- -- -- --
----------- ------------- ------------- -------------
Total from investment
operations.................. 0.0153 0.0699 0.0843 0.0816
----------- ----------- ----------- -----------
Less distributions
Dividends (from net investment
income)......................... (0.0153) (0.0699) (0.0843) (0.0816)
Distributions (from capital
gains).......................... -- -- -- --
----------- ------------- ------------- -------------
Total distributions........... (0.0153) (0.0699) (0.0843) (0.0816)
----------- ----------- ----------- -----------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== ===========
Total return........................ 6.02%(b) 7.23% 8.79% 9.31%(b)
Ratios/Supplemental Data
Net assets, end of
period (000).................... -- $ 125 $ 117 $ 108
Ratios of expenses to average
net assets...................... --(a) --(a) --(a) --(a)
Ratios of net investment income
to average net assets........... 5.85% 6.99% 8.43% 8.91%(b)
</TABLE>
(a) Without the waiver of advisory, distribution and transfer agency fees and
without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets for the Government Obligations Money Market
Portfolio is not reported for the periods ended December 4, 1991, August 31,
1991, 1990 and 1989 as no shares of the Sansom Street Class of that
Portfolio had been sold to the public during such years.
(b) Annualized.
(c) Financial Highlights relate solely to the Sansom Street Class of Shares
within the Portfolio.
(d) This Class of shares ceased operations on December 4, 1991.
-10-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Money Market Portfolio
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. Portfolio obligations held by the Money Market
Portfolio have remaining maturities of 397 days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." There is no
assurance that the Portfolio will achieve its investment objective. The
following descriptions illustrate the types of Money Market Instruments in which
the Money Market Portfolio invests.
Bank Obligations. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less market liquidity.
The Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
Commercial Paper. The Portfolio may purchase commercial paper (i) rated
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization; or (ii) issued by issuers (or, in certain
cases guaranteed by persons) with short-term debt having such rating. 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
-11-
<PAGE>
may be no active secondary market in the notes, the Portfolio will be able (at
any time or during specified periods not exceeding 13 months, depending upon the
note involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
Repurchase Agreements. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
Default by or bankruptcy of the seller would, however, expose the Portfolio to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
U.S. Government Obligations. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation.
Asset-Backed Securities. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and, instrumentalities
or issued by private companies. Asset-backed securities also include adjustable
rate securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. For this
and other reasons, an asset-backed security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods the reinvestment of proceeds by a Portfolio will generally
be at lower rates than the rates on the prepaid obligations.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
-12-
<PAGE>
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Municipal Obligations. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and Policies --
Municipal Money Market Portfolio -- Municipal Obligations."
Guaranteed Investment Contracts. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
Stand-By Commitments. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its 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 at least two Rating Organizations ("Rating Organizations") (e.g.,
commercial paper rated "A-1" or "A-2" by Standard & Poor's Ratings Services
("S&P")), (3) securities that
-13-
<PAGE>
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 (4)
securities issued by issuers (or, in certain cases guaranteed by persons) with
short-term debt having such ratings, and (5) securities that are not rated and
are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies -- Illiquid Securities" in
the Statement of Additional Information.
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Portfolio will be achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
-14-
<PAGE>
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Portfolio's
investment adviser, suitable obligations bearing Tax-Exempt Interest or AMT
Interest are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects and (iii) private activity bonds bearing Tax-Exempt
Interest, it does not currently intend to do so on a regular basis. To the
extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon
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by the Portfolio in purchasing such securities. Neither the Portfolio nor its
investment adviser will review the proceedings relating to the creation of any
tax-exempt derivative securities or the basis for such legal opinions.
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis as described under "Investment Objectives
and Policies--Money Market Portfolio--When-Issued Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
Eligible Securities. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio--Eligible Securities
and "Investment Objectives and Policies" in the Statement of Additional
Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies--Money Market Portfolio--Illiquid Securities" and "Investment
Objectives and Policies--Illiquid Securities" in the Statement of Additional
Information.
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when
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the investment adviser believes that the credit risk with respect thereto is
minimal. There is no assurance that the investment objective of the Portfolio
will be achieved.
Due to fluctuations in interest rates, the market values of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 days and the adjustments
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
Repurchase Agreements. The Portfolio may agree to purchase government
securities from financial institutions, subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a more complete description of repurchase agreements, see "Investment Objectives
and Policies--Money Market Portfolio--Repurchase Agreements."
Reverse Repurchase Agreements. The Portfolio may borrow funds by
entering into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. For a more complete description of
reverse repurchase agreements see "Investment Objectives and Policies--Money
Market Portfolio--Reverse Repurchase Agreements."
Mortgage-Related and Asset-Backed Securities. Mortgage-related
securities consist of mortgage loans which are assembled into pools, the
interests in which are issued and guaranteed by an agency or instrumentality of
the U.S. Government, though not necessarily by the U.S. Government itself. The
Fund may also acquire asset-backed securities as described under "Investment
Objectives and Policies--Money Market Portfolio--Asset-Backed Securities."
Lending of Securities. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities as described under "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
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YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
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The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios' respective investment objectives and the policies
described above may be changed by the Fund's Board of Directors without
shareholder approval. The Portfolios may not, however, change the following
investment limitations (except as noted) without such a vote of their respective
shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The Portfolios may not borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in amounts not
in excess of 10% of the value of a Portfolio's assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or hypothecate any
of its assets except in connection with any such borrowing and in amounts not in
excess of 10% of the value of a Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess of 5% of
the Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of a Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
The Money Market and Municipal Money Market Portfolios may not:
1. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities, if
immediately after and as a result of such purchase more than 5% of the value of
its total assets would be invested in the securities of such issuer, or more
than 10% of the outstanding voting securities of such issuer
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<PAGE>
would be owned by a Portfolio, except that up to 25% of the value of a
Portfolio's total assets may be invested without regard to such 5% limitation.
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits.
2. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Money Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three Business Days (as
defined below). "First Tier Securities" include eligible securities that
(i) if rated by more than one Rating Organization, are rated (at the time
of purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization in its highest rating
category for such securities, (iii) have no short-term rating and are
comparable in priority and security to a class of short-term obligations of
the issuer of such securities that have been rated in accordance with (i)
or (ii) above, or (iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First Tier Securities
that come within categories (ii) and (iv) above will be approved or
ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
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<PAGE>
The Municipal Money Market Portfolio may not:
1. Purchase any securities which would cause more than 25% of the value
of the total assets of the Portfolio to be invested in obligations at the time
of purchase in issuers in the same industry.
In addition, without shareholder approval, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral, consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Purchase Procedures
Sansom Street Shares are sold without a sales load on a continuous
basis by the Fund's Distributor. Only Shares of the Sansom Street Class
representing interests in the Money Market Portfolio are currently offered to
the public. Purchase of Shares may be made through the Banks acting on behalf of
their customers, including individuals, trusts, partnerships and corporations
who maintain accounts (such as custody, trust or escrow accounts) with the Banks
and who have authorized the Bank to invest in the Fund on the customer's behalf.
Investors may also purchase Shares through broker-dealers (a "Dealer") that have
entered into a dealer agreement with the Fund's Distributor. The minimum initial
investment by an investor is $1,500. There is no minimum subsequent investment.
Purchases of Shares may be effected through the customers accounts at
the Banks or investor accounts with the Dealer through procedures established in
connection with the requirements of accounts at the Banks or at such Dealer.
Confirmations of Share purchases and
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<PAGE>
redemptions will be sent to the Banks or such Dealer. Beneficial ownership of
Sansom Street Shares will be recorded by the Banks or such Dealer and reflected
in the account statements provided by such Banks or by such Dealer to investors.
If you wish to purchase Sansom Street Shares, contact your Bank or a Dealer.
The Banks may also impose minimum customer account requirements.
Although the Banks do not impose a sales charge for purchases of Sansom Street
Shares, depending upon the terms of the particular customer account, the Banks
may charge the account fees for automatic investment and other cash management
services. Information concerning these minimum account requirements, services
and any charges will be provided by the Banks before the customer authorizes the
initial purchase of shares. This Prospectus should be read in conjunction with
any information received from the Banks. See "Shareholder Servicing."
The Sansom Street Class of the Money Market Portfolio is also available
through Robertson Stephens, a registered broker-dealer that has entered into a
dealer Agreement with the Fund's Distributor. For distribution services with
respect to that Class of shares of the Portfolio held by this firm, the Fund's
Distributor pays Robertson Stephens up to .25% of the average annual daily net
asset value of such accounts. Purchases made through this program does not
require customers to pay a transaction fee.
Direct Purchases through a Dealer. An investor may make an initial
investment by mail by fully completing and signing an application obtained from
a Dealer (an "Application") and mailing it, together with a check payable to
"Sansom Street Money Market," to "Sansom Street Money Market," c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. An Application will be returned to the
investor unless it contains the name of the Dealer from whom it was obtained.
Subsequent purchases may be made through a Dealer or by forwarding payment to
the Fund's transfer agent at the foregoing address.
The Fund reserves the right to reject any purchase order.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
receipt of the purchase order in good order and Federal Funds are available to
the Fund. Purchase orders received after its close of business are priced at the
net asset value next determined on the following "Business Day." A "Business
Day" is any day that both the New York Stock Exchange (the "NYSE") and the
Federal Reserve Bank of Philadelphia (the "FRB") are open. In those cases in
which an investor pays for Shares by check, Federal Funds will generally become
available two Business Days after the check is received. Purchase orders for
Shares are accepted only on Business Days.
Conflict of interest restrictions may apply to an institution's receipt
of compensation paid by the Fund in connection with the investment of fiduciary
funds in Sansom Street Shares. Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or state securities commissions, are urged to consult their
legal advisers before investing fiduciary funds in Sansom Street Shares.
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<PAGE>
Redemption of Shares
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. It is the responsibility of the Banks and the Dealers to transmit
promptly to PFPC a customer's redemption request. In the case of shareholders
holding share certificates, the certificates must accompany the redemption
request. Investors may redeem all or some of their Shares in accordance with one
of the procedures described below.
Redemption of Shares In an Account for Bank Customers. A customer may
redeem all or part of his Sansom Street Shares in accordance with instructions
and limitations pertaining to his account at the Bank. Redemption orders are
effected at the net asset value per share determined after receipt of the order
by PFPC. Payment for redemption orders received by PFPC on a Business Day before
12:00 noon Eastern Time will be wired the same day in Federal Funds to the
customers account at the Bank, provided that the Fund's custodian is open for
business. If the custodian is not open, payment will be made on the next bank
business day. Payment for redemption orders which are received between 12:00
noon Eastern Time and the close of regular trading on the NYSE (generally 4:00
p.m. Eastern Time) on a Business Day will be wired in Federal Funds to the
customers account on the next bank business day following receipt of the
redemption request. No charge for wiring redemption payments is imposed by the
Fund, although the Banks may charge customer accounts for redemption services.
Redemption of Shares in an Account for Non-Bank Customers. An investor
who beneficially owns Shares through an Account may redeem Shares in his account
in accordance with instructions and limitations pertaining to his Account by
contacting his broker. If such notice is received by PFPC from the broker by
12:00 noon Eastern Time on any Business Day, the redemption will be effective as
of 12:00 noon Eastern Time on that day. Payment of the redemption proceeds will
be made after 12:00 noon Eastern Time on the day the redemption is effected,
provided that the Fund's custodian is open for business. If the custodian is not
open, payment will be made on the next bank business day. If the redemption
request is received between 12:00 noon and the close of regular trading of the
NYSE on a Business Day, the redemption will be effective as of the close of
regular trading of the NYSE on such Business Day and payment will be made on the
next bank business day following receipt of the redemption request. If all
Shares are redeemed, all accrued but unpaid dividends on those Shares will be
paid with the redemption proceeds.
An investor's brokerage firm may also redeem each day a sufficient
number of Shares to cover debit balances created by transactions in the Account
or instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit-balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written request to "Sansom Street Money Market,"
c/o PFPC, P.O. Box
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<PAGE>
8950, Wilmington, Delaware 19899. It is recommended that such request be sent by
registered or certified mail if share certificates accompany the request.
Redemption requests must be signed by each shareholder in the same manner as the
Shares are registered. Redemption requests for joint accounts require the
signature of each joint owner. On redemption requests of $5,000 or more, a
signature guarantee is required. A signature guarantee may be obtained from a
domestic bank or trust company, broker, dealer, clearing agency or savings
association who are participants in a medallion program recognized by the
Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(MSP). Signature guarantees that are not part of these programs will not be
accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Portfolios, the
Distributor, PFPC nor any other Fund agent will be liable for any loss,
liability, cost or expense for following the procedures described below or for
following instructions communicated by telephone that they reasonably believe to
be genuine.
The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and the name of the portfolio, all of which must match
the Fund's records; (3) requiring the Fund's service representative to complete
a telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners or other industry professionals, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by an
attorney-in-fact under power of attorney.
The proceeds of a telephone redemption request will be mailed by check
to an investor's registered address unless he has designated in his Application
or Telephone Authorization Form that such proceeds are to be sent by wire
transfer to a specified checking or savings account. If proceeds are to be sent
by wire transfer, a telephone redemption request received prior to the close of
regular trading on the NYSE will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. The minimum
redemption for proceeds sent by wire transfer is $2,500. There is no maximum for
proceeds sent by wire transfer. The
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<PAGE>
Fund may modify this redemption service at any time or charge a service fee upon
prior notice to shareholders, although no fee is currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors with joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
Other Redemption Information
The Fund ordinarily will make payment for all Shares redeemed within
seven days after receipt by the Fund's transfer agent of a redemption request in
proper form. Although the Fund will redeem Shares purchased by check before the
check clears, payment of redemption proceeds may be delayed for a period up to
fifteen days after their purchase, pending a determination that the check has
cleared. This procedure does not apply to Shares purchased by wire payment.
Investors should consider purchasing Shares using a certified or bank check or
money order if they anticipate an immediate need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in a Sansom Street Class involuntarily, on
thirty days' notice, if such account falls below $500 and during such thirty-day
notice period the amount invested in such account is not increased to at least
$500. Payment for Shares redeemed may be postponed or the right of redemption
suspended as provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the
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exception of those holidays on which either the NYSE or the FRB, is closed.
Currently, the NYSE is closed on weekends and the customary national business
holidays of New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday. The FRB is currently closed on weekends
and the same holidays as the NYSE is closed, as well as Veterans' Day and
Columbus Day. The net asset value per share of each class is calculated by
adding the proportionate interest of each class in the value of the securities,
cash, and other assets of the Portfolio, subtracting accrued and actual
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value per share of each class of the Fund is
determined independently of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value
of $1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Provident Distributors, Inc. acts as distributor for each of the Sansom
Street Classes of the Fund pursuant to a distribution agreement with the Fund
dated May 29, 1998 (the "Distribution Agreement"). The Distributor pays for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Portfolios of the Fund as well
as for related direct mail, advertising expenses and promotional expenses. The
Distributor monitors the support services provided by the Banks as described in
"Shareholder Servicing" below.
Distribution Arrangements
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plans of Distribution for each of the Sansom
Street Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940
Act. Under each of the Plans, the Distributor is entitled to receive from the
relevant Sansom Street Class a distribution fee, which is accrued daily and paid
monthly, of up to .20% on an annualized basis of the daily net assets of the
relevant Sansom Street Class. The actual amount of such compensation under the
Plans is agreed upon by the Fund's Board of Directors and by the Distributor.
Under the Distribution Agreement for the Municipal Money Market Portfolio and
the
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Government Obligations Money Market Portfolio, the Distributor has agreed to
accept compensation for its services thereunder and under the relevant Plan in
the amount of .05% on an annualized basis. Such compensation may be increased up
to the amount permitted under the Plan, with the approval of the Fund's Board of
Directors. Under the Distribution Agreement for the Money Market Portfolio, the
Distributor has agreed to accept compensation for its services thereunder and
under the relevant Plan in the amount of .06% on an annualized basis. Pursuant
to the conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to a Sansom
Street Class on any day to the extent necessary to assure that the fee required
to be accrued by such Class does not exceed the income of such Class on that
day. In addition, the Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee.
Each of the Plans obligates the Fund, during the period it is in
effect, to accrue and pay to the Distributor on behalf of each Sansom Street
Class the fee set forth above. Payments under the Plans are not based on
expenses actually incurred by the Distributor, and the payments may exceed
distribution expenses actually incurred.
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund has adopted a Shareholder Servicing Plan on behalf of the
Classes under which the Fund may enter into service agreements with the Banks.
As compensation for their services under these agreements, the Plan provides
that Banks may receive up to .20% (on an annualized basis) of the average daily
net asset value of such Shares. The Fund has and will continue to enter into
service agreements with the Banks pursuant to which the Banks will render
certain support services to customers in consideration for payment of .10% (on
an annualized basis) of the average daily net asset value of such Shares. Such
services may include aggregating and processing purchase and redemption requests
from customers and placing net purchase and redemption orders with PFPC;
processing dividend payments from the Fund on behalf of customers; providing
information periodically to customers showing their positions in the Sansom
Street Classes; providing sub-accounting with respect to the Sansom Street
Shares beneficially owned by customers or the information necessary for
sub-accounting; and providing certain statistical and factual information. In
accordance with the conditions of an exemptive order granted by the Securities
and Exchange Commission, each service agreement will provide that a Bank will
waive its servicing fee with respect to a Sansom Street Class on any day to the
extent necessary to assure that the servicing fee required to be accrued by such
Class does not exceed the income of such Class on that day. Customers who are
beneficial owners of Sansom Street Shares should read this Prospectus in light
of the terms governing their accounts with the Banks. For the fiscal year ended
August 31, 1998, the Fund paid PNC Bank shareholder services fees aggregating
.10% of the average daily net assets of the Money Market Portfolio under the
Plan.
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<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. Each of the
Sansom Street Classes represents interests in one of the following portfolios:
the Money Market Portfolio, the Municipal Money Market Portfolio and the
Government Obligations Money Market Portfolio.
Investment Adviser
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp
Inc. PNC Bancorp, Inc., is a bank holding company and a wholly-owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios
and is responsible for all purchases and sales of portfolio securities. In
entering into Portfolio transactions for a Portfolio with a broker, BIMC may
take into account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreements between BIMC and RBB, with
respect to the Money Market and Government Obligations Money market Portfolios,
respectively, provide for BIMC to also assist generally in supervising the
operations of such Portfolios, and to maintain such Portfolios' financial
accounts and records. These administrative responsibilities have been delegated
to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit
of each of the Money Market and Government Obligations Money Market Portfolios,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of assets in excess of $500
million. For the services provided and expenses assumed by it with respect to
the Municipal Money Market Portfolio, BIMC is entitled to receive the following
fees, computed daily and payable monthly based on the Portfolio's average daily
net assets: .35% of
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<PAGE>
the first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million. BIMC may in its discretion from time to time agree to
waive voluntarily all or any portion of its advisory fee for any Portfolio.
For the fiscal year ended August 31, 1998, the Fund paid investment
advisory fees aggregating .24% of the average net assets of the Money Market
Portfolio. For the same period BIMC waived approximately .13% of the average
net assets of the Money Market Portfolio.
PNC Bank was formerly sub-adviser to the Money Market, Municipal Money
Market and Government Obligations Portfolios and provided research, credit
analysis and recommendations with respect to each such 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 each such Portfolio to BIMC. The sub-advisory fees paid by BIMC to
PNC Bank had no effect on the investment advisory fees payable by such
Portfolios 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 serves as the administrator for the Municipal Money Market
Portfolios and generally assists the Portfolio in all aspects of its
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at .10% of the average daily net assets of
the Portfolio. Pursuant to its advisory agreements with the Fund with respect to
the Money Market and Government Obligations Money Market Portfolios, BIMC
provides administrative services to such Portfolios pursuant to the same terms,
but has delegated to PFPC all of its accounting and administrative obligations
under such advisory agreements. The Fund has agreed to pay directly to PFPC the
fees for accounting and administrative services to the Money Market and
Government Obligations Money Market Portfolios which PFPC would have received
directly from BIMC. Such arrangement has no effect on the total advisory and
administrative fees payable by such Portfolios to BIMC. PFPC's principal
business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
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<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. 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 Shares of each of the Sansom Street Classes of the Fund pursuant to the
Distribution Agreement with the Fund on behalf of each of the Sansom Street
Classes.
Expenses
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will be allocated among all investment portfolios of the Fund based
on the relative net assets of the investment portfolios at the time such
expenses were accrued. The Sansom Street Classes of the Fund pay their own
distribution fees, and may pay a different share than other classes of the Fund
of other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the Sansom Street Classes or if they
receive different services.
The investment adviser may assume expenses of the Portfolios from time
to time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of lowering yield to
investors.
For the fiscal year ended August 31, 1998, the total expenses were
.62% of average net assets with respect to the Sansom Street Class of the Money
Market Portfolio (not taking into account waivers and reimbursements of .13%).
The Sansom Street Classes of the Government Obligations Money Market Portfolio
and Municipal Money Market Portfolio did not incur any expenses, as no Shares of
such Classes had been sold to the public during the fiscal year ended August 31,
1998.
-29-
<PAGE>
Banking Laws
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Act of 1956 or any bank or nonbank
affiliate thereof from sponsoring, organizing, controlling, or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from issuing, underwriting,
selling or distributing securities, but such banking laws and regulations do not
prohibit such a holding company or affiliate or banks generally from acting as
investment adviser, transfer agent or custodian to such an investment company,
or from purchasing shares of such a company as agent for and upon the order of
such a customer. PNC Bank, BIMC, PFPC, as well as the Banks, are subject to such
banking laws and regulations. In addition, state securities laws on this issue
may differ from the interpretations of federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Banks in connection with the provision of support
services to their customers, the Fund might be required to alter materially or
cause the Fund to discontinue its arrangements with Banks generally and change
its method of operations with respect to the Sansom Street Shares. It is not
anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per share or result in a financial loss to any
customer.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Sansom Street Class unless
a shareholder elects otherwise.
The net investment income (not including any net short-term capital
gains) earned by each Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of net asset value made as of the close of regular
trading on the NYSE. Net short-term capital gains, if any, will be distributed
at least annually.
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<PAGE>
TAXES
- --------------------------------------------------------------------------------
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio will generally
constitute tax-exempt income for shareholders for federal income tax purposes.
It is possible, depending upon the Portfolio's investments, that a portion of
the Portfolio's distributions could be taxable to shareholders as ordinary
income or capital gains, but it is not expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio are
exempt for federal income tax purposes, they will generally constitute taxable
income for state and local income tax purposes except that, subject to
limitations that vary depending on the state, distributions from interest paid
by a state or municipal entity may be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio generally will not be deductible
for federal income tax purposes.
-31-
<PAGE>
You should note that a portion of the exempt-interest dividends paid by
the Municipal Money Market Portfolio may constitute an item of tax preference
for purposes of determining federal alternative minimum tax liability.
Exempt-interest dividends will also be considered along with other adjusted
gross income in determining whether any Social Security or railroad retirement
payments received by you are subject to federal income taxes.
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 each of its Money Market,
Municipal Money Market and Government Obligations Money Market Portfolios to
expand its marketing alternatives and to broaden its range of services to
different investors. The expenses of the various classes within these Portfolios
vary based upon the services provided, which may affect performance. Each class
of Common Stock of the Fund has a separate Rule 12b-1 distribution plan. Under
the Distribution Agreement and pursuant to each of the distribution plans, the
Distributor is entitled to receive from each class as compensation for
distribution services provided to that class a distribution fee based on average
daily net assets. A salesperson or any other person entitled to receive
compensation for servicing Fund shares may receive different compensation with
respect to different classes in a Portfolio of the Fund. An investor may contact
the Fund's Distributor by calling 1-800-888-9723 to request more information
concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE SANSOM STREET CLASSES OF THE MONEY
MARKET, MUNICIPAL MONEY MARKET AND GOVERNMENT OBLIGATIONS MONEY MARKET
PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO THE SANSOM STREET CLASSES OF THESE
PORTFOLIOS.
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<PAGE>
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the aggregate
and not by class on all matters, except where otherwise required by law.
Further, shareholders of all investment portfolios of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
As of November 16, 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.
The Fund will issue share certificates for Sansom Street Shares only
upon the written request of a shareholder sent to PFPC.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll free (800) 430-9618.
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<PAGE>
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 29, 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.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS DECEMBER 29, 1998
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate 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 .................. ........................... .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%, and Total Fund Operating
Expenses would be .98%.
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<PAGE>
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
- ---------------------------------
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.
-3-
<PAGE>
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
-4-
<PAGE>
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
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Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved. The Year
2000 Problem could also hurt companies whose securities the Fund holds or
securities markets generally.
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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<PAGE>
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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<PAGE>
this service. The Fund does not currently charge for effecting wire transfers
but reserves the right to do so in the future. In order to ensure prompt receipt
of an investor's Federal Funds wire, for an initial investment, it is important
that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800)533-7719
(in Delaware call collect (302) 791-1196), and provide your name, address,
telephone number, Social Security or Tax Identification Number, 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.
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<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
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<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.
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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. PNC
Bank and its subsidiaries currently manage over $45.9 billion of assets, of
which approximately $31.4 billion are mutual funds. PNC Bank, a national bank
whose principal business address is 1600 Market Street, Philadelphia,
Pennsylvania 19103, is a wholly-owned subsidiary of PNC Bancorp, Inc. PNC
Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary of PNC
Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolio, 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 .24% 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 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.
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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 November 16, 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
YEAR 2000.................................................. 6
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
DISTRIBUTOR
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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 29, 1998
<PAGE>
Prospectus
THE BETA FAMILY
Municipal
Money Market Portfolio
- --------------------------
Government Obligations
Money Market Portfolio
- --------------------------
New York Municipal
Money Market Portfolio
December 29, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION..................................................................3
FINANCIAL HIGHLIGHTS..........................................................6
INVESTMENT OBJECTIVES AND POLICIES............................................6
YEAR 2000.....................................................................8
INVESTMENT LIMITATIONS........................................................9
PURCHASE AND REDEMPTION OF SHARES.............................................16
NET ASSET VALUE...............................................................21
MANAGEMENT....................................................................21
DISTRIBUTION OF SHARES........................................................24
DIVIDENDS AND DISTRIBUTIONS...................................................24
TAXES.........................................................................25
DESCRIPTION OF SHARES.........................................................26
OTHER INFORMATION.............................................................27
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
THE BETA FAMILY
of
The RBB Fund, Inc.
The Beta Family consists of four classes of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company incorporated under
the laws of the State of Maryland on February 29, 1988. The Fund is currently
operating or proposing to operate seventeen separate investment portfolios. The
shares of the three classes (collectively, the "Beta Shares" or "Shares")
offered by this Prospectus represent interests in a municipal money market
portfolio, a U.S. Government obligations money market portfolio and a New York
municipal money market portfolio (together, the "Portfolios"). The investment
objectives of each investment portfolio described in this Prospectus are as
follows:
Municipal Money Market Portfolio -- to provide as high a level of
current interest income exempt from federal income taxes as is consistent
with maintaining liquidity and stability of principal. It seeks to achieve
such objective by investing substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations. "Municipal
Obligations" are obligations issued by or on behalf of states, territories
and possessions of the United States, the District of Columbia and their
political subdivisions, agencies, instrumentalities and authorities. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which
is exempt from the regular federal income tax but which may constitute an
item of tax preference for purposes of the federal alternative minimum tax.
Government Obligations Money Market Portfolio -- to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
New York Municipal Money Market Portfolio -- to provide as high a
level of current income that is exempt from federal, New York State and New
York City personal income taxes as is consistent with preservation of
capital and liquidity. It seeks to achieve its objective by investing
primarily in Municipal Obligations, the interest on which is exempt from
regular federal income tax and is not an item of tax preference for
purposes of the federal alternative minimum tax ("Tax-Exempt Interest") and
is exempt from New York State and New York City personal income taxes.
The New York Municipal Money Market Portfolio may invest a significant
percentage of its assets in a single issuer, and therefore investment in this
Portfolio may be riskier than an investment in other types of money market
funds.
<PAGE>
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. An investment in the
Portfolios is neither insured nor guaranteed by the U.S. Government or any
governmental agency. There can be no assurance that the Portfolios will be able
to maintain a stable net asset value of $1.00 per share.
An investor may purchase and redeem Shares of any of the Beta classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
BlackRock Institutional Management Corporation ("BIMC") serves as
investment adviser for the Portfolios and PNC Bank, National Association ("PNC
Bank") serves as custodian for the Fund. PFPC Inc. ("PFPC") serves as the
administrator and transfer and dividend disbursing agent for the Fund. Provident
Distributors, Inc. (the "Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained upon request free of charge from the Fund's
distributor by calling (800) 430-9618. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the Internet Web Site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS December 29, 1998
-2-
<PAGE>
INTRODUCTION
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988 and is
currently operating or proposing to operate seventeen separate investment
portfolios. Each of the three classes of the Fund's shares (collectively, the
"Beta Classes") offered by this Prospectus represents interests in one of the
following investment portfolios: the Municipal Money Market Portfolio, the
Government Obligations Money Market Portfolio and the New York Municipal Money
Market Portfolio. The Municipal Money Market and Government Obligations Money
Market Portfolios are diversified investment portfolios; the New York Municipal
Money Market Portfolio is a non-diversified investment portfolio.
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. To achieve
this objective, the Municipal Money Market Portfolio invests substantially all
of its assets in a diversified portfolio of short-term Municipal Obligations
which meet certain ratings criteria and present minimal credit risks. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which is
exempt from the regular federal income tax but which may constitute an item of
tax preference for purposes of the federal alternative minimum tax.
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. To achieve its objective, the
Portfolio invests exclusively in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current income that is exempt from federal, New York
State and New York City personal income taxes as is consistent with preservation
of capital and liquidity. It seeks to achieve its objective by investing
primarily in Municipal Obligations, the interest on which is Tax-Exempt Interest
and is exempt from New York State and New York City personal income taxes and
which meet certain ratings criteria and present minimal credit risks.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
-3-
<PAGE>
The Portfolios' investment adviser is BlackRock Institutional Management
Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank") serves as
custodian to the Fund. PFPC Inc. ("PFPC") serves as the administrator and
transfer and dividend disbursing agent to the Fund. Provident Distributors, Inc.
(the "Distributor") acts as distributor of the Fund's Shares.
An investor may purchase and redeem Shares of any of the Beta Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
An investment in any of the Beta Classes is subject to certain risks, as
set forth in detail under "Investment Objectives and Policies." Any or all of
the Portfolios, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase of
mortgage-related securities, the purchase of securities on a "when-issued" or
"forward commitment" basis, the purchase of stand-by commitments and the lending
of securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
FEE TABLE
Estimated Annual Fund Operating Expenses (Beta Classes)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating expenses of
the Beta Classes based on expenses expected to be incurred for the current
fiscal period, as a percentage of average daily net assets. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
- --------- --------- --------- ---------
<S> <C> <C> <C>
Management Fees (after
waivers)(1)................................ .08% .30% .02%
12b-1 Fees(1)................................ .58% .56% .52%
Other Expenses............................... .23% .12% .28%
---- ---- ----
Total Fund Operating Expenses (after
waivers)(1)................................ .89% .98% .82%
==== ==== ====
</TABLE>
- ----------------
(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 Municipal
Money Market Portfolio, Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio, Management Fees would be .33%,
.41% and .35%, respectively, and Total Fund Operating Expenses would be
1.14%, 1.09% and 1.13%, respectively.
-4-
<PAGE>
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Municipal Money Market*................................. $ 9 $28 $49 $110
Government Obligations Money Market*.................... $10 $31 $54 $120
New York Municipal Money Market*........................ $ 8 $26 $46 $101
</TABLE>
- ----------------
* Other classes of these Portfolios are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating Expenses
(Beta Classes)" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Beta Classes of the Fund will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management - - Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on estimated costs and estimated fees
expected to be charged to the Beta Classes, taking into account anticipated fee
waivers and reimbursements. The Fee Table reflects a voluntary waiver of
Management Fees for each Portfolio. However, there can be no assurance that any
future waivers of Management Fees will not vary from the figures reflected in
the Fee Table. To the extent that any service providers assume additional
expenses of the Portfolios, such assumption will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
-5-
<PAGE>
(calculated as above) by the amount necessary to reflect the payment of federal,
New York State and New York City personal income taxes at stated rates.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of any of the Beta Classes will fluctuate and
is not necessarily representative of future results. Any fees charged by
broker/dealers directly to their customers in connection with investments in the
Beta Classes are not reflected in the total return and yields of the Beta
Shares, and such fees, if charged, will reduce the actual return received by
shareholders on their investments. The total return and yield on Shares of the
Beta Classes may differ from total return and yields on shares of other classes
of the Fund that also represent interests in the same Portfolio depending on the
allocation of expenses to each of the classes of that Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
No financial data is supplied for the Portfolios because, as of the date of
this Prospectus, the Portfolios had no performance history.
INVESTMENT OBJECTIVES AND POLICIES
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. The
Municipal Money Market Portfolio invests substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
-6-
<PAGE>
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Municipal Money Market Portfolio will be
achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
-7-
<PAGE>
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
When-Issued Securities. The Portfolio may purchase portfolio securities on
a "when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset at the time the commitment is entered into and are subject
to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two (2) highest rating categories
by at least two Rating Organizations (e.g., commercial paper rated "A-1" or
"A-2" by Standard & Poor's Rating Services ("S&P")), (3) securities that are
rated at the time of purchase by the only Rating Organization rating the
security in one of its two highest rating categories for such securities, (4)
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securities issued by issuers (or, in certain cases guaranteed by persons) with
short-term debt having such ratings, and (5) securities that are not rated and
are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies - - Illiquid Securities" in
the Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
- -------------------------------------------------------------------------------
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
shareholder approval. The Municipal Money Market Portfolio may not, however,
change the following investment limitations without such a vote of shareholders.
(A more detailed description of the following investment limitations, together
with other investment limitations that cannot be changed without a vote of
shareholders, is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Municipal Money Market Portfolio may not:
1. Purchase the securities of any issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of the Portfolio's assets would be invested in the securities of such
issuer or more than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to this 5%
limitation.
2. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's assets at the
time of such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or mortgage,
pledge or hypothecate any of its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the
Portfolio's assets at the time of such borrowing; or purchase portfolio
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securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.)
3. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
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provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal. There is no assurance that the investment objective of the Portfolio
will be achieved.
Due to fluctuations in interest rates, the market value of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 days and the adjustments
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
Repurchase Agreements. The Portfolio may agree to purchase 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.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Mortgage-Related Securities. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself. The Portfolio may also acquire
asset-backed securities. Asset-backed securities are backed by mortgages,
installment sales contracts, credit card receivables or other assets and
collateralized mortgage obligations ("CMOs") issued or guaranteed by U.S.
Government agencies and, instrumentalities or issued by private companies.
Asset-backed securities also include adjustable rate securities. The estimated
life of an asset-backed security varies with the prepayment experience with
respect to the underlying debt instruments. For this and other reasons, an
asset-backed security's stated maturity may be shortened, and the security's
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total return may be difficult to predict precisely. Such difficulties are not
expected, however, to have a significant effect on the Portfolio since the
remaining maturity of any asset-backed security acquired will be 13 months or
less. Asset-backed securities are considered an industry for industry
concentration purposes. See "Investment Limitations." In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by a portfolio will generally be at lower
rates than the rates on the prepaid obligations.
Lending of Securities. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Municipal Money Market
Portfolio -- Illiquid Securities" and "Investment Objectives and Policies --
Illiquid Securities" in the Statement of Additional Information.
The Government Obligations Money Market Portfolio's investment objective
and policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The following investment limitations may not be
changed, however, without such a vote of shareholders. (A more detailed
description of the following investment limitations, together with other
investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowing and in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
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leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
Portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
New York Municipal Money Market Portfolio
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income that is exempt from federal,
New York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria and present minimal credit risks to the Portfolio. Portfolio
obligations held by the New York Municipal Money Market Portfolio will have
remaining maturities of 397 days or less ("short-term" obligations). Dividends
paid by the Portfolio which are derived from interest attributable to tax-exempt
obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ("New York Municipal
Obligations"), will be excluded from gross income for federal income tax
purposes and exempt from New York State and New York City personal income taxes,
but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio--Municipal
Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative Minimum
Tax Securities. Investors should be aware of the possibility of federal, state
and local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities.
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Although the New York Municipal Money Market Portfolio may invest more than
25% of its net assets in (i) Municipal Obligations the interest on which is paid
solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
Tax-Exempt Derivative Securities. The New York Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. For a description of such securities, see "Investment
Objectives and Policies -- Municipal Money Market Portfolio -- Tax-Exempt
Derivative Securities."
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies - Municipal Money Market Portfolio -- When-Issued
Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies -- Municipal Money Market Portfolio --
Stand-By Commitments."
Taxable Investments. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's Investors Service, Inc. ("Moody's") or S&P; commercial paper rated in
the highest grade by Moody's or S&P; and certificates of deposit issued by
United States branches of United States banks with assets of $1 billion or more.
At no time will more than 20% of the Portfolio's total assets be invested in
taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of an
anticipated softening in the market for Municipal Obligations in general.
Eligible Securities. The New York Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines. For a
more complete description of eligible securities, see "Investment Objectives and
Policies - Municipal Money Market Portfolio -- Eligible Securities" and
"Investment Objectives and Policies" in the Statement of Additional Information.
Special Considerations. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
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degree upon changes in the value of each underlying security than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio should be limited by its intention to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended, and by its policies restricting
investments to obligations with short-term maturities and obligations which
qualify as eligible securities.
The Portfolio's ability to meet its investment objective is dependent upon
the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic
problems that could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and lower market prices for their
outstanding debt obligations. Although several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's in recent years, the most
recent actions of S&P and Moody's have been to place the debt obligations of New
York State and New York City on CreditWatch with positive implications and to
upgrade the debt obligations of New York City, respectively. Strong demand for
New York Municipal Obligations has also at times had the effect of permitting
New York Municipal Obligations to be issued with yields relatively lower, and
after issuance to trade in the market at prices relatively higher, than
comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of their existing
obligations and, possibly, in the obligations of other issuers of New York
Municipal Obligations. Although no issuers of New York Municipal Obligations
were as of the date of this Prospectus in default with respect to the payment of
their debt obligations, the occurrence of any such default could adversely
affect the market values and marketability of all New York Municipal Obligations
and, consequently, the net asset value of the Portfolio's shares. Some of the
significant financial considerations relating to the Fund's investments in New
York Municipal Obligations are summarized in the Statement of Additional
Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Municipal Money Market
Portfolio -- Illiquid Securities" and "Investment Objectives and Policies --
Illiquid Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment objective and
the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The New York Municipal Money Market Portfolio may
not, however, change the following investment limitations without such a vote of
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shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by non-governmental
users (see the second investment limitation above) shall not be deemed to
be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
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State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
General. Beta Shares are sold without a sales load on a continuous basis by
the Distributor. The Distributor is located at Four Falls Corporate Center,
Conshohocken, Pennsylvania 19428. Investors may purchase Beta Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Beta Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which payment has been converted into Federal Funds by 12:00
noon Eastern Time, will be executed as of 12:00 noon that Business Day. Orders
which are accompanied by Federal Funds and received by the Fund after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
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4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day, but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
Purchases through an Account. Purchases of Shares may be effected through
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Beta Shares will be recorded by the broker and will be
reflected in the Account statements provided by the broker to such investors. A
broker may impose minimum investment Account requirements. Even if a broker does
not impose a sales charge for purchases of Beta Shares, depending on the terms
of an investor's Account with his broker, the broker may charge an investor's
Account fees for automatic investment and other services provided to the
Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker, and this Prospectus should be read
in conjunction with any information received from a broker.
Shareholders whose shares are held in the street name account of a broker
and who desire to transfer such shares to the street name account of another
broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability to purchase
Beta Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Beta Class designated by the investor as
the "Primary Beta Class" for his Purchase Program. The frequency of investments
and the minimum investment requirement will be established by the broker and the
Fund. In addition, the broker may require a minimum amount of cash and/or
securities to be deposited in an Account for participants in its Purchase
Program. The description of the particular broker's Purchase Program should be
read for details, and any inquiries concerning an Account under a Purchase
Program should be directed to the broker. A participant in a Purchase Program
may change the designation of the Primary Beta Class at any time by so
instructing his broker.
If a broker makes special arrangements under which orders for Beta Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the broker guarantees
that payment for such Shares will be made available in Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, on the same
day, such purchase orders will be effective and Shares will be purchased at the
offering price in effect as of 12:00 noon Eastern Time on the date the purchase
order is received by PFPC.
Direct Purchases. An investor may also make direct investments at any time
in any Beta Class he selects through any broker that has entered into a dealer
agreement with the Distributor (a "Dealer"). An investor may make an initial
investment in any of the Beta Classes by mail by fully completing and signing an
application obtained from a Dealer (the "Application"), specifying the Portfolio
in which he wishes to invest, and mailing it, together with a check payable to
"The Beta Family" to the Beta Family, c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. The check must specify the name of the Portfolio for which
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shares are being purchased. An Application will be returned to the investor
unless it contains the name of the Dealer from whom it was obtained. Subsequent
purchases may be made through a Dealer or by forwarding payment to the Fund's
transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Beta Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
may impose a charge for this service. The Fund does not currently charge for
effecting wire transfers but reserves the right to do so in the future. In order
to ensure prompt receipt of an investor's Federal Funds wire, for an initial
investment, it is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 447-1139
(in Delaware call collect (302) 791-1149), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the Beta
Class selected, the amount being wired, and by which bank or Dealer. PFPC
will then provide an investor with a Fund account number. (Investors with
existing accounts should also notify PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number
with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a
fully completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Retirement Plans. Beta Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
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.
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<PAGE>
Redemption of Shares in an Account. An investor who beneficially owns Beta
Shares in an Account may redeem Beta Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting his broker.
If such notice is received by PFPC by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds will be made after 12:00 noon Eastern Time on
the day the redemption is effected, provided that the Fund's custodian is open
for business. If the custodian is not open, payment will be made on the next
bank business day. If the redemption request is received between 12:00 noon and
the close of regular trading on the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading on the NYSE on such Business Day
and payment will be made on the next bank business day following receipt of the
redemption request. If all Shares are redeemed, all accrued but unpaid dividends
on those Shares will be paid with the redemption proceeds.
An investor's brokerage firm may also redeem each day a sufficient number
of Shares of the Primary Beta Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written request, together with any share
certificates issued to the investor, to The Beta Family c/o PFPC, P.O. Box 8950,
Wilmington, Delaware 19899. Redemption requests must be signed by each
shareholder in the same manner as the Shares are registered. Redemption requests
for joint accounts require the signature of each joint owner. On redemption
requests of $5,000 or more, each signature must be guaranteed. A signature
guarantee may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine.
The Fund's telephone transaction procedures include the following measures:
(1) requiring the appropriate telephone transaction privilege forms; (2)
requiring the caller to provide the names of the account owners, the account
social security number and name of the Portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
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account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by a broker-dealer,
financial institutions, securities dealers, financial planners, trustee,
custodian other than the Distributor or other agent, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
Proceeds of a telephone redemption request will be mailed by check to an
investor's registered address unless he has designated in his Application or
Telephone Authorization that such proceeds are to be sent by wire transfer to a
specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. The minimum redemption
for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Fund may modify this redemption service at any time
or charge a service fee upon prior notice to shareholders, although no fee is
currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
Additional Redemption Information. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. Although the Fund will redeem Shares purchased by check
before the check clears, payment of the redemption proceeds may be delayed for a
period of up to fifteen days after their purchase, pending a determination that
the check has cleared. This procedure does not apply to Shares purchased by wire
-21-
<PAGE>
payment. Investors should consider purchasing Shares using a certified or bank
check or money order if they anticipate an immediate need for redemption
proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in an Beta Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such 30-day notice period
the amount invested in such account is not increased to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the value of the proportionate interest of each
class in the securities, cash, and other assets of the Portfolio, subtracting
the accrued and actual liabilities of the class and dividing the result by the
number of its shares outstanding of the class. The net asset value per share of
each class is determined independently of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
Board of Directors
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate seventeen separate investment portfolios. Each
of the Beta Classes represents interests in one of the following investment
portfolios: the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio.
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<PAGE>
Investment Adviser
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. In entering
into Portfolio transactions for a Portfolio with a broker, BIMC may take into
account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreement between BIMC and RBB with respect
to the Government Obligations Money Market Portfolio provides for BIMC to also
assist generally in supervising the operations of such Portfolio, and to
maintain the Portfolio's financial accounts and records. These administrative
responsibilities have been delegated to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit of
the Government Obligations Money Market Portfolio, BIMC is entitled to receive
the following fee, 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 services provided and expenses assumed by it with respect to the
Municipal Money Market and New York Municipal Money Market Portfolios, BIMC is
entitled to receive the following fees, computed daily and payable monthly based
on the Portfolio's average daily net assets: .35% of the first $250 million;
.30% of the next $250 million; and .25% of net assets in excess of $500 million.
PNC Bank was formerly sub-adviser to the Municipal Money Market and
Government Obligations Money Market Portfolios and provided research, credit
analysis and
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<PAGE>
recommendations with respect to each such 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
each such Portfolio to BIMC. The sub-advisory fees paid by BIMC to PNC Bank had
no effect on the investment advisory fees payable by the Portfolios 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."
BIMC may in its discretion from time-to-time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio.
Administrator
PFPC serves as the administrator for the Municipal Money Market and New
York Municipal Money Market Portfolios and generally assists those Portfolios in
all aspects of their administration and operations, including matters relating
to the maintenance of financial records and accounting. PFPC is entitled to an
administration fee, computed daily and payable monthly at .10% of the average
daily net assets of each of these Portfolios. Pursuant to its advisory agreement
with the Fund with respect to the Government Obligations Portfolio, BIMC
provides administrative services to such Portfolio pursuant to the same terms,
but has delegated to PFPC all of its accounting and administrative obligations
under such advisory agreement. The Fund has agreed to pay directly to PFPC the
fees for accounting and administrative services to the Government Obligations
Portfolio which PFPC would have received directly from BIMC. Such arrangement
has no effect on the total advisory and administrative fees payable by such
Portfolio to BIMC. PFPC's principal business address is 400 Bellevue Parkway,
Wilmington, Delaware 19809.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank serves as the Fund's custodian and PFPC also serves as the Fund's
transfer agent and dividend disbursing agent. PFPC may enter into shareholder
servicing agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
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<PAGE>
Distributor
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as distributor of
the Shares of each of the Beta Classes of the Fund pursuant to a distribution
agreement dated May 29, 1998 (the "Distribution Agreement").
Expenses
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio of
the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. In addition,
distribution expenses, transfer agency expenses, expenses of preparing, printing
and distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser may assume expenses of the Portfolios from time to
time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant Beta
Class a distribution fee, which is accrued daily and paid monthly, of up to .65%
on an annualized basis of the average daily net assets of the relevant Beta
Class. The actual amount of such compensation is agreed upon from time to time
by the Fund's Board of Directors and the Distributor. Under the Distribution
Agreement, the Distributor has agreed to accept compensation for its services
thereunder and under the Plans in the amount of .60% of the average daily net
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<PAGE>
assets of the relevant Beta Class on an annualized basis in any year. Pursuant
to the conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to a Beta
Class on any day to the extent necessary to assure that the fee required to be
accrued by such Class does not exceed the income of such Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor may
reallocate an amount up to the full fee that it receives to financial
institutions, including Dealers, based upon the aggregate investment amounts
maintained by and services provided to shareholders of any relevant Class
serviced by such financial institutions. The Distributor may also reimburse
Dealers for other expenses incurred in the promotion of the sale of Fund shares.
The Distributor and/or Dealers pay for the cost of printing (excluding
typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Fund as well as for related direct mail, advertising
and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Beta Class the fee agreed to
under the Distribution Agreement. Payments under the Plans are not based on
expenses actually incurred by the Distributor, and the payments may exceed
distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Beta Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of the close of regular trading
on the NYSE. Net short-term capital gains, if any, will be distributed at least
annually.
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<PAGE>
TAXES
Distributions from the Government Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will generally constitute tax-exempt income for
shareholders for federal income tax purposes. It is possible, depending upon the
Portfolios' investments, that a portion of the Portfolios' distributions could
be taxable to shareholders as ordinary income or capital gains, but it is not
expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio and the
New York Municipal Money Market Portfolio are exempt for federal income tax
purposes, they will generally constitute taxable income for state and local
income tax purposes except that, subject to limitations that vary depending on
the state, distributions from interest paid by a state or municipal entity may
be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by the
Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal income tax purposes,
in most cases does not result in an exemption under the tax laws of any other
state or local authority.
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<PAGE>
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 each of its Municipal Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio to expand its marketing alternatives and to
broaden its range of services to different investors. The expenses of the
various classes within these Portfolios vary based upon the services provided,
which may affect performance. Each class of Common Stock of the Fund has a
separate Rule 12b-1 distribution plan. Under the Distribution Agreement and
pursuant to each of the distribution plans, the Distributor is entitled to
receive from each class as compensation for distribution services provided to
that class a distribution fee based on average daily net assets. A salesperson
or any other person entitled to receive compensation for servicing Fund shares
may receive different compensation with respect to different classes in a
Portfolio of the Fund. An investor may contact the Fund's distributor by calling
1-800-888-9723 to request more information concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE BETA CLASSES OF THE MUNICIPAL MONEY MARKET,
GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET
PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO THE BETA CLASSES OF THESE PORTFOLIOS.
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<PAGE>
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998 to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of the
Fund.
The Fund will issue share certificates for any of the Beta Shares only upon
the written request of a shareholder sent to PFPC.
OTHER INFORMATION
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call collect
(302) 791-1196).
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<PAGE>
Prospectus
THE GAMMA FAMILY
Municipal
Money Market Portfolio
- --------------------------------
Government Obligations
Money Market Portfolio
- --------------------------------
New York Municipal
Money Market Portfolio
December 29, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION..........................................................
FINANCIAL HIGHLIGHTS...................................................
INVESTMENT OBJECTIVES AND POLICIES.....................................
YEAR 2000..............................................................
INVESTMENT LIMITATIONS.................................................
PURCHASE AND REDEMPTION OF SHARES......................................
NET ASSET VALUE........................................................
MANAGEMENT.............................................................
DISTRIBUTION OF SHARES.................................................
DIVIDENDS AND DISTRIBUTIONS............................................
TAXES..................................................................
DESCRIPTION OF SHARES..................................................
OTHER INFORMATION......................................................
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
THE GAMMA FAMILY
of
The RBB Fund, Inc.
The Gamma Family consists of four classes of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company incorporated under
the laws of the State of Maryland on February 29, 1988. The Fund is currently
operating or proposing to operate seventeen separate investment portfolios. The
shares of the three classes (collectively, the "Gamma Shares" or "Shares")
offered by this Prospectus represent interests in a municipal money market
portfolio, a U.S. Government obligations money market portfolio and a New York
municipal money market portfolio (together, the "Portfolios"). The investment
objectives of each investment portfolio described in this Prospectus are as
follows:
Municipal Money Market Portfolio -- to provide as high a level of
current interest income exempt from federal income taxes as is consistent
with maintaining liquidity and stability of principal. It seeks to achieve
such objective by investing substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations. "Municipal
Obligations" are obligations issued by or on behalf of states, territories
and possessions of the United States, the District of Columbia and their
political subdivisions, agencies, instrumentalities and authorities. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which
is exempt from the regular federal income tax but which may constitute an
item of tax preference for purposes of the federal alternative minimum tax.
Government Obligations Money Market Portfolio -- to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
New York Municipal Money Market Portfolio -- to provide as high a
level of current income that is exempt from federal, New York State and New
York City personal income taxes as is consistent with preservation of
capital and liquidity. It seeks to achieve its objective by investing
primarily in Municipal Obligations, the interest on which is exempt from
regular federal income tax and is not an item of tax preference for
purposes of the federal alternative minimum tax ("Tax-Exempt Interest") and
is exempt from New York State and New York City personal income taxes.
The New York Municipal Money Market Portfolio may invest a significant
percentage of its assets in a single issuer, and therefore investment in this
Portfolio may be riskier than an investment in other types of money market
funds.
<PAGE>
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. An investment in the
Portfolios is neither insured nor guaranteed by the U.S. Government or any
governmental agency. There can be no assurance that the Portfolios will be able
to maintain a stable net asset value of $1.00 per share.
An investor may purchase and redeem Shares of any of the Gamma classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
BlackRock Institutional Management Corporation ("BIMC") serves as
investment adviser for the Portfolios and PNC Bank, National Association ("PNC
Bank") serves as custodian for the Fund. PFPC Inc. ("PFPC") serves as the
administrator and transfer and dividend disbursing agent for the Fund. Provident
Distributors, Inc. (the "Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained upon request free of charge from the Fund's
distributor by calling (800) 430-9618. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the Internet Web Site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS December 29, 1998
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<PAGE>
INTRODUCTION
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988 and is
currently operating or proposing to operate seventeen separate investment
portfolios. Each of the three classes of the Fund's shares (collectively, the
"Gamma Classes") offered by this Prospectus represents interests in one of the
following investment portfolios: the Municipal Money Market Portfolio, the
Government Obligations Money Market Portfolio and the New York Municipal Money
Market Portfolio. The Municipal Money Market and Government Obligations Money
Market Portfolios are diversified investment portfolios; the New York Municipal
Money Market Portfolio is a non-diversified investment portfolio.
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. To achieve
this objective, the Municipal Money Market Portfolio invests substantially all
of its assets in a diversified portfolio of short-term Municipal Obligations
which meet certain ratings criteria and present minimal credit risks. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which is
exempt from the regular federal income tax but which may constitute an item of
tax preference for purposes of the federal alternative minimum tax.
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. To achieve its objective, the
Portfolio invests exclusively in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current income that is exempt from federal, New York
State and New York City personal income taxes as is consistent with preservation
of capital and liquidity. It seeks to achieve its objective by investing
primarily in Municipal Obligations, the interest on which is Tax-Exempt Interest
and is exempt from New York State and New York City personal income taxes and
which meet certain ratings criteria and present minimal credit risks.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
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<PAGE>
The Portfolios' investment adviser is BlackRock Institutional Management
Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank") serves as
custodian to the Fund. PFPC Inc. ("PFPC") serves as the administrator and
transfer and dividend disbursing agent to the Fund. Provident Distributors, Inc.
(the "Distributor") acts as distributor of the Fund's Shares.
An investor may purchase and redeem Shares of any of the Gamma Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
An investment in any of the Gamma Classes is subject to certain risks, as
set forth in detail under "Investment Objectives and Policies." Any or all of
the Portfolios, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase of
mortgage-related securities, the purchase of securities on a "when-issued" or
"forward commitment" basis, the purchase of stand-by commitments and the lending
of securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
FEE TABLE
Estimated Annual Fund Operating Expenses (Gamma Classes)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating expenses of
the Gamma Classes based on expenses expected to be incurred for the current
fiscal period, as a percentage of average daily net assets. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market
Portfolio Portfolio Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
Management Fees (after
waivers)(1)........................... .08% .30% .02%
12b-1 Fees(1)........................... .58% .56% .52%
Other Expenses.......................... .23% .12% .28%
---- ---- ----
Total Fund Operating
Expenses
(after waivers)(1).................... .89% .98% .82%
==== ==== ====
</TABLE>
(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
Municipal Money Market Portfolio, Government Obligations Money Market
Portfolio and New York Municipal Money Market Portfolio, Management
Fees would be .33%, .41% and .35%, respectively, and Total Fund
Operating Expenses would be 1.14%, 1.09% and 1.13%, respectively.
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<PAGE>
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Municipal Money Market*................................. $ 9 $28 $49 $110
Government Obligations Money Market*.................... $10 $31 $54 $120
New York Municipal Money Market*........................ $ 8 $26 $46 $101
</TABLE>
* Other classes of these Portfolios are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating Expenses
(Gamma Classes)" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Gamma Classes of the Fund
will bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management -- Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on estimated costs and estimated fees
expected to be charged to the Gamma Classes, taking into account anticipated fee
waivers and reimbursements. The Fee Table reflects a voluntary waiver of
Management Fees for each Portfolio. However, there can be no assurance that any
future waivers of Management Fees will not vary from the figures reflected in
the Fee Table. To the extent that any service providers assume additional
expenses of the Portfolios, such assumption will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of federal,
New York State and New York City personal income taxes at stated rates.
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<PAGE>
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of any of the Gamma Classes will fluctuate and
is not necessarily representative of future results. Any fees charged by
broker/dealers directly to their customers in connection with investments in the
Gamma Classes are not reflected in the total return and yields of the Gamma
Shares, and such fees, if charged, will reduce the actual return received by
shareholders on their investments. The total return and yield on Shares of the
Gamma Classes may differ from total return and yields on shares of other classes
of the Fund that also represent interests in the same Portfolio depending on the
allocation of expenses to each of the classes of that Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
No financial data is supplied for the Portfolios because, as of the date of
this Prospectus, the Portfolios had no performance history.
INVESTMENT OBJECTIVES AND POLICIES
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. The
Municipal Money Market Portfolio invests substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Municipal Money Market Portfolio will be
achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
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<PAGE>
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
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<PAGE>
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.
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two (2) highest rating categories
by at least two Rating Organizations (e.g., commercial paper rated "A-1" or
"A-2" by Standard & Poor's Rating Services ("S&P")), (3) securities that are
rated at the time of purchase by the only Rating Organization rating the
security in one of its two highest rating categories for such securities, (4)
securities issued by issuers (or, in certain cases guaranteed by persons) with
short-term debt having such ratings, and (5) securities that are not rated
and are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
-8-
<PAGE>
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies -- Illiquid Securities" in
the Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
shareholder approval. The Municipal Money Market Portfolio may not, however,
change the following investment limitations without such a vote of shareholders.
(A more detailed description of the following investment limitations, together
with other investment limitations that cannot be changed without a vote of
shareholders, is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Municipal Money Market Portfolio may not:
1. Purchase the securities of any issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of the Portfolio's assets would be invested in the securities of such
issuer or more than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to this 5%
limitation.
2. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's assets at the
time of such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or mortgage,
pledge or hypothecate any of its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the
Portfolio's assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.)
3. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase of issuers in the same industry.
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<PAGE>
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal. There is no assurance that the investment objective of the Portfolio
will be achieved.
Due to fluctuations in interest rates, the market value of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 days and the adjustments
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
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<PAGE>
Repurchase Agreements. The Portfolio may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
Default by or bankruptcy of the seller would, however, expose the Portfolio to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Mortgage-Related Securities. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself. The Portfolio may also acquire
asset-backed securities. Asset-backed securities are backed by mortgages,
installment sales contracts, credit card receivables or other assets and
collateralized mortgage obligations ("CMOs") issued or guaranteed by U.S.
Government agencies and, instrumentalities or issued by private companies.
Asset-backed securities also include adjustable rate securities. The estimated
life of an asset-backed security varies with the prepayment experience with
respect to the underlying debt instruments. For this and other reasons, an
asset-backed security's stated maturity may be shortened, and the security's
total return may be difficult to predict precisely. Such difficulties are not
expected, however, to have a significant effect on the Portfolio since the
remaining maturity of any asset-backed security acquired will be 13 months or
less. Asset-backed securities are considered an industry for industry
concentration purposes. See "Investment Limitations." In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by a portfolio will generally be at lower
rates than the rates on the prepaid obligations.
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<PAGE>
Lending of Securities. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Municipal Money Market
Portfolio -- Illiquid Securities" and "Investment Objectives and Policies --
Illiquid Securities" in the Statement of Additional Information.
The Government Obligations Money Market Portfolio's investment objective
and policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The following investment limitations may not be
changed, however, without such a vote of shareholders. (A more detailed
description of the following investment limitations, together with other
investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowing and in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
Portfolio securities is deemed to be inconvenient or disadvantageous.)
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<PAGE>
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
New York Municipal Money Market Portfolio
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income that is exempt from federal,
New York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria and present minimal credit risks to the Portfolio. Portfolio
obligations held by the New York Municipal Money Market Portfolio will have
remaining maturities of 397 days or less ("short-term" obligations). Dividends
paid by the Portfolio which are derived from interest attributable to tax-exempt
obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ("New York Municipal
Obligations"), will be excluded from gross income for federal income tax
purposes and exempt from New York State and New York City personal income taxes,
but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies -- Municipal Money Market Portfolio --
Municipal Obligations."
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Up to 20% of the Portfolio's assets may be invested in Alternative Minimum
Tax Securities. Investors should be aware of the possibility of federal, state
and local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may invest more than
25% of its net assets in (i) Municipal Obligations the interest on which is paid
solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
Tax-Exempt Derivative Securities. The New York Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. For a description of such securities, see "Investment
Objectives and Policies -- Municipal Money Market Portfolio -- Tax-Exempt
Derivative Securities."
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies -- Municipal Money Market Portfolio -- When-Issued
Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies -- Municipal Money Market Portfolio --
Stand-By Commitments."
Taxable Investments. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's Investors Service, Inc. ("Moody's") or S&P; commercial paper rated in
the highest grade by Moody's or S&P; and certificates of deposit issued by
United States branches of United States banks with assets of $1 billion or more.
At no time will more than 20% of the Portfolio's total assets be invested in
taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of an
anticipated softening in the market for Municipal Obligations in general.
Eligible Securities. The New York Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines. For a
more complete description of eligible securities, see "Investment Objectives and
Policies -- Municipal Money Market Portfolio -- Eligible Securities" and
"Investment Objectives and Policies" in the Statement of Additional Information.
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Special Considerations. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio should be limited by its intention to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended, and by its policies restricting
investments to obligations with short-term maturities and obligations which
qualify as eligible securities.
The Portfolio's ability to meet its investment objective is dependent upon
the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic
problems that could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and lower market prices for their
outstanding debt obligations. Although several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's in recent years, the most
recent actions of S&P and Moody's have been to place the debt obligations of New
York State and New York City on CreditWatch with positive implications and to
upgrade the debt obligations of New York City, respectively. Strong demand for
New York Municipal Obligations has also at times had the effect of permitting
New York Municipal Obligations to be issued with yields relatively lower, and
after issuance to trade in the market at prices relatively higher, than
comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of their existing
obligations and, possibly, in the obligations of other issuers of New York
Municipal Obligations. Although no issuers of New York Municipal Obligations
were as of the date of this Prospectus in default with respect to the payment of
their debt obligations, the occurrence of any such default could adversely
affect the market values and marketability of all New York Municipal Obligations
and, consequently, the net asset value of the Portfolio's shares. Some of the
significant financial considerations relating to the Fund's investments in New
York Municipal Obligations are summarized in the Statement of Additional
Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Municipal Money Market
Portfolio -- Illiquid Securities" and "Investment Objectives and Policies --
Illiquid Securities" in the Statement of Additional Information.
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The New York Municipal Money Market Portfolio's investment objective and
the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The New York Municipal Money Market Portfolio may
not, however, change the following investment limitations without such a vote of
shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by non-governmental
users (see the second investment limitation above) shall not be deemed to
be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
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Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
General. Gamma Shares are sold without a sales load on a continuous basis
by the Distributor. The Distributor is located at Four Falls Corporate Center,
Conshohocken, Pennsylvania 19428. Investors may purchase Gamma Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Gamma
Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which
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payment has been converted into Federal Funds by 12:00 noon Eastern Time, will
be executed as of 12:00 noon that Business Day. Orders which are accompanied by
Federal Funds and received by the Fund after 12:00 noon Eastern Time but prior
to the close of regular trading on the NYSE (generally 4:00 p.m. Eastern Time),
and orders as to which payment has been converted into Federal Funds after 12:00
noon Eastern Time but prior to the close of regular trading on the NYSE on any
Business Day of the Fund, will be executed as of the close of regular trading on
the NYSE on that Business Day, but will not be entitled to receive dividends
declared on such Business Day. Orders which are accompanied by Federal Funds and
received by the Fund as of the close of regular trading on the NYSE or later,
and orders as to which payment has been converted to Federal Funds as of the
close of regular trading on the NYSE or later on a Business Day will be
processed as of 12:00 noon Eastern Time on the following Business Day.
Purchases through an Account. Purchases of Shares may be effected through
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Gamma Shares will be recorded by the broker and will be
reflected in the Account statements provided by the broker to such investors. A
broker may impose minimum investment Account requirements. Even if a broker does
not impose a sales charge for purchases of Gamma Shares, depending on the terms
of an investor's Account with his broker, the broker may charge an investor's
Account fees for automatic investment and other services provided to the
Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker, and this Prospectus should be read
in conjunction with any information received from a broker.
Shareholders whose shares are held in the street name account of a broker
and who desire to transfer such shares to the street name account of another
broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability to purchase
Gamma Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Gamma Class designated by the investor
as the "Primary Gamma Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the broker. A participant in a Purchase
Program may change the designation of the Primary Gamma Class at any time by so
instructing his broker.
If a broker makes special arrangements under which orders for Gamma Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the broker guarantees
that payment for such Shares will be made available in Federal Funds to the
Fund's custodian prior to the close of regular trading 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.
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<PAGE>
Direct Purchases. An investor may also make direct investments at any time
in any Gamma Class he selects through any broker that has entered into a dealer
agreement with the Distributor (a "Dealer"). An investor may make an initial
investment in any of the Gamma Classes by mail by fully completing and signing
an application obtained from a Dealer (the "Application"), specifying the
Portfolio in which he wishes to invest, and mailing it, together with a check
payable to "The Gamma Family" to the Gamma Family, c/o PFPC, P.O. Box 8950,
Wilmington, Delaware 19899. The check must specify the name of the Portfolio for
which shares are being purchased. An Application will be returned to the
investor unless it contains the name of the Dealer from whom it was obtained.
Subsequent purchases may be made through a Dealer or by forwarding payment to
the Fund's transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Gamma Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
may impose a charge for this service. The Fund does not currently charge for
effecting wire transfers but reserves the right to do so in the future. In order
to ensure prompt receipt of an investor's Federal Funds wire, for an initial
investment, it is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 447-1139
(in Delaware call collect (302) 791-1149), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the Gamma
Class selected, the amount being wired, and by which bank or Dealer. PFPC
will then provide an investor with a Fund account number. (Investors with
existing accounts should also notify PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number
with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a
fully completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Retirement Plans. Gamma Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
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Redemption Procedures
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
Redemption of Shares in an Account. An investor who beneficially owns Gamma
Shares in an Account may redeem Gamma Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting his broker.
If such notice is received by PFPC by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds will be made after 12:00 noon Eastern Time on
the day the redemption is effected, provided that the Fund's custodian is open
for business. If the custodian is not open, payment will be made on the next
bank business day. If the redemption request is received between 12:00 noon and
the close of regular trading on the NYSE on a Business Day, the redemption will
be effective as of the close of regular trading on the NYSE on such Business Day
and payment will be made on the next bank business day following receipt of the
redemption request. If all Shares are redeemed, all accrued but unpaid dividends
on those Shares will be paid with the redemption proceeds.
An investor's brokerage firm may also redeem each day a sufficient number
of Shares of the Primary Gamma Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written request, together with any share
certificates issued to the investor, to The Gamma Family c/o PFPC, P.O. Box
8950, Wilmington, Delaware 19899. Redemption requests must be signed by each
shareholder in the same manner as the Shares are registered. Redemption requests
for joint accounts require the signature of each joint owner. On redemption
requests of $5,000 or more, each signature must be guaranteed. A signature
guarantee may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine.
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<PAGE>
The Fund's telephone transaction procedures include the following measures:
(1) requiring the appropriate telephone transaction privilege forms; (2)
requiring the caller to provide the names of the account owners, the account
social security number and name of the Portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by a broker-dealer,
financial institutions, securities dealers, financial planners, trustee,
custodian other than the Distributor or other agent, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
Proceeds of a telephone redemption request will be mailed by check to an
investor's registered address unless he has designated in his Application or
Telephone Authorization that such proceeds are to be sent by wire transfer to a
specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. The minimum redemption
for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Fund may modify this redemption service at any time
or charge a service fee upon prior notice to shareholders, although no fee is
currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
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Additional Redemption Information. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. Although the Fund will redeem Shares purchased by check
before the check clears, payment of the redemption proceeds may be delayed for a
period of up to fifteen days after their purchase, pending a determination that
the check has cleared. This procedure does not apply to Shares purchased by wire
payment. Investors should consider purchasing Shares using a certified or bank
check or money order if they anticipate an immediate need for redemption
proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in an Gamma Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such 30-day notice period
the amount invested in such account is not increased to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the value of the proportionate interest of each
class in the securities, cash, and other assets of the Portfolio, subtracting
the accrued and actual liabilities of the class and dividing the result by the
number of its shares outstanding of the class. The net asset value per share of
each class is determined independently of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
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<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 separate investment portfolios. Each
of the Gamma Classes represents interests in one of the following investment
portfolios: the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio.
Investment Adviser
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly-owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. In entering
into Portfolio transactions for a Portfolio with a broker, BIMC may take into
account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreement between BIMC and RBB with respect
to the Government Obligations Money Market Portfolio provides for BIMC to also
assist generally in supervising the operations of such Portfolio, and to
maintain the Portfolio's financial accounts and records. These administrative
responsibilities have been delegated to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit of
the Government Obligations Money Market Portfolio, BIMC is entitled to receive
the following fee, 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 services
provided and expenses assumed by it with respect to the Municipal Money Market
and New York Municipal Money Market Portfolios, BIMC is entitled to receive the
following fees, computed daily and payable monthly based on the Portfolio's
average daily net assets: .35% of the first $250 million; .30% of the next $250
million; and .25% of net assets in excess of $500 million.
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PNC Bank was formerly sub-adviser to the Municipal Money Market and
Government Obligations Money Market Portfolios and provided research, credit
analysis and recommendations with respect to each such 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 each such Portfolio to BIMC. The sub-advisory fees paid by BIMC to
PNC Bank had no effect on the investment advisory fees payable by the Portfolios
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."
BIMC may in its discretion from time-to-time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio.
Administrator
PFPC serves as the administrator for the Municipal Money Market and New
York Municipal Money Market Portfolios and generally assists those Portfolios in
all aspects of their administration and operations, including matters relating
to the maintenance of financial records and accounting. PFPC is entitled to an
administration fee, computed daily and payable monthly at .10% of the average
daily net assets of each of these Portfolios. Pursuant to its advisory agreement
with the Fund with respect to the Government Obligations Portfolio, BIMC
provides administrative services to such Portfolio pursuant to the same terms,
but has delegated to PFPC all of its accounting and administrative obligations
under such advisory agreement. The Fund has agreed to pay directly to PFPC the
fees for accounting and administrative services to the Government Obligations
Portfolio which PFPC would have received directly from BIMC. Such arrangement
has no effect on the total advisory and administrative fees payable by such
Portfolio to BIMC. PFPC's principal business address is 400 Bellevue Parkway,
Wilmington, Delaware 19809.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank serves as the Fund's custodian and PFPC also serves as the Fund's
transfer agent and dividend disbursing agent. PFPC may enter into shareholder
servicing agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
-24-
<PAGE>
Distributor
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as distributor of
the Shares of each of the Gamma Classes of the Fund pursuant to a distribution
agreement dated May 29, 1998 (the "Distribution Agreement").
Expenses
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio of
the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. In addition,
distribution expenses, transfer agency expenses, expenses of preparing, printing
and distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser may assume expenses of the Portfolios from time to
time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant
Gamma Class a distribution fee, which is accrued daily and paid monthly, of up
to .65% on an annualized basis of the average daily net assets of the relevant
Gamma Class. The actual amount of such compensation is agreed upon from time to
time by the Fund's Board of Directors and the Distributor. Under the
Distribution Agreement, the Distributor has agreed to accept compensation for
its services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Gamma Class on an annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Gamma Class on any day to the extent necessary to assure that the fee required
to be accrued by such Class does not exceed the income of such Class on that
day. In addition, the Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee.
-25-
<PAGE>
Under the Distribution Agreement and the relevant Plan, the Distributor may
reallocate an amount up to the full fee that it receives to financial
institutions, including Dealers, based upon the aggregate investment amounts
maintained by and services provided to shareholders of any relevant Class
serviced by such financial institutions. The Distributor may also reimburse
Dealers for other expenses incurred in the promotion of the sale of Fund shares.
The Distributor and/or Dealers pay for the cost of printing (excluding
typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Fund as well as for related direct mail, advertising
and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Gamma Class the fee agreed
to under the Distribution Agreement. Payments under the Plans are not based on
expenses actually incurred by the Distributor, and the payments may exceed
distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Gamma Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of the close of regular trading
on the NYSE. Net short-term capital gains, if any, will be distributed at least
annually.
-26-
<PAGE>
TAXES
Distributions from the Government Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will generally constitute tax-exempt income for
shareholders for federal income tax purposes. It is possible, depending upon the
Portfolios' investments, that a portion of the Portfolios' distributions could
be taxable to shareholders as ordinary income or capital gains, but it is not
expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio and the
New York Municipal Money Market Portfolio are exempt for federal income tax
purposes, they will generally constitute taxable income for state and local
income tax purposes except that, subject to limitations that vary depending on
the state, distributions from interest paid by a state or municipal entity may
be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by the
Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal income tax purposes,
in most cases does not result in an exemption under the tax laws of any other
state or local authority.
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.
-27-
<PAGE>
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 each of its Municipal Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio to expand its marketing alternatives and to
broaden its range of services to different investors. The expenses of the
various classes within these Portfolios vary based upon the services provided,
which may affect performance. Each class of Common Stock of the Fund has a
separate Rule 12b-1 distribution plan. Under the Distribution Agreement and
pursuant to each of the distribution plans, the Distributor is entitled to
receive from each class as compensation for distribution services provided to
that class a distribution fee based on average daily net assets. A salesperson
or any other person entitled to receive compensation for servicing Fund shares
may receive different compensation with respect to different classes in a
Portfolio of the Fund. An investor may contact the Fund's distributor by calling
1-800-888-9723 to request more information concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE GAMMA CLASSES OF THE MUNICIPAL MONEY MARKET,
GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET
PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO THE GAMMA CLASSES OF THESE PORTFOLIOS.
-28-
<PAGE>
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998 to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of the
Fund.
The Fund will issue share certificates for any of the Gamma Shares only
upon the written request of a shareholder sent to PFPC.
OTHER INFORMATION
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call collect
(302) 791-1196).
<PAGE>
Prospectus
THE DELTA FAMILY
Money Market Portfolio
- ----------------------
Municipal
Money Market Portfolio
- ----------------------
Government Obligations
Money Market Portfolio
- ----------------------
New York Municipal
Money Market Portfolio
December 29, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION...............................................................
FINANCIAL HIGHLIGHTS.......................................................
INVESTMENT OBJECTIVES AND POLICIES.........................................
YEAR 2000..................................................................
INVESTMENT LIMITATIONS.....................................................
PURCHASE AND REDEMPTION OF SHARES..........................................
NET ASSET VALUE............................................................
MANAGEMENT.................................................................
DISTRIBUTION OF SHARES.....................................................
DIVIDENDS AND DISTRIBUTIONS................................................
TAXES......................................................................
DESCRIPTION OF SHARES......................................................
OTHER INFORMATION..........................................................
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributors
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
THE DELTA FAMILY
of
The RBB Fund, Inc.
The Delta Family consists of four classes of common stock of The RBB
Fund, Inc. (the "Fund"), an open-end management investment company incorporated
under the laws of the State of Maryland on February 29, 1988. The Fund is
currently operating or proposing to operate seventeen separate investment
portfolios. The shares of the classes (collectively, the "Delta Shares" or
"Shares") offered by this Prospectus represent interests in a taxable money
market portfolio, a municipal money market portfolio, a U.S. Government
obligations money market portfolio and a New York municipal money market
portfolio (together, the "Portfolios"). The investment objectives of each
investment portfolio described in this Prospectus are as follows:
Money Market Portfolio--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
Municipal Money Market Portfolio--to provide as high a level of
current interest income exempt from federal income taxes as is consistent
with maintaining liquidity and stability of principal. It seeks to achieve
such objective by investing substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations. "Municipal
Obligations" are obligations issued by or on behalf of states, territories
and possessions of the United States, the District of Columbia and their
political subdivisions, agencies, instrumentalities and authorities. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which
is exempt from the regular federal income tax but which may constitute an
item of tax preference for purposes of the federal alternative minimum tax.
Government Obligations Money Market Portfolio--to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
New York Municipal Money Market Portfolio--to provide as high a level
of current income that is exempt from federal, New York State and New York
City personal income taxes as is consistent with preservation of capital
and liquidity. It seeks to achieve its objective by investing primarily in
Municipal Obligations, the interest on which is exempt from regular federal
income tax and is not an item of tax preference for purposes of the federal
alternative minimum tax ("Tax-Exempt Interest") and is exempt from New York
State and New York City personal income taxes.
<PAGE>
The New York Municipal Money Market Portfolio may invest a significant
percentage of its assets in a single issuer, and therefore investment in this
Portfolio may be riskier than an investment in other types of money market
funds.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. An investment in the
Portfolios is neither insured nor guaranteed by the U.S. Government or any
governmental agency. There can be no assurance that the Portfolios will be able
to maintain a stable net asset value of $1.00 per share.
An investor may purchase and redeem Shares of any of the Delta classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
BlackRock Institutional Management Corporation ("BIMC") serves as
investment adviser for the Portfolios and PNC Bank, National Association ("PNC
Bank") serves as custodian for the Fund. PFPC Inc. ("PFPC") serves as the
administrator and transfer and dividend disbursing agent for the Fund. Provident
Distributors, Inc. (the "Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the
Internet Web Site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988 and is
currently operating or proposing to operate seventeen separate investment
portfolios. Each of the four classes of the Fund's shares (collectively, the
"Delta Classes") offered by this Prospectus represents interests in one of the
following investment portfolios: the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio. The Money Market, Municipal Money Market
and Government Obligations Money Market Portfolios are diversified investment
portfolios; the New York Municipal Money Market Portfolio is a non-diversified
investment portfolio.
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets.
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular federal income tax but which may
constitute an item of tax preference for purposes of the federal alternative
minimum tax.
The Government Obligations Money Market Portfolio's investment objective
is to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. To achieve its objective, the
Portfolio invests exclusively in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
The New York Municipal Money Market Portfolio's investment objective is
to provide as high a level of current income that is exempt from federal, New
York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State and New York City personal
income taxes and which meet certain ratings criteria and present minimal credit
risks.
-2-
<PAGE>
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
The Portfolios' investment adviser is BlackRock Institutional Management
Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank") serves as
custodian to the Fund. PFPC Inc. ("PFPC") serves as the administrator and
transfer and dividend disbursing agent to the Fund. Provident Distributors, Inc.
(the "Distributor") acts as distributor of the Fund's Shares.
An investor may purchase and redeem Shares of any of the Delta Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
An investment in any of the Delta Classes is subject to certain risks,
as set forth in detail under "Investment Objectives and Policies." Any or all of
the Portfolios, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase of
mortgage-related securities, the purchase of securities on a "when-issued" or
"forward commitment" basis, the purchase of stand-by commitments and the lending
of securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
-3-
<PAGE>
FEE TABLE
Estimated Annual Fund Operating Expenses (Delta Classes)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating expenses
of the Delta Classes based on expenses expected to be incurred for the current
fiscal period, as a percentage of average daily net assets. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Management Fees (after
waivers)(1)................................. .22% .08% .30% .02%
12b-1 Fees(1) .............................. .53% .58% .56% .52%
Other Expenses.............................. .22% .23% .12% .28%
---- ---- ---- ----
Total Fund Operating
Expenses (after waivers)(1)................. .97% .89% .98% .82%
==== ==== ==== ====
</TABLE>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio and New York Municipal Money Market
Portfolio, Management Fees would be .37%, .33%, .41% and .35%,
respectively, and Total Fund Operating Expenses would be 1.12%, 1.14%,
1.09% and 1.13%, respectively.
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market*........................................ $10 $31 $54 $119
Municipal Money
Market*............................................. $ 9 $28 $49 $110
Government Obligations
Money Market*....................................... $10 $31 $54 $120
New York Municipal
Money Market*....................................... $ 8 $26 $46 $101
</TABLE>
* Other classes of these Portfolios are sold with different fees and expenses.
-4-
<PAGE>
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses (Delta Classes)" 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 Delta Classes of the Fund
will bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management--Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on estimated costs and estimated fees
expected to be charged to the Delta Classes, taking into account anticipated fee
waivers and reimbursements. The Fee Table reflects a voluntary waiver of
Management Fees for each Portfolio. However, there can be no assurance that any
future waivers of Management Fees will not vary from the figures reflected in
the Fee Table. To the extent that any service providers assume additional
expenses of the Portfolios, such assumption will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of federal,
New York State and New York City personal income taxes at stated rates.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of any of the Delta Classes will fluctuate and
is not necessarily representative of future results. Any fees charged by
broker/dealers directly to their customers in connection with investments in the
Delta Classes are not reflected in the total return and yields of the Delta
Shares, and such fees, if charged, will reduce the actual return received by
shareholders on their investments. The total return and yield on Shares of the
Delta Classes may differ from the total return and yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
-5-
<PAGE>
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
No financial data is supplied for the Portfolios because, as of the date
of this Prospectus, the Portfolios had no performance history.
INVESTMENT OBJECTIVES AND POLICIES
Money Market Portfolio
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. Portfolio obligations held by the Money Market
Portfolio have remaining maturities of 397 calendar days or less (exclusive of
securities subject to repurchase agreements). In pursuing its investment
objective, the Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." The following
descriptions illustrate the types of Money Market Instruments in which the Money
Market Portfolio invests. There is no assurance that the investment objective of
the Money Market Portfolio will be achieved.
Bank Obligations. The Portfolio may purchase obligations of issuers in
the banking industry such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less 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 (i)
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. 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
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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 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
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Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Guaranteed Investment Contracts. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
Municipal Obligations. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
When-Issued Securities. The Portfolio may purchase portfolio securities
on a "when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
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recorded as an asset at the time the commitment is entered into and are subject
to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
Eligible Securities. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the Portfolio's
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include: (1) U.S. Government securities, (2)
securities that are rated at the time of purchase in the two (2) highest rating
categories by at least two Rating Organizations (e.g., commercial paper rated
"A-1" or "A-2" by Standard & Poor's Rating Services ("S&P")), (3) securities
that are rated at the time of purchase by the only Rating Organization rating
the security in one of its two highest rating categories for such securities,
(4) securities issued by issuers (or, in certain cases guaranteed by persons)
with short-term debt having such ratings, and (5) securities that are not rated
and are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
The Money Market Portfolio's investment objective and policies described
above may be changed by the Fund's Board of Directors without shareholder
approval. The Portfolio may not, however, change the following investment
limitations without such a vote of shareholders. (A more detailed description of
the following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5% of
the value of the Portfolio's assets and may make time deposits.
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2. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
3. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry.
4. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by the Portfolio, except that up to 25% of the value
of the Portfolio's total assets may be invested without regard to such 5%
limitation.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Money Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization in its highest rating category for such securities, (iii) have
no short-term rating and are comparable in priority and security to a class
of short-term obligations of the issuer of such securities that have been
rated in accordance with (i) or (ii) above, or (iv) are Unrated Securities
that are determined to be of comparable quality to such securities.
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<PAGE>
Purchases of First Tier Securities that come within categories (ii) and
(iv) above will be approved or ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Municipal Money Market Portfolio will be
achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Portfolio's
investment adviser, suitable obligations bearing Tax-Exempt Interest or AMT
Interest are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
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being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio, as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
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Eligible Securities. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio-Eligible
Securities."
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio
- --Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
shareholder approval. The Municipal Money Market Portfolio may not, however,
change the following investment limitations without such a vote of shareholders.
(A more detailed description of the following investment limitations, together
with other investment limitations that cannot be changed without a vote of
shareholders, is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Municipal Money Market Portfolio may not:
1. Purchase the securities of any issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of the Portfolio's assets would be invested in the securities of such
issuer or more than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to this 5%
limitation.
2. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's assets at the
time of such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or mortgage,
pledge or hypothecate any of its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the
Portfolio's assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.)
3. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority
of the Portfolio's outstanding shares, the Portfolio may not change its policy
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of investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment objective
is to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal.
Due to fluctuations in interest rates, the market value of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
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their interest rates not less frequently than every 397 days and the adjustments
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values. There is no assurance that the investment
objective of the Government Obligations Money Market Portfolio will be achieved.
Repurchase Agreements. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a description of repurchase agreements, see "Investment Objectives and
Policies--Money Market Portfolio--Repurchase Agreements."
Reverse Repurchase Agreements. The Portfolio may borrow funds by
entering into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements."
Mortgage-Related Securities. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
The Portfolio may also acquire asset-backed securities as described
under "Investment Objectives and Policies -- Money Market Portfolio --
Asset-Backed Securities."
Lending of Securities. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Government Obligations Money Market Portfolio's investment objective
and policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The following investment limitations may not be
changed, however, without such a vote of shareholders. (A more detailed
description of the following investment limitations, together with other
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investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowing and in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
Portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
New York Municipal Money Market Portfolio
The New York Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income that is exempt from
federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria and present minimal credit risks to the Portfolio. Portfolio
obligations held by the New York Municipal Money Market Portfolio will have
remaining maturities of 397 days or less ("short-term" obligations). Dividends
paid by the Portfolio which are derived from interest attributable to tax-exempt
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obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ("New York Municipal
Obligations"), will be excluded from gross income for federal income tax
purposes and exempt from New York State and New York City personal income taxes,
but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio --
Municipal Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative
Minimum Tax Securities. Investors should be aware of the possibility of federal,
state and local alternative minimum or minimum income tax liability on interest
from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations the interest on which is
paid solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
Tax-Exempt Derivative Securities. The New York Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio such as described
under "Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
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Taxable Investments. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's Investor's Service, Inc. ("Moody's") or S&P; commercial paper rated in
the highest grade by Moody's or S&P; and certificates of deposit issued by
United States branches of United States banks with assets of $1 billion or more.
At no time will more than 20% of the Portfolio's total assets be invested in
taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of an
anticipated softening in the market for Municipal Obligations in general.
Eligible Securities. The New York Municipal Money Market Portfolio will
only purchase "eligible securities." For a more complete description of eligible
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Eligible Securities" and "Investment Objectives and Policies" in the Statement
of Additional Information.
Special Considerations. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio should be limited by its intention to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended, and by its policies restricting
investments to obligations with short-term maturities and obligations which
qualify as eligible securities.
The Portfolio's ability to meet its investment objective is dependent
upon the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic
problems that could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and lower market prices for their
outstanding debt obligations. Although several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's in recent years, the most
recent actions of S&P and Moody's have been to place the debt obligations of
New York State and New York City on CreditWatch with positive implications and
to update the debt obligations of New York City, respectively. Strong demand
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for New York Municipal Obligations has also at times had the effect of
permitting New York Municipal Obligations to be issued with yields relatively
lower, and after issuance to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of their existing
obligations and, possibly, in the obligations of other issuers of New York
Municipal Obligations. Although no issuers of New York Municipal Obligations
were as of the date of this Prospectus in default with respect to the payment of
their debt obligations, the occurrence of any such default could adversely
affect the market values and marketability of all New York Municipal Obligations
and, consequently, the net asset value of the Portfolio's shares. Some of the
significant financial considerations relating to the Fund's investments in New
York Municipal Obligations are summarized in the Statement of Additional
Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment objective and
the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The New York Municipal Money Market Portfolio may
not, however, change the following investment limitations without such a vote of
shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by non-governmental
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users (see the second investment limitation above) shall not be deemed to
be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority
of the Portfolio's outstanding shares, the Portfolio may not change its policy
of investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
New York Municipal Money Market Portfolio will meet the following limitation on
its investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
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PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
General. Delta Shares are sold without a sales load on a continuous
basis by the Distributor. The Distributor is located at Four Falls Corporate
Center, Conshohocken, Pennsylvania 19428. Investors may purchase Delta Shares
through an account maintained by the investor with his brokerage firm (the
"Account") and may also purchase Shares directly by mail or wire. The minimum
initial investment is $1,000, and the minimum subsequent investment is $100. The
Fund in its sole discretion may accept or reject any order for purchases of
Delta Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which payment has been converted into Federal Funds by 12:00
noon Eastern Time, will be executed as of 12:00 noon that Business Day. Orders
which are accompanied by Federal Funds and received by the Fund after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day, but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
Purchases through an Account. Purchases of Shares may be effected
through an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Delta Shares will be recorded by the broker and will be
reflected in the Account statements provided by the broker to such investors. A
broker may impose minimum investment Account requirements. Even if a broker does
not impose a sales charge for purchases of Delta Shares, depending on the terms
of an 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.
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<PAGE>
Shareholders whose shares are held in the street name account of a
broker and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability to
purchase Delta Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Delta Class designated by the investor
as the "Primary Delta Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the broker. A participant in a Purchase
Program may change the designation of the Primary Delta Class at any time by so
instructing his broker.
If a broker makes special arrangements under which orders for Delta
Shares are received by PFPC prior to 12:00 noon Eastern Time, and the broker
guarantees that payment for such Shares will be made available in Federal Funds
to the Fund's custodian prior to the close of regular trading on the NYSE, on
the same day, such purchase orders will be effective and Shares will be
purchased at the offering price in effect as of 12:00 noon Eastern Time on the
date the purchase order is received by PFPC.
Direct Purchases. An investor may also make direct investments at any
time in any Delta Class he selects through any broker that has entered into a
dealer agreement with the Distributor (a "Dealer"). An investor may make an
initial investment in any of the Delta Classes by mail by fully completing and
signing an application obtained from a Dealer (the "Application"), specifying
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Delta Family" to the Delta Family, c/o PFPC, P.O. Box
8950, Wilmington, Delaware 19899. The check must specify the name of the
Portfolio for which shares are being purchased. An Application will be returned
to the investor unless it contains the name of the Dealer from whom it was
obtained. Subsequent purchases may be made through a Dealer or by forwarding
payment to the Fund's transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Delta Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
may impose a charge for this service. The Fund does not currently charge for
effecting wire transfers but reserves the right to do so in the future. In order
to ensure prompt receipt of an investor's Federal Funds wire, for an initial
investment, it is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 447-1139
(in Delaware call collect (302) 791-1149), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the Delta
Class selected, the amount being wired, and by which bank or Dealer. PFPC
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will then provide an investor with a Fund account number. (Investors with
existing accounts should also notify PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a
fully completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Retirement Plans. Delta Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
Redemption Procedures
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
Redemption of Shares in an Account. An investor who beneficially owns
Delta Shares in an Account may redeem Delta Shares in his Account in accordance
with instructions and limitations pertaining to his Account by contacting his
broker. If such notice is received by PFPC by 12:00 noon Eastern Time on any
Business Day, the redemption will be effective as of 12:00 noon Eastern Time on
that day. Payment of the redemption proceeds will be made after 12:00 noon
Eastern Time on the day the redemption is effected, provided that the Fund's
custodian is open for business. If the custodian is not open, payment will be
made on the next bank business day. If the redemption request is received
between 12:00 noon and the close of regular trading on the NYSE on a Business
Day, the redemption will be effective as of the close of regular trading on the
NYSE on such Business Day and payment will be made on the next bank business day
following receipt of the redemption request. If all Shares are redeemed, all
accrued but unpaid dividends on those Shares will be paid with the redemption
proceeds.
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<PAGE>
An investor's brokerage firm may also redeem each day a sufficient
number of Shares of the Primary Delta Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written request, together with any share
certificates issued to the investor, to The Delta Family c/o PFPC, P.O. Box
8950, Wilmington, Delaware 19899. Redemption requests must be signed by each
shareholder in the same manner as the Shares are registered. Redemption requests
for joint accounts require the signature of each joint owner. On redemption
requests of $5,000 or more, each signature must be guaranteed. A signature
guarantee may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they
have completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine. The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the Portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by a broker-dealer,
financial institutions, securities dealers, financial planners, trustee,
custodian other than the Distributor or other agent, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
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<PAGE>
Proceeds of a telephone redemption request will be mailed by check to an
investor's registered address unless he has designated in his Application or
Telephone Authorization that such proceeds are to be sent by wire transfer to a
specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. The minimum redemption
for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Fund may modify this redemption service at any time
or charge a service fee upon prior notice to shareholders, although no fee is
currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
Additional Redemption Information. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. Although the Fund will redeem Shares purchased by check
before the check clears, payment of the redemption proceeds may be delayed for a
period of up to fifteen days after their purchase, pending a determination that
the check has cleared. This procedure does not apply to Shares purchased by wire
payment. Investors should consider purchasing Shares using a certified or bank
check or money order if they anticipate an immediate need for redemption
proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves
the right to redeem any account in an Delta Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such 30-day notice period
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<PAGE>
the amount invested in such account is not increased to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the value of the proportionate interest of each
class in the securities, cash, and other assets of the Portfolio, subtracting
the accrued and actual liabilities of the class and dividing the result by the
number of its shares outstanding of the class. The net asset value per share of
each class is determined independently of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value
of $1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
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 separate investment portfolios. Each
of the Delta Classes represents interests in one of the following such
investment portfolios: the Money Market Portfolio, the Municipal Money Market
Portfolio, the Government Obligations Money Market Portfolio and the New York
Municipal Money Market Portfolio.
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Investment Adviser
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios
and is responsible for all purchases and sales of portfolio securities. In
entering into Portfolio transactions for a Portfolio with a broker, BIMC may
take into account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreements between BIMC and RBB with respect
to the Money Market and Government Obligations Money Market Portfolios provide
for BIMC to also assist generally in supervising the operations of each such
Portfolio, and to maintain the Portfolios' financial accounts and records. These
administrative responsibilities have been delegated to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit
of each of the Money Market and Government Obligations Money Market Portfolios,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of net assets in excess of $500
million.
For the services provided and expenses assumed by it with respect to the
Municipal Money Market and New York Municipal Money Market Portfolios, BIMC is
entitled to receive the following fees, computed daily and payable monthly based
on the Portfolio's average daily net assets: .35% of the first $250 million;
.30% of the next $250 million; and .25% of net assets in excess of $500 million.
PNC Bank was formerly sub-adviser to the Money Market, Municipal Money
Market and Government Obligations Money Market Portfolios and provided research,
credit
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analysis and recommendations with respect to each such 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 each such 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 Portfolios 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."
BIMC may in its discretion from time to time agree to waive voluntarily
all or any portion of its advisory fee for any Portfolio.
Administrator
PFPC, an indirect wholly-owned subsidiary of PNC Bank Corp., serves as
the administrator for the Municipal Money Market and New York Municipal Money
Market Portfolios and generally assists those Portfolios in all aspects of their
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at .10% of the average daily net assets of
each of these Portfolios. Pursuant to its advisory agreements with the Fund with
respect to the Money Market and Government Obligations Money Market Portfolios,
BIMC provides administrative services to such Portfolios pursuant to the same
terms, but has delegated to PFPC all of its accounting and administrative
obligations under such advisory agreements. The Fund has agreed to pay directly
to PFPC the fees for accounting and administrative services to the Money Market
and Government Obligations Money Market Portfolios which PFPC would have
received directly from BIMC. Such arrangement has no effect on the total
advisory and administrative fees payable by such Portfolios to BIMC. PFPC's
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank serves as the Fund's custodian and PFPC also serves as the
Fund's transfer agent and dividend disbursing agent. PFPC may enter into
shareholder servicing agreements with registered broker/dealers who have entered
into dealer agreements with the Distributor for the provision of certain
-28-
<PAGE>
shareholder support services to customers of such broker/dealers who are
shareholders of the Portfolios. The services provided and the fees payable by
the Fund for these services are described in the Statement of Additional
Information under "Investment Advisory, Distribution and Servicing
Arrangements."
Distributor
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as distributor of
the Shares of each of the Delta Classes of the Fund pursuant to a distribution
agreement dated May 29, 1998 (the "Distribution Agreement").
Expenses
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. In addition,
distribution expenses, transfer agency expenses, expenses of preparing, printing
and distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser may assume expenses of the Portfolios from time
to time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant
Delta Class a distribution fee, which is accrued daily and paid monthly, of up
to .65% on an annualized basis of the average daily net assets of the relevant
Delta Class. The actual amount of such compensation is agreed upon from time to
time by the Fund's Board of Directors and the Distributor. Under the
Distribution Agreement the Distributor has agreed to accept compensation for its
services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Class on an annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Delta Class on any day to the extent necessary to assure that the fee required
to be accrued by such Class does not exceed the income of such Class on that
-29-
<PAGE>
day. In addition, the Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor
may reallocate an amount up to the full fee that it receives to financial
institutions, including Dealers, based upon the aggregate investment amounts
maintained by and services provided to shareholders of any relevant Class
serviced by such financial institutions. The Distributor may also reimburse
Dealers for other expenses incurred in the promotion of the sale of Fund shares.
The Distributor and/or Dealers pay for the cost of printing (excluding
typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Fund as well as for related direct mail, advertising
and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect,
to accrue and pay to the Distributor on behalf of each Delta Class the fee
agreed to under the relevant Distribution Agreement. Payments under the Plans
are not based on expenses actually incurred by the Distributor, and the payments
may exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Delta Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital
gains) earned by each Portfolio will be declared as a dividend on a daily basis
and paid monthly. Dividends are payable to shareholders of record immediately
prior to the determination of net asset value made as of the close of regular
trading on the NYSE. Net short-term capital gains, if any, will be distributed
at least annually.
-30-
<PAGE>
TAXES
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will generally constitute tax-exempt income for
shareholders for federal income tax purposes. It is possible, depending upon the
Portfolios' investments, that a portion of the Portfolios' distributions could
be taxable to shareholders as ordinary income or capital gains, but it is not
expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio and the
New York Municipal Money Market Portfolio are exempt for federal income tax
purposes, they will generally constitute taxable income for state and local
income tax purposes except that, subject to limitations that vary depending on
the state, distributions from interest paid by a state or municipal entity may
be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
-31-
<PAGE>
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal income tax purposes,
in most cases does not result in an exemption under the tax laws of any other
state or local authority.
-32-
<PAGE>
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 each of its Money Market
Portfolio, Municipal Money Market Portfolio, Government Obligations Money Market
Portfolio and New York Municipal Money Market Portfolio to expand its marketing
alternatives and to broaden its range of services to different investors. The
expenses of the various classes within these Portfolios vary based upon the
services provided, which may affect performance. Each class of Common Stock of
the Fund has a separate Rule 12b-1 distribution plan. Under the Distribution
Agreement and pursuant to each of the distribution plans, the Distributor is
entitled to receive from each class as compensation for distribution services
provided to that class a distribution fee based on average daily net assets. A
salesperson or any other person entitled to receive compensation for servicing
Fund shares may receive different compensation with respect to different classes
in a Portfolio of the Fund. An investor may contact the Fund's Distributor by
calling 1-800-888-9723 to request more information concerning other classes
available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE DELTA CLASSES OF THE MONEY MARKET, MUNICIPAL
MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK MUNICIPAL MONEY
MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE DELTA CLASSES OF THESE
PORTFOLIOS.
-33-
<PAGE>
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the aggregate
and not by class on all matters, except where otherwise required by law.
Further, shareholders of all investment portfolios of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
the Fund.
The Fund will issue share certificates for any of the Delta Shares only
upon the written request of a shareholder sent to PFPC.
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).
-34-
<PAGE>
Prospectus
THE EPSILON FAMILY
Money Market Portfolio
- ----------------------------
Municipal
Money Market Portfolio
- ----------------------------
Government Obligations
Money Market Portfolio
- ----------------------------
New York Municipal
Money Market Portfolio
December 29, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION......................................................................................................2
FINANCIAL HIGHLIGHTS..............................................................................................6
INVESTMENT OBJECTIVES AND POLICIES................................................................................6
YEAR 2000.........................................................................................................9
INVESTMENT LIMITATIONS............................................................................................10
PURCHASE AND REDEMPTION OF SHARES.................................................................................21
NET ASSET VALUE...................................................................................................26
MANAGEMENT........................................................................................................26
DISTRIBUTION OF SHARES............................................................................................29
DIVIDENDS AND DISTRIBUTIONS.......................................................................................30
TAXES.............................................................................................................30
DESCRIPTION OF SHARES.............................................................................................31
OTHER INFORMATION.................................................................................................32
</TABLE>
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
THE EPSILON FAMILY
of
The RBB Fund, Inc.
The Epsilon Family consists of four classes of common
stock of The RBB Fund, Inc. (the "Fund"), an open-end management investment
company incorporated under the laws of the State of Maryland on February 29,
1988. The Fund is currently operating or proposing to operate seventeen separate
investment portfolios. The shares of the classes (collectively, the "Epsilon
Shares" or "Shares") offered by this Prospectus represent interests in a taxable
money market portfolio, a municipal money market portfolio, a U.S. Government
obligations money market portfolio and a New York municipal money market
portfolio (together, the "Portfolios"). The investment objectives of each
investment portfolio described in this Prospectus are as follows:
Money Market Portfolio--to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
Municipal Money Market Portfolio--to provide as high
a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular federal income tax but which may constitute an item of tax
preference for purposes of the federal alternative minimum tax.
Government Obligations Money Market Portfolio--to
provide as high a level of current interest income as is consistent
with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
New York Municipal Money Market Portfolio--to provide
as high a level of current income that is exempt from federal, New York
State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its
objective by investing primarily in Municipal Obligations, the interest
on which is exempt from regular federal income tax and is not an item
of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
<PAGE>
The New York Municipal Money Market Portfolio may invest a
significant percentage of its assets in a single issuer, and therefore
investment in this Portfolio may be riskier than an investment in other types of
money market funds.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by PNC Bank, National Association or any other bank and
Shares are not federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other agency. Investments in Shares of the Fund
involve investment risks, including the possible loss of principal. An
investment in the Portfolios is neither insured nor guaranteed by the U.S.
Government or any governmental agency. There can be no assurance that the
Portfolios will be able to maintain a stable net asset value of $1.00 per share.
An investor may purchase and redeem Shares of any of the
Epsilon classes through his broker or by direct purchases or redemptions. See
"Purchase and Redemption of Shares."
BlackRock Institutional Management Corporation ("BIMC") serves
as investment adviser for the Portfolios and PNC Bank, National Association
("PNC Bank") serves as custodian for the Fund. PFPC Inc. ("PFPC") serves as the
administrator and transfer and dividend disbursing agent for the Fund. Provident
Distributors, Inc. (the "Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a
prospective investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated December 29, 1998, has
been filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus. It may be obtained upon request free of charge
from the Fund by calling (800) 430-9618. The Prospectus and Statement of
Additional Information are also available for reference, along with other
related materials, on the Internet Web Site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
The RBB Fund, Inc. is an open-end management investment
company incorporated under the laws of the State of Maryland on February 29,
1988 and is currently operating or proposing to operate seventeen separate
investment portfolios. Each of the four classes of the Fund's shares
(collectively, the "Epsilon Classes") offered by this Prospectus represents
interests in one of the following investment portfolios: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios are diversified investment portfolios; the New York Municipal Money
Market Portfolio is a non-diversified investment portfolio.
The Money Market Portfolio's investment objective is to
provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in a diversified portfolio of U.S. dollar-denominated
money market instruments which meet certain ratings criteria and present minimal
credit risks. In pursuing its investment objective, the Money Market Portfolio
invests in a broad range of government, bank and commercial obligations that may
be available in the money markets.
The Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular federal income tax but which may
constitute an item of tax preference for purposes of the federal alternative
minimum tax.
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and enters into repurchase agreements relating to
such obligations.
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current income that is exempt from
federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State and New York City personal
income taxes and which meet certain ratings criteria and present minimal credit
risks.
-2-
<PAGE>
Each of the Portfolios seeks to maintain a net asset value of
$1.00 per share; however, there can be no assurance that the Portfolios will be
able to maintain a stable net asset value of $1.00 per share.
The Portfolios' investment adviser is BlackRock Institutional
Management Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank")
serves as custodian to the Fund. PFPC Inc. ("PFPC") serves as the administrator
and transfer and dividend disbursing agent to the Fund. Provident Distributors,
Inc. (the "Distributor") acts as distributor of the Fund's Shares.
An investor may purchase and redeem Shares of any of the
Epsilon Classes through his broker or by direct purchases or redemptions. See
"Purchase and Redemption of Shares."
An investment in any of the Epsilon Classes is subject to
certain risks, as set forth in detail under "Investment Objectives and
Policies." Any or all of the Portfolios, to the extent set forth under
"Investment Objectives and Policies," may engage in the following investment
practices: the use of repurchase agreements and reverse repurchase agreements,
the purchase of mortgage-related securities, the purchase of securities on a
"when-issued" or "forward commitment" basis, the purchase of stand-by
commitments and the lending of securities. All of these transactions involve
certain special risks, as set forth under "Investment Objectives and Policies."
-3-
<PAGE>
FEE TABLE
Estimated Annual Fund Operating Expenses (Epsilon Classes)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating expenses
of the Epsilon Classes based on expenses expected to be incurred for the current
fiscal period, as a percentage of average daily net assets. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Management Fees (after
waivers)(1)................................. .22% .08% .30% .02%
12b-1 Fees(1) .............................. .53% .58% .56% .52%
Other Expenses.............................. .22% .23% .12% .28%
---- ---- ---- ----
Total Fund Operating
Expenses (after waivers)(1)................. .97% .89% .98% .82%
==== ==== ==== ====
</TABLE>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio and New York Municipal Money Market
Portfolio, Management Fees would be .37%, .33%, .41% and .35%,
respectively, and Total Fund Operating Expenses would be 1.12%, 1.14%,
1.09% and 1.13%, respectively.
Example
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market*........................................ $10 $31 $54 $119
Municipal Money
Market*............................................. $ 9 $28 $49 $110
Government Obligations
Money Market*....................................... $10 $31 $54 $120
New York Municipal
Money Market*....................................... $ 8 $26 $46 $101
</TABLE>
* Other classes of these Portfolios are sold with different fees and
expenses.
-4-
<PAGE>
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses (Epsilon Classes)" remain the same in the years shown. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in
understanding the various costs and expenses that an investor in the Epsilon
Classes of the Fund will bear directly or indirectly. (For more complete
descriptions of the various costs and expenses, see "Management--Investment
Adviser" and "Distribution of Shares" below.) Expense figures are based on
estimated costs and estimated fees expected to be charged to the Epsilon
Classes, taking into account anticipated fee waivers and reimbursements. The Fee
Table reflects a voluntary waiver of Management Fees for each Portfolio.
However, there can be no assurance that any future waivers of Management Fees
will not vary from the figures reflected in the Fee Table. To the extent that
any service providers assume additional expenses of the Portfolios, such
assumption will have the effect of lowering a Portfolio's overall expense ratio
and increasing its yield to investors.
From time to time a Portfolio advertises its "total return",
"yield" and "effective yield." Total return and yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of a Portfolio refers to the income generated by an investment in a
Portfolio over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in a Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. Each of the Municipal Money
Market Portfolio's and the New York Municipal Money Market Portfolio's
"tax-equivalent yield" may also be quoted from time to time, which shows the
level of taxable yield needed to produce an after-tax equivalent to such
Portfolio's tax-free yield. This is done by increasing the Municipal Money
Market Portfolio's yield (calculated as above) by the amount necessary to
reflect the payment of federal income tax at a stated tax rate and by increasing
the New York Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal, New York State and New
York City personal income taxes at stated rates.
The total return and yield of any investment is generally a
function of portfolio quality and maturity, type of investment and operating
expenses. The total return and yield on Shares of any of the Epsilon Classes
will fluctuate and is not necessarily representative of future results. Any fees
charged by broker/dealers directly to their customers in connection with
investments in the Epsilon Classes are not reflected in the total return and
yields of the Epsilon Shares, and such fees, if charged, will reduce the actual
return received by shareholders on their investments. The total return and yield
on Shares of the Epsilon Classes may differ from the total return and yields on
shares of other classes of the Fund that also represent interests in the
-5-
<PAGE>
same Portfolio depending on the allocation of expenses to each of the classes of
that Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
No financial data is supplied for the Portfolios because, as
of the date of this Prospectus, the Portfolios had no performance history.
INVESTMENT OBJECTIVES AND POLICIES
Money Market Portfolio
The Money Market Portfolio's investment objective is to
provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. Portfolio obligations held by
the Money Market Portfolio have remaining maturities of 397 calendar days or
less (exclusive of securities subject to repurchase agreements). In pursuing its
investment objective, the Money Market Portfolio invests in a diversified
portfolio of U.S. dollar-denominated instruments, such as government, bank and
commercial obligations, that may be available in the money markets ("Money
Market Instruments") and that meet certain ratings criteria and present minimal
credit risks to the Money Market Portfolio. See "Eligible Securities." The
following descriptions illustrate the types of Money Market Instruments in which
the Money Market Portfolio invests. There is no assurance that the investment
objective of the Money Market Portfolio will be achieved.
Bank Obligations. The Portfolio may purchase obligations of
issuers in the banking industry such as short-term obligations of bank holding
companies, certificates of deposit, bankers' acceptances and time deposits,
including U.S. dollar-denominated instruments issued or supported by the credit
of U.S. or foreign banks or savings institutions having total assets at the time
of purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less 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
(i) rated (at the time of purchase) in the two highest rating categories of at
least two nationally recognized statistical rating organizations ("Rating
Organization") or, by the only Rating Organization providing a rating; or (ii)
issued by issuers (or, in certain cases guaranteed by persons) with short-term
debt having such ratings. 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
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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 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
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have a significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
Reverse Repurchase Agreements. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. A reverse
repurchase agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Guaranteed Investment Contracts. The Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
Municipal Obligations. In addition, the Portfolio may, when
deemed appropriate by its investment adviser in light of the Portfolio's
investment objective, invest without limitation in high quality, short-term
Municipal Obligations issued by state and local governmental issuers, the
interest on which may be taxable or tax-exempt for federal income tax purposes,
provided that such obligations carry yields that are competitive with those of
other types of Money Market Instruments of comparable quality. For a more
complete discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
Stand-By Commitments. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option specified Municipal Obligations at a specified price. The acquisition of
a stand-by commitment may increase the cost, and thereby reduce the yield, of
the Municipal Obligation to which such commitment relates. The Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes.
When-Issued Securities. The Portfolio may purchase portfolio
securities on a "when-issued" basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield. The Portfolio will generally not pay for such securities or start earning
interest on them until they are received. Securities purchased on a when-issued
basis are recorded as an asset at the time the commitment is entered into and
are
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subject to changes in value prior to delivery based upon changes in the general
level of interest rates. The Portfolio expects that commitments to purchase
when-issued securities will not exceed 25% of the value of its total assets
absent unusual market conditions. The Portfolio does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objective.
Eligible Securities. The Portfolio will only purchase
"eligible securities" that present minimal credit risks as determined by the
Portfolio's investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the two (2)
highest rating categories by at least two Rating Organizations (e.g., commercial
paper rated "A-1" or "A-2" by Standard & Poor's Rating Services ("S&P")), (3)
securities that are rated at the time of purchase by the only Rating
Organization rating the security in one of its two highest rating categories for
such securities, (4) securities issued by issuers (or, in certain cases
guaranteed by persons) with short-term debt having such ratings, and (5)
securities that are not rated and are issued by an issuer that does not have
comparable obligations rated by a Rating Organization ("Unrated Securities"),
provided that such securities are determined to be of comparable quality to
eligible rated securities. For a more complete description of eligible
securities, see "Investment Objectives and Policies" in the Statement of
Additional Information.
Illiquid Securities. The Portfolio will not invest more than
10% of its net assets in illiquid securities, including repurchase agreements
which have a maturity of longer than seven days, time deposits with maturities
in excess of seven days, variable rate demand notes with demand periods in
excess of seven days unless the Portfolio's investment adviser determines that
such notes are readily marketable and could be sold promptly at the prices at
which they are valued, GICs, and other securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period. Securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. The Portfolio's investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors. See "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
The Money Market Portfolio's investment objective and policies
described above may be changed by the Fund's Board of Directors without
shareholder approval. The Portfolio may not, however, change the following
investment limitations without such a vote of shareholders. (A more detailed
description of the following investment limitations, together with other
investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market
Instruments, some of which may be subject to repurchase agreements, but
the Portfolio may make interest-bearing savings deposits in amounts not
in excess of 5% of the value of the Portfolio's assets and may make
time deposits.
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2. Borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements, and then in amounts not in
excess of 10% of the value of the Portfolio's assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowing and in amounts not in excess of 10% of the
value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of
the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.)
3. Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the banking
industry, or in obligations, such as repurchase agreements, secured by
such obligations (unless the Portfolio is in a temporary defensive
position) or which would cause, at the time of purchase, more than 25%
of the value of its total assets to be invested in the obligations of
issuers in any other industry.
4. Purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
and instrumentalities, if immediately after and as a result of such
purchase more than 5% of the value of its total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's total
assets may be invested without regard to such 5% limitation.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Money Market Portfolio will meet the following limitations on its
investments in addition to the fundamental investment limitations described
above. These limitations may be changed without a vote of shareholders of the
Money Market Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days.
"First Tier Securities" include eligible securities that (i) if rated
by more than one Rating Organization, are rated (at the time of
purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization in its highest
rating category for such securities, (iii) have no short-term rating
and are comparable in priority and security to a class of short-term
obligations of the issuer of such securities that have been rated in
accordance with (i) or (ii) above, or (iv) are Unrated Securities that
are determined to be of comparable quality to such securities.
Purchases of First Tier Securities that come
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within categories (ii) and (iv) above will be approved or ratified by
the Board of Directors.
2. The Money Market Portfolio will limit its purchases of
Second Tier Securities, which are eligible securities other than First
Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of
Second Tier Securities of one issuer to the greater of 1% of its total
assets or $1 million.
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income exempt from federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Municipal Money Market Portfolio will be
achieved.
Municipal Obligations. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Fund's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Portfolio's investment adviser, suitable obligations bearing Tax-Exempt Interest
or AMT Interest are unavailable. There is no percentage limitation on the amount
of assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue
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<PAGE>
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Obligations may also include "moral obligation"
bonds, which are normally issued by special purpose public authorities. If the
issuer of moral obligation bonds is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
Although the Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations whose issuers are in the
same state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
Tax-Exempt Derivative Securities. The Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
When-Issued Securities. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio, as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-By Commitments."
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Eligible Securities. The Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines adopted
by the Board of Directors. For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio-Eligible Securities."
Illiquid Securities. The Portfolio will not invest more than
10% of its net assets in illiquid securities. For a more complete description of
illiquid securities, see "Investment Objectives and Policies -- Money Market
Portfolio --Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The Municipal Money Market Portfolio may not,
however, change the following investment limitations without such a vote of
shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The Municipal Money Market Portfolio may not:
1. Purchase the securities of any issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
and instrumentalities, if immediately after and as a result of such
purchase more than 5% of the value of the Portfolio's assets would be
invested in the securities of such issuer or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's total
assets may be invested without regard to this 5% limitation.
2. Borrow money, except from banks for temporary purposes and
then in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing, and only if after such borrowing
there is asset coverage of at least 300% for all borrowings of the
Portfolio; or mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowing and in amounts not in excess of
10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in
excess of 5% of the Portfolio's net assets. (This borrowing provision
is not for investment leverage, but solely to facilitate management of
the Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.)
3. Purchase any securities which would cause more than 25% of
the value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase of issuers in the same industry.
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In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal.
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Due to fluctuations in interest rates, the market value of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities may vary. Certain government securities held by the Portfolio
may have remaining maturities exceeding 397 days if such securities provide for
adjustments in their interest rates not less frequently than every 397 days and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values. There is no assurance that
the investment objective of the Government Obligations Money Market Portfolio
will be achieved.
Repurchase Agreements. The Portfolio may agree to purchase
government securities from financial institutions subject to the seller's
agreement to repurchase them at an agreed-upon time and price ("repurchase
agreements"). For a description of repurchase agreements, see "Investment
Objectives and Policies--Money Market Portfolio--Repurchase Agreements."
Reverse Repurchase Agreements. The Portfolio may borrow funds
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements."
Mortgage-Related Securities. Mortgage-related securities
consist of mortgage loans which are assembled into pools, the interests in which
are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself.
The Portfolio may also acquire asset-backed securities as
described under "Investment Objectives and Policies -- Money Market Portfolio --
Asset-Backed Securities."
Lending of Securities. The Portfolio may also lend its
portfolio securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than
10% of its net assets in illiquid securities. For a more complete description of
illiquid securities, see "Investment Objectives and Policies -- Money Market
Portfolio -- Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
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The Government Obligations Money Market Portfolio's investment
objective and policies described above may be changed by the Fund's Board of
Directors without shareholder approval. The following investment limitations may
not be changed, however, without such a vote of shareholders. (A more detailed
description of the following investment limitations, together with other
investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes
and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations.
2. Borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an amount not
exceeding 10% of the value of the Portfolio's total assets, and only if
after such borrowing there is asset coverage of at least 300% for all
borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts
not in excess of 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate
management of the Portfolio by enabling the Portfolio to meet
redemption requests where the liquidation of Portfolio securities is
deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations, may enter into repurchase agreements for securities,
and may lend portfolio securities against collateral, consisting of
cash or securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no investment restriction on the
amount of securities that may be loaned, except that payments received
on such loans, including amounts received during the loan on account of
interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under federal income tax provisions applicable to regulated investment
companies.
New York Municipal Money Market Portfolio
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested
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in Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 days or less ("short-term" obligations).
Dividends paid by the Portfolio which are derived from interest attributable to
tax-exempt obligations of the State of New York and its political subdivisions,
as well as of certain other governmental issuers such as Puerto Rico ("New York
Municipal Obligations"), will be excluded from gross income for federal income
tax purposes and exempt from New York State and New York City personal income
taxes, but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
Municipal Obligations. The Portfolio invests in short-term
Municipal Obligations. For a more complete discussion of Municipal Obligations,
see "Investment Objectives and Policies--Municipal Money Market Portfolio --
Municipal Obligations."
Up to 20% of the Portfolio's assets may be invested in
Alternative Minimum Tax Securities. Investors should be aware of the possibility
of federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may
invest more than 25% of its net assets in (i) Municipal Obligations the interest
on which is paid solely from revenues of similar projects, and (ii) private
activity bonds bearing Tax-Exempt Interest, it does not currently intend to do
so on a regular basis. To the extent the New York Municipal Money Market
Portfolio's assets are concentrated in Municipal Obligations that are payable
from the revenues of similar projects, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated. The Portfolio may invest a significant percentage of its assets
in a single issuer, and therefore investment in this Portfolio may be riskier
than an investment in other types of money market funds.
Tax-Exempt Derivative Securities. The New York Municipal Money
Market Portfolio may invest in tax-exempt derivative securities such as tender
option bonds, custodial receipts, participations, beneficial interests in trusts
and partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
When-Issued Securities. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
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Stand-By Commitments. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-By Commitments."
Taxable Investments. The Portfolio may for defensive or other
purposes invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio may
invest on a short-term basis are obligations of the U.S. Government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time deposits maturing in not more
than seven days; other debt securities rated within the two highest ratings
assigned by Moody's Investor's Service, Inc. ("Moody's") or S&P; commercial
paper rated in the highest grade by Moody's or S&P; and certificates of deposit
issued by United States branches of United States banks with assets of
$1 billion or more. At no time will more than 20% of the Portfolio's total
assets be invested in taxable short-term securities unless the Portfolio's
investment adviser has determined to temporarily adopt a defensive investment
policy in the face of an anticipated softening in the market for Municipal
Obligations in general.
Eligible Securities. The New York Municipal Money Market
Portfolio will only purchase "eligible securities." For a more complete
description of eligible securities, see "Investment Objectives and Policies --
Money Market Portfolio -- Eligible Securities" and "Investment Objectives and
Policies" in the Statement of Additional Information.
Special Considerations. As a non-diversified investment
company, the Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers relative to a diversified portfolio.
As a result, the value of a non-diversified investment portfolio will fluctuate
to a greater degree upon changes in the value of each underlying security than a
diversified portfolio. In the opinion of the Portfolio's investment adviser, any
risk to the Portfolio should be limited by its intention to continue to conduct
its operations so as to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code of 1986, as amended, and by its policies
restricting investments to obligations with short-term maturities and
obligations which qualify as eligible securities.
The Portfolio's ability to meet its investment objective is
dependent upon the ability of issuers of New York Municipal Obligations to meet
their continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic
problems that could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of
New York Municipal Obligations (including issuers whose obligations may be
acquired by the Portfolio) have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market prices
for their outstanding debt obligations. Although several different issues of
municipal securities of New York State and its agencies and instrumentalities
and of New York
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City have been downgraded by S&P and Moody's in recent years, the most recent
actions of S&P and Moody's have been to place the debt obligations of New York
State and New York City on CreditWatch with positive implications and to update
the debt obligations of New York City, respectively. Strong demand for New York
Municipal Obligations has also at times had the effect of permitting New York
Municipal Obligations to be issued with yields relatively lower, and after
issuance to trade in the market at prices relatively higher, than comparably
rated municipal obligations issued by other jurisdictions. A recurrence of the
financial difficulties previously experienced by such issuers could result in
defaults or declines in the market values of their existing obligations and,
possibly, in the obligations of other issuers of New York Municipal Obligations.
Although no issuers of New York Municipal Obligations were as of the date of
this Prospectus in default with respect to the payment of their debt
obligations, the occurrence of any such default could adversely affect the
market values and marketability of all New York Municipal Obligations and,
consequently, the net asset value of the Portfolio's shares. Some of the
significant financial considerations relating to the Fund's investments in New
York Municipal Obligations are summarized in the Statement of Additional
Information.
Illiquid Securities. The Portfolio will not invest more than
10% of its net assets in illiquid securities. For a more complete description of
illiquid securities, see "Investment Objectives and Policies -- Money Market
Portfolio -- Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment
objective and the policies described above may be changed by the Fund's Board of
Directors without shareholder approval. The New York Municipal Money Market
Portfolio may not, however, change the following investment limitations without
such a vote of shareholders. (A more detailed description of the following
investment limitations, together with other investment limitations that cannot
be changed without a vote of shareholders, is contained in the Statement of
Additional Information under "Investment Objectives and Policies.")
The New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements, and then in amounts not in
excess of 10% of the value of the Portfolio's assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowing and in amounts not in excess of 10% of the
value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of
the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.)
2. Purchase any securities which would cause 25% or more of
the value of the Portfolio's total assets at the time of purchase to be
invested in the securities
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of issuers conducting their principal business activities in the same
industry; provided that this limitation shall not apply to Municipal
Obligations or governmental guarantees of Municipal Obligations; and
provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above)
shall not be deemed to be Municipal Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from federal income tax (and, with respect
to New York Municipal Obligations, to the exemption of interest thereon from New
York State and New York City personal income tax) are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the Fund nor its
investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
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PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
General. Epsilon Shares are sold without a sales load on a
continuous basis by the Distributor. The Distributor is located at Four Falls
Corporate Center, Conshohocken, Pennsylvania 19428. Investors may purchase
Epsilon Shares through an account maintained by the investor with his brokerage
firm (the "Account") and may also purchase Shares directly by mail or wire. The
minimum initial investment is $1,000, and the minimum subsequent investment is
$100. The Fund in its sole discretion may accept or reject any order for
purchases of Epsilon Shares.
All payments for initial and subsequent investments should be
in U.S. dollars. Purchases will be effected at the net asset value next
determined after PFPC, the Fund's transfer agent, has received a purchase order
in good order and the Fund's custodian has Federal Funds immediately available
to it. In those cases where payment is made by check, Federal Funds will
generally become available two Business Days after the check is received. A
"Business Day" is any day that both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of Philadelphia (the "FRB") are open. On any Business
Day, orders which are accompanied by Federal Funds and received by PFPC by 12:00
noon Eastern Time, and orders as to which payment has been converted into
Federal Funds by 12:00 noon Eastern Time, will be executed as of 12:00 noon that
Business Day. Orders which are accompanied by Federal Funds and received by the
Fund after 12:00 noon Eastern Time but prior to the close of regular trading on
the NYSE (generally 4:00 p.m. Eastern Time), and orders as to which payment has
been converted into Federal Funds after 12:00 noon Eastern Time but prior to the
close of regular trading on the NYSE on any Business Day of the Fund, will be
executed as of the close of regular trading on the NYSE on that Business Day,
but will not be entitled to receive dividends declared on such Business Day.
Orders which are accompanied by Federal Funds and received by the Fund as of the
close of regular trading on the NYSE or later, and orders as to which payment
has been converted to Federal Funds as of the close of regular trading on the
NYSE or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day.
Purchases through an Account. Purchases of Shares may be
effected through an investor's Account with his broker through procedures
established in connection with the requirements of Accounts at such broker. In
such event, beneficial ownership of Epsilon Shares will be recorded by the
broker and will be reflected in the Account statements provided by the broker to
such investors. A broker may impose minimum investment Account requirements.
Even if a broker does not impose a sales charge for purchases of Epsilon Shares,
depending on the terms of an investor's Account with his broker, the broker may
charge an investor's Account fees for automatic investment and other services
provided to the Account. Information
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<PAGE>
concerning Account requirements, services and charges should be obtained from an
investor's broker, and this Prospectus should be read in conjunction with any
information received from a broker.
Shareholders whose shares are held in the street name account
of a broker and who desire to transfer such shares to the street name account of
another broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability
to purchase Epsilon Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Epsilon Class designated by the investor
as the "Primary Epsilon Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the broker. A participant in a Purchase
Program may change the designation of the Primary Epsilon Class at any time by
so instructing his broker.
If a broker makes special arrangements under which orders for
Epsilon Shares are received by PFPC prior to 12:00 noon Eastern Time, and the
broker guarantees that payment for such Shares will be made available in Federal
Funds to the Fund's custodian prior to the close of regular trading on the NYSE,
on the same day, such purchase orders will be effective and Shares will be
purchased at the offering price in effect as of 12:00 noon Eastern Time on the
date the purchase order is received by PFPC.
Direct Purchases. An investor may also make direct investments
at any time in any Epsilon Class he selects through any broker that has entered
into a dealer agreement with the Distributor (a "Dealer"). An investor may make
an initial investment in any of the Epsilon Classes by mail by fully completing
and signing an application obtained from a Dealer (the "Application"),
specifying the Portfolio in which he wishes to invest, and mailing it, together
with a check payable to "The Epsilon Family" to the Epsilon Family, c/o PFPC,
P.O. Box 8950, Wilmington, Delaware 19899. The check must specify the name of
the Portfolio for which shares are being purchased. An Application will be
returned to the investor unless it contains the name of the Dealer from whom it
was obtained. Subsequent purchases may be made through a Dealer or by forwarding
payment to the Fund's transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor
may also purchase Shares in any of the Epsilon Classes by having his bank or
Dealer wire Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank
or Dealer may impose a charge for this service. The Fund does not currently
charge for effecting wire transfers but reserves the right to do so in the
future. In order to ensure prompt receipt of an investor's Federal Funds wire,
for an initial investment, it is important that an investor follows these steps:
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<PAGE>
A. Telephone the Fund's transfer agent, PFPC, toll-free (800)
447-1139 (in Delaware call collect (302) 791-1149), and provide your
name, address, telephone number, Social Security or Tax Identification
Number, the Epsilon Class selected, the amount being wired, and by
which bank or Dealer. PFPC will then provide an investor with a Fund
account number. (Investors with existing accounts should also notify
PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount,
together with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the
address shown thereon. PFPC will not process initial purchases until it
receives a fully completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Retirement Plans. Epsilon Shares may be purchased in
conjunction with individual retirement accounts ("IRAs") and rollover IRAs where
PNC Bank acts as custodian. For further information as to applications and
annual fees, contact the Distributor or your broker. To determine whether the
benefits of an IRA are available and/or appropriate, a shareholder should
consult with a tax adviser.
Redemption Procedures
Redemption orders are effected at the net asset value per
share next determined after receipt of the order in proper form by the Fund's
transfer agent, PFPC. Investors may redeem all or some of their Shares in
accordance with one of the procedures described below.
Redemption of Shares in an Account. An investor who
beneficially owns Epsilon Shares in an Account may redeem Epsilon Shares in his
Account in accordance with instructions and limitations pertaining to his
Account by contacting his broker. If such notice is received by PFPC by 12:00
noon Eastern Time on any Business Day, the redemption will be effective as of
12:00 noon Eastern Time on that day. Payment of the redemption proceeds will be
made after 12:00 noon Eastern Time on the day the redemption is effected,
provided that the Fund's custodian is open for business. If the custodian is not
open, payment will be made on the next bank business day. If the redemption
request is received between 12:00 noon and the close of regular trading on the
NYSE on a Business Day, the redemption will be effective as of the
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<PAGE>
close of regular trading on the NYSE on such Business Day and payment will be
made on the next bank business day following receipt of the redemption request.
If all Shares are redeemed, all accrued but unpaid dividends on those Shares
will be paid with the redemption proceeds.
An investor's brokerage firm may also redeem each day a
sufficient number of Shares of the Primary Epsilon Class to cover debit balances
created by transactions in the Account or instructions for cash disbursements.
Shares will be redeemed on the same day that a transaction occurs that results
in such a debit balance or charge.
Each brokerage firm reserves the right to waive or modify
criteria for participation in an Account or to terminate participation in an
Account for any reason.
Redemption of Shares Owned Directly. A direct investor may
redeem any number of Shares by sending a written request, together with any
share certificates issued to the investor, to The Epsilon Family c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. Redemption requests must be signed by each
shareholder in the same manner as the Shares are registered. Redemption requests
for joint accounts require the signature of each joint owner. On redemption
requests of $5,000 or more, each signature must be guaranteed. A signature
guarantee may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone
if they have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone Authorization Form
must be filed with PFPC. This form is available from PFPC. Once this election
has been made, the shareholder may simply contact PFPC by telephone to request
the redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine. The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the Portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by a broker-dealer,
financial institutions, securities dealers, financial planners, trustee,
custodian other than the Distributor or other agent, additional documentation or
information regarding the scope of a
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<PAGE>
caller's authority is required. Finally, for telephone transactions in accounts
held jointly, additional information regarding other account holders is
required. Telephone transactions will not be permitted in connection with IRA or
other retirement plan accounts or by attorney-in-fact under power of attorney.
Proceeds of a telephone redemption request will be mailed by
check to an investor's registered address unless he has designated in his
Application or Telephone Authorization that such proceeds are to be sent by wire
transfer to a specified checking or savings account. If proceeds are to be sent
by wire transfer, a telephone redemption request received prior to the close of
regular trading on the NYSE will result in redemption proceeds being wired to
the investor's bank account on the next bank business day. The minimum
redemption for proceeds sent by wire transfer is $2,500. There is no maximum for
proceeds sent by wire transfer. The Fund may modify this redemption service at
any time or charge a service fee upon prior notice to shareholders, although no
fee is currently contemplated.
Redemption by Check. Upon request, the Fund will provide any
direct investor and any investor who does not have check writing privileges for
his Account with forms of drafts ("checks") payable through PNC Bank. These
checks may be made payable to the order of anyone. The minimum amount of a check
is $100; however, a broker may establish a higher minimum. An investor wishing
to use this check writing redemption procedure should complete specimen
signature cards (available from PFPC), and then forward such signature cards to
PFPC. PFPC will then arrange for the checks to be honored by PNC Bank. Investors
who own Shares through an Account should contact their brokers for signature
cards. Investors of joint accounts may elect to have checks honored with a
single signature. Check redemptions will be subject to PNC Bank's rules
governing checks. An investor will be able to stop payment on a check
redemption. The Fund or PNC Bank may terminate this redemption service at any
time, and neither shall incur any liability for honoring checks, for effecting
redemptions to pay checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank,
as the investor's agent, will cause the Fund to redeem a sufficient number of
full and fractional Shares owned by the investor to cover the amount of the
check. This procedure enables the investor to continue to receive dividends on
those Shares representing the amount being redeemed by check until such time as
the check is presented to PNC Bank. Pursuant to rules under the 1940 Act, checks
may not be presented for cash payment at the offices of PNC Bank. This
limitation does not affect checks used for the payment of bills or cash at other
banks.
Additional Redemption Information. The Fund ordinarily will
make payment for all Shares redeemed within seven days after receipt by PFPC of
a redemption request in proper form. Although the Fund will redeem Shares
purchased by check before the check clears, payment of the redemption proceeds
may be delayed for a period of up to fifteen days after their purchase, pending
a determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
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<PAGE>
The Fund imposes no charge when Shares are redeemed. The Fund
reserves the right to redeem any account in an Epsilon Class involuntarily, on
thirty days' notice, if such account falls below $500 and during such 30-day
notice period the amount invested in such account is not increased to at least
$500. Payment for Shares redeemed may be postponed or the right of redemption
suspended as provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
The net asset value per share of each class of the Portfolios
for the purpose of pricing purchase and redemption orders is determined twice
each day, once as of 12:00 noon Eastern Time and once as of the close of regular
trading on the NYSE on each weekday with the exception of those holidays on
which either the NYSE or the FRB is closed. Currently, the NYSE is closed on
weekends and the customary national business holidays of New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays on which the NYSE is closed as well as Veterans' Day and Columbus Day.
The net asset value per share of each class is calculated by adding the value of
the proportionate interest of each class in the securities, cash, and other
assets of the Portfolio, subtracting the accrued and actual liabilities of the
class and dividing the result by the number of its shares outstanding of the
class. The net asset value per share of each class is determined independently
of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net
asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may
use a pricing service, bank or broker-dealer experienced in such matters to
value the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional Information.
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 separate investment
portfolios. Each of the Epsilon Classes represents interests in one of the
following such investment portfolios: the Money Market
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Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio.
Investment Adviser
BIMC, an indirect majority-owned subsidiary of PNC Bank,
serves as the investment adviser for each of the Portfolios. BIMC has its
principal offices at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. PNC Bank and its subsidiaries currently manage over
$45.9 billion of assets, of which approximately $31.4 billion are mutual funds.
PNC Bank, a national bank whose principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103, is a wholly owned subsidiary of PNC
Bancorp, Inc. PNC Bancorp, Inc. is a bank holding company and a wholly owned
subsidiary of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such
Portfolios and is responsible for all purchases and sales of portfolio
securities. In entering into Portfolio transactions for a Portfolio with a
broker, BIMC may take into account the sale by such broker of shares of the
Fund, subject to the requirements of best execution. The agreements between BIMC
and RBB with respect to the Money Market and Government Obligations Money Market
Portfolios provide for BIMC to also assist generally in supervising the
operations of each such Portfolio, and to maintain the Portfolios' financial
accounts and records. These administrative responsibilities have been delegated
to PFPC, as described below.
For the services provided to and expenses assumed by it for
the benefit of each of the Money Market and Government Obligations Money Market
Portfolios, BIMC is entitled to receive the following fees, computed daily and
payable monthly based on a Portfolio's average daily net assets: .45% of the
first $250 million; .40% of the next $250 million; and .35% of net assets in
excess of $500 million.
For the services provided and expenses assumed by it with
respect to the Municipal Money Market and New York Municipal Money Market
Portfolios, BIMC is entitled to receive the following fees, computed daily and
payable monthly based on the Portfolio's average daily net assets: .35% of the
first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million.
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PNC Bank was formerly sub-adviser to the Money Market,
Municipal Money Market and Government Obligations Money Market Portfolios and
provided research, credit analysis and recommendations with respect to each such
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 each such 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 Portfolios 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."
BIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio.
Administrator
PFPC, an indirect wholly-owned subsidiary of PNC Bank Corp., serves as
the administrator for the Municipal Money Market and New York Municipal Money
Market Portfolios and generally assists those Portfolios in all aspects of their
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at .10% of the average daily net assets of
each of these Portfolios. Pursuant to its advisory agreements with the Fund with
respect to the Money Market and Government Obligations Money Market Portfolios,
BIMC provides administrative services to such Portfolios pursuant to the same
terms, but has delegated to PFPC all of its accounting and administrative
obligations under such advisory agreements. The Fund has agreed to pay directly
to PFPC the fees for accounting and administrative services to the Money Market
and Government Obligations Money Market Portfolios which PFPC would have
received directly from BIMC. Such arrangement has no effect on the total
advisory and administrative fees payable by such Portfolios to BIMC. PFPC's
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
Transfer Agent, Dividend Disbursing Agent, and Custodian
-28-
<PAGE>
PNC Bank serves as the Fund's custodian and PFPC also serves as the
Fund's transfer agent and dividend disbursing agent. PFPC may enter into
shareholder servicing agreements with registered broker/dealers who have entered
into dealer agreements with the Distributor for the provision of certain
shareholder support services to customers of such broker/dealers who are
shareholders of the Portfolios. The services provided and the fees payable by
the Fund for these services are described in the Statement of Additional
Information under "Investment Advisory, Distribution and Servicing
Arrangements."
Distributor
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as distributor of
the Shares of each of the Epsilon Classes of the Fund pursuant to a distribution
agreement dated May 29, 1998 (the "Distribution Agreement").
Expenses
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular investment portfolio
of the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. In addition,
distribution expenses, transfer agency expenses, expenses of preparing, printing
and distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser may assume expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolios for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
-29-
<PAGE>
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the
Distribution Agreement and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Epsilon Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the relevant Epsilon Class. The actual amount of such compensation is agreed
upon from time to time by the Fund's Board of Directors and the Distributor.
Under the Distribution Agreement the Distributor has agreed to accept
compensation for its services thereunder and under the Plans in the amount of
.60% of the average daily net assets of the relevant Class on an annualized
basis in any year. Pursuant to the conditions of an exemptive order granted by
the Securities and Exchange Commission, the Distributor has agreed to waive its
fee with respect to a Epsilon Class on any day to the extent necessary to assure
that the fee required to be accrued by such Class does not exceed the income of
such Class on that day. In addition, the Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including Dealers, based upon the aggregate investment
amounts maintained by and services provided to shareholders of any relevant
Class serviced by such financial institutions. The Distributor may also
reimburse Dealers for other expenses incurred in the promotion of the sale of
Fund shares. The Distributor and/or Dealers pay for the cost of printing
(excluding typesetting) and mailing to prospective investors prospectuses and
other materials relating to the Fund as well as for related direct mail,
advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is
in effect, to accrue and pay to the Distributor on behalf of each Epsilon Class
the fee agreed to under the relevant Distribution Agreement. Payments under the
Plans are not based on expenses actually incurred by the Distributor, and the
payments may exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net
investment income and net realized capital gains, if any, of each of the
Portfolios to each Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares of the relevant Epsilon Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term
capital gains) earned by each Portfolio will be declared as a dividend on a
daily basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value
-30-
<PAGE>
made as of the close of regular trading on the NYSE. Net short-term capital
gains, if any, will be distributed at least annually.
TAXES
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New
York Municipal Money Market Portfolio will generally constitute tax-exempt
income for shareholders for federal income tax purposes. It is possible,
depending upon the Portfolios' investments, that a portion of the Portfolios'
distributions could be taxable to shareholders as ordinary income or capital
gains, but it is not expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio and
the New York Municipal Money Market Portfolio
-31-
<PAGE>
are exempt for federal income tax purposes, they will generally constitute
taxable income for state and local income tax purposes except that, subject to
limitations that vary depending on the state, distributions from interest paid
by a state or municipal entity may be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal
-32-
<PAGE>
income tax purposes, in most cases does not result in an exemption under the tax
laws of any other state or local authority.
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 each of its
Money Market Portfolio, Municipal Money Market Portfolio, Government Obligations
Money Market Portfolio and New York Municipal Money Market Portfolio to expand
its marketing alternatives and to broaden its
-33-
<PAGE>
range of services to different investors. The expenses of the various classes
within these Portfolios vary based upon the services provided, which may affect
performance. Each class of Common Stock of the Fund has a separate Rule 12b-1
distribution plan. Under the Distribution Agreement and pursuant to each of the
distribution plans, the Distributor is entitled to receive from each class as
compensation for distribution services provided to that class a distribution fee
based on average daily net assets. A salesperson or any other person entitled to
receive compensation for servicing Fund shares may receive different
compensation with respect to different classes in a Portfolio of the Fund. An
investor may contact the Fund's Distributor by calling 1-800-888-9723 to request
more information concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE EPSILON CLASSES OF THE MONEY MARKET,
MUNICIPAL MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE EPSILON
CLASSES OF THESE PORTFOLIOS.
Each share that represents an interest in a Portfolio has an
equal proportionate interest in the assets belonging to such Portfolio with each
other share that represents an interest in such Portfolio, even where a share
has a different class designation than another share representing an interest in
that Portfolio. Shares of the Fund do not have preemptive or conversion rights.
When issued for payment as described in this Prospectus, Shares of the Fund will
be fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the
aggregate and not by class on all matters, except where otherwise required by
law. Further, shareholders of all investment portfolios of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
-34-
<PAGE>
As of November 16, 1998, to the Fund's knowledge, no person
held of record or beneficially 25% or more of the outstanding shares of all
classes of the Fund.
The Fund will issue share certificates for any of the Epsilon
Shares only upon the written request of a shareholder sent to PFPC.
OTHER INFORMATION
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent accountants. Shareholder inquiries should be addressed to
PFPC, the Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue
Parkway, Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call
collect (302) 791-1196).
-35-
<PAGE>
Prospectus
THE ZETA FAMILY
Money Market Portfolio
- ----------------------------
Municipal
Money Market Portfolio
- ----------------------------
Government Obligations
Money Market Portfolio
- ----------------------------
New York Municipal
Money Market Portfolio
December 29, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION.................................................................
FINANCIAL HIGHLIGHTS.........................................................
INVESTMENT OBJECTIVES AND POLICIES...........................................
YEAR 2000....................................................................
INVESTMENT LIMITATIONS.......................................................
PURCHASE AND REDEMPTION OF SHARES............................................
NET ASSET VALUE..............................................................
MANAGEMENT...................................................................
DISTRIBUTION OF SHARES.......................................................
DIVIDENDS AND DISTRIBUTIONS..................................................
TAXES........................................................................
DESCRIPTION OF SHARES........................................................
OTHER INFORMATION............................................................
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
THE ZETA FAMILY
of
The RBB Fund, Inc.
The Zeta Family consists of four classes of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company incorporated under
the laws of the State of Maryland on February 29, 1988. The Fund is currently
operating or proposing to operate seventeen separate investment portfolios. The
shares of the classes (collectively, the "Zeta Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (together, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
Money Market Portfolio--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
Municipal Money Market Portfolio--to provide as high a level of
current interest income exempt from federal income taxes as is consistent
with maintaining liquidity and stability of principal. It seeks to achieve
such objective by investing substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations. "Municipal
Obligations" are obligations issued by or on behalf of states, territories
and possessions of the United States, the District of Columbia and their
political subdivisions, agencies, instrumentalities and authorities. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which
is exempt from the regular federal income tax but which may constitute an
item of tax preference for purposes of the federal alternative minimum tax.
Government Obligations Money Market Portfolio--to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
New York Municipal Money Market Portfolio--to provide as high a level
of current income that is exempt from federal, New York State and New York
City personal income taxes as is consistent with preservation of capital
and liquidity. It seeks to achieve its objective by investing primarily in
Municipal Obligations, the interest on which is exempt from regular federal
income tax and is not an item of tax preference for purposes of the federal
alternative minimum tax ("Tax-Exempt Interest") and is exempt from New York
State and New York City personal income taxes.
<PAGE>
The New York Municipal Money Market Portfolio may invest a significant
percentage of its assets in a single issuer, and therefore investment in this
Portfolio may be riskier than an investment in other types of money market
funds.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. An investment in the
Portfolios is neither insured nor guaranteed by the U.S. Government or any
governmental agency. There can be no assurance that the Portfolios will be able
to maintain a stable net asset value of $1.00 per share.
An investor may purchase and redeem Shares of any of the Zeta classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
BlackRock Institutional Management Corporation ("BIMC") serves as
investment adviser for the Portfolios and PNC Bank, National Association ("PNC
Bank") serves as custodian for the Fund. PFPC Inc. ("PFPC") serves as the
administrator and transfer and dividend disbursing agent for the Fund. Provident
Distributors, Inc. (the "Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the
Internet Web Site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988 and is
currently operating or proposing to operate seventeen separate investment
portfolios. Each of the four classes of the Fund's shares (collectively, the
"Zeta Classes") offered by this Prospectus represents interests in one of the
following investment portfolios: the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio. The Money Market, Municipal Money Market
and Government Obligations Money Market Portfolios are diversified investment
portfolios; the New York Municipal Money Market Portfolio is a non-diversified
investment portfolio.
The Money Market Portfolio's investment objective is to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets.
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. To achieve
this objective, the Municipal Money Market Portfolio invests substantially all
of its assets in a diversified portfolio of short-term Municipal Obligations
which meet certain ratings criteria and present minimal credit risks. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which is
exempt from the regular federal income tax but which may constitute an item of
tax preference for purposes of the federal alternative minimum tax.
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. To achieve its objective, the
Portfolio invests exclusively in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current income that is exempt from federal, New York
State and New York City personal income taxes as is consistent with preservation
of capital and liquidity. It seeks to achieve its objective by investing
primarily in Municipal Obligations, the interest on which is Tax-Exempt Interest
and is exempt from New York State and New York City personal income taxes and
which meet certain ratings criteria and present minimal credit risks.
-2-
<PAGE>
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
The Portfolios' investment adviser is BlackRock Institutional Management
Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank") serves as
custodian to the Fund. PFPC Inc. ("PFPC") serves as the administrator and
transfer and dividend disbursing agent to the Fund. Provident Distributors, Inc.
(the "Distributor") acts as distributor of the Fund's Shares.
An investor may purchase and redeem Shares of any of the Zeta Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
An investment in any of the Zeta Classes is subject to certain risks, as
set forth in detail under "Investment Objectives and Policies." Any or all of
the Portfolios, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase of
mortgage-related securities, the purchase of securities on a "when-issued" or
"forward commitment" basis, the purchase of stand-by commitments and the lending
of securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
-3-
<PAGE>
FEE TABLE
Estimated Annual Fund Operating Expenses (Zeta Classes)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating expenses of
the Zeta Classes based on expenses expected to be incurred for the current
fiscal period, as a percentage of average daily net assets. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
Management Fees (after
<S> <C> <C> <C> <C>
waivers)(1)................................. .22% .08% .30% .02%
12b-1 Fees(1) .............................. .53% .58% .56% .52%
Other Expenses.............................. .22% .23% .12% .28%
---- ---- ---- ----
Total Fund Operating
Expenses (after waivers)(1)................. .97% .89% .98% .82%
==== ==== ==== ====
</TABLE>
(1) Management Fees and 12b-1 Fees are based on average daily net assets and
are calculated daily and paid monthly. Before waivers for the Money Market
Portfolio, Municipal Money Market Portfolio, Government Obligations Money
Market Portfolio and New York Municipal Money Market Portfolio, Management
Fees would be .37%, .33%, .41% and .35%, respectively, and Total Fund
Operating Expenses would be 1.12%, 1.14%, 1.09% and 1.13%, respectively.
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
-4-
<PAGE>
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market*........................................ $10 $31 $54 $119
Municipal Money
Market*............................................. $ 9 $28 $49 $110
Government Obligations
Money Market*....................................... $10 $31 $54 $120
New York Municipal
Money Market*....................................... $ 8 $26 $46 $101
</TABLE>
* Other classes of these Portfolios are sold with different fees and expenses.
-5-
<PAGE>
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating Expenses
(Zeta Classes)" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Zeta Classes of the Fund will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management--Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on estimated costs and estimated fees
expected to be charged to the Zeta Classes, taking into account anticipated fee
waivers and reimbursements. The Fee Table reflects a voluntary waiver of
Management Fees for each Portfolio. However, there can be no assurance that any
future waivers of Management Fees will not vary from the figures reflected in
the Fee Table. To the extent that any service providers assume additional
expenses of the Portfolios, such assumption will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of federal,
New York State and New York City personal income taxes at stated rates.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of any of the Zeta Classes will fluctuate and
is not necessarily representative of future results. Any fees charged by
broker/dealers directly to their customers in connection with investments in the
Zeta Classes are not reflected in the total return and yields of the Zeta
Shares, and such fees, if charged, will reduce the actual return received by
shareholders on their investments. The total return and yield on Shares of the
Zeta Classes may differ from the total return and yields on shares of other
classes of the Fund that also represent interests in the same
-6-
<PAGE>
Portfolio depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
No financial data is supplied for the Portfolios because, as of the date of
this Prospectus, the Portfolios had no performance history.
INVESTMENT OBJECTIVES AND POLICIES
Money Market Portfolio
The Money Market Portfolio's investment objective is to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. Portfolio obligations held by the Money Market Portfolio
have remaining maturities of 397 calendar days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." The following
descriptions illustrate the types of Money Market Instruments in which the Money
Market Portfolio invests. There is no assurance that the investment objective of
the Money Market Portfolio will be achieved.
Bank Obligations. The Portfolio may purchase obligations of issuers in the
banking industry such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less 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 (i) rated
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. 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
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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 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
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have a significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Guaranteed Investment Contracts. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
Municipal Obligations. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
When-Issued Securities. The Portfolio may purchase portfolio securities on
a "when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset at the time the commitment is entered into and are
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subject to changes in value prior to delivery based upon changes in the general
level of interest rates. The Portfolio expects that commitments to purchase
when-issued securities will not exceed 25% of the value of its total assets
absent unusual market conditions. The Portfolio does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objective.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two (2) highest rating categories
by at least two Rating Organizations (e.g., commercial paper rated "A-1" or
"A-2" by Standard & Poor's Rating Services ("S&P")), (3) securities that are
rated at the time of purchase by the only Rating Organization rating the
security in one of its two highest rating categories for such securities, (4)
securities issued by issuers (or, in certain cases guaranteed by persons) with
short-term debt having such ratings, and (5) securities that are not rated and
are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
The Money Market Portfolio's investment objective and policies described
above may be changed by the Fund's Board of Directors without shareholder
approval. The Portfolio may not, however, change the following investment
limitations without such a vote of shareholders. (A more detailed description of
the following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may
make
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interest-bearing savings deposits in amounts not in excess of 5% of the
value of the Portfolio's assets and may make time deposits.
2. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
3. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry.
4. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by the Portfolio, except that up to 25% of the value
of the Portfolio's total assets may be invested without regard to such 5%
limitation.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization in its highest rating category for such securities, (iii) have
no short-term rating and are comparable in priority and security to a class
of short-term obligations of the issuer of such securities that have been
rated in
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<PAGE>
accordance with (i) or (ii) above, or (iv) are Unrated Securities that are
determined to be of comparable quality to such securities. Purchases of
First Tier Securities that come within categories (ii) and (iv) above will
be approved or ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. The
Municipal Money Market Portfolio invests substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Municipal Money Market Portfolio will be
achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class
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<PAGE>
of facilities or, in some cases, from the proceeds of a special excise tax or
other specific excise tax or other specific revenue source such as the user of
the facility being financed. Revenue securities include private activity bonds
which are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
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<PAGE>
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio, as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
Eligible Securities. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio-Eligible
Securities."
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio
- --Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
shareholder approval. The Municipal Money Market Portfolio may not, however,
change the following investment limitations without such a vote of shareholders.
(A more detailed description of the following investment limitations, together
with other investment limitations that cannot be changed without a vote of
shareholders, is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Municipal Money Market Portfolio may not:
1. Purchase the securities of any issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of the Portfolio's assets would be invested in the securities of such
issuer or more than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to this 5%
limitation.
2. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the 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.)
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<PAGE>
3. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
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<PAGE>
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal.
Due to fluctuations in interest rates, the market value of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 days and the adjustments
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values. There is no assurance that the investment
objective of the Government Obligations Money Market Portfolio will be achieved.
Repurchase Agreements. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a description of repurchase agreements, see "Investment Objectives and
Policies--Money Market Portfolio--Repurchase Agreements."
Reverse Repurchase Agreements. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements."
Mortgage-Related Securities. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
The Portfolio may also acquire asset-backed securities as described under
"Investment Objectives and Policies -- Money Market Portfolio -Asset-Backed
Securities."
Lending of Securities. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment
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Objectives and Policies -- Money Market Portfolio -- Illiquid Securities" and
"Investment Objectives and Policies--Illiquid Securities" in the Statement of
Additional Information.
The Government Obligations Money Market Portfolio's investment objective
and policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The following investment limitations may not be
changed, however, without such a vote of shareholders. (A more detailed
description of the following investment limitations, together with other
investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowing and in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
Portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
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New York Municipal Money Market Portfolio
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income that is exempt from federal,
New York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria and present minimal credit risks to the Portfolio. Portfolio
obligations held by the New York Municipal Money Market Portfolio will have
remaining maturities of 397 days or less ("short-term" obligations). Dividends
paid by the Portfolio which are derived from interest attributable to tax-exempt
obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ("New York Municipal
Obligations"), will be excluded from gross income for federal income tax
purposes and exempt from New York State and New York City personal income taxes,
but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio --
Municipal Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative Minimum
Tax Securities. Investors should be aware of the possibility of federal, state
and local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may invest more than
25% of its net assets in (i) Municipal Obligations the interest on which is paid
solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
Tax-Exempt Derivative Securities. The New York Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
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When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
Taxable Investments. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's Investor's Service, Inc. ("Moody's") or S&P; commercial paper rated in
the highest grade by Moody's or S&P; and certificates of deposit issued by
United States branches of United States banks with assets of $1 billion or more.
At no time will more than 20% of the Portfolio's total assets be invested in
taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of an
anticipated softening in the market for Municipal Obligations in general.
Eligible Securities. The New York Municipal Money Market Portfolio will
only purchase "eligible securities." For a more complete description of eligible
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Eligible Securities" and "Investment Objectives and Policies" in the Statement
of Additional Information.
Special Considerations. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio should be limited by its intention to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended, and by its policies restricting
investments to obligations with short-term maturities and obligations which
qualify as eligible securities.
The Portfolio's ability to meet its investment objective is dependent upon
the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic
problems that could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and lower market prices for their
outstanding debt obligations. Although several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's in recent years, the most
recent actions of S&P and Moody's have been to place the debt obligations of
New York State and New York City on CreditWatch with positive implications and
to update the debt obligations of New York City, respectively. Strong demand
for New York Municipal Obligations has also at times had the effect of
permitting New York Municipal Obligations to be issued with yields relatively
lower, and after issuance to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of their existing
obligations and, possibly, in the obligations of other issuers of New York
Municipal Obligations. Although no issuers of New York Municipal Obligations
were as of the date of this Prospectus in default with respect to the payment of
their debt obligations, the occurrence of any such default could adversely
affect the market values and marketability of all New York Municipal Obligations
and, consequently, the net asset value of the Portfolio's shares. Some of the
significant financial considerations relating to the Fund's investments in New
York Municipal Obligations are summarized in the Statement of Additional
Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment objective and
the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The New York Municipal Money Market Portfolio may
not, however, change the following investment limitations without such a vote of
shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the 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
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Portfolio to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.)
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by non-governmental
users (see the second investment limitation above) shall not be deemed to
be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
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PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
General. Zeta Shares are sold without a sales load on a continuous basis by
the Distributor. The Distributor is located at Four Falls Corporate Center,
Conshohocken, Pennsylvania 19428. Investors may purchase Zeta Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Zeta Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which payment has been converted into Federal Funds by 12:00
noon Eastern Time, will be executed as of 12:00 noon that Business Day. Orders
which are accompanied by Federal Funds and received by the Fund after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day, but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
Purchases through an Account. Purchases of Shares may be effected through
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Zeta Shares
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will be recorded by the broker and will be reflected in the Account statements
provided by the broker to such investors. A broker may impose minimum investment
Account requirements. Even if a broker does not impose a sales charge for
purchases of Zeta Shares, depending on the terms of an investor's Account with
his broker, the broker may charge an investor's Account fees for automatic
investment and other services provided to the Account. Information concerning
Account requirements, services and charges should be obtained from an investor's
broker, and this Prospectus should be read in conjunction with any information
received from a broker.
Shareholders whose shares are held in the street name account of a broker
and who desire to transfer such shares to the street name account of another
broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability to purchase
Zeta Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Zeta Class designated by the investor as
the "Primary Zeta Class" for his Purchase Program. The frequency of investments
and the minimum investment requirement will be established by the broker and the
Fund. In addition, the broker may require a minimum amount of cash and/or
securities to be deposited in an Account for participants in its Purchase
Program. The description of the particular broker's Purchase Program should be
read for details, and any inquiries concerning an Account under a Purchase
Program should be directed to the broker. A participant in a Purchase Program
may change the designation of the Primary Zeta Class at any time by so
instructing his broker.
If a broker makes special arrangements under which orders for Zeta Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the broker guarantees
that payment for such Shares will be made available in Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, on the same
day, such purchase orders will be effective and Shares will be purchased at the
offering price in effect as of 12:00 noon Eastern Time on the date the purchase
order is received by PFPC.
Direct Purchases. An investor may also make direct investments at any time
in any Zeta Class he selects through any broker that has entered into a dealer
agreement with the Distributor (a "Dealer"). An investor may make an initial
investment in any of the Zeta Classes by mail by fully completing and signing an
application obtained from a Dealer (the "Application"), specifying the Portfolio
in which he wishes to invest, and mailing it, together with a check payable to
"The Zeta Family" to the Zeta Family, c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. The check must specify the name of the Portfolio for which
shares are being purchased. An Application will be returned to the investor
unless it contains the name of the Dealer from whom it was obtained. Subsequent
purchases may be made through a Dealer or by forwarding payment to the Fund's
transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Zeta Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
may impose a charge for this service. The
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Fund does not currently charge for effecting wire transfers but reserves the
right to do so in the future. In order to ensure prompt receipt of an investor's
Federal Funds wire, for an initial investment, it is important that an investor
follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 447-1139
(in Delaware call collect (302) 791-1149), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the Zeta
Class selected, the amount being wired, and by which bank or Dealer. PFPC
will then provide an investor with a Fund account number. (Investors with
existing accounts should also notify PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a
fully completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Retirement Plans. Zeta Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
Redemption Procedures
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
Redemption of Shares in an Account. An investor who beneficially owns Zeta
Shares in an Account may redeem Zeta Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting his broker.
If such notice is received by PFPC by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds will be made after
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12:00 noon Eastern Time on the day the redemption is effected, provided that the
Fund's custodian is open for business. If the custodian is not open, payment
will be made on the next bank business day. If the redemption request is
received between 12:00 noon and the close of regular trading on the NYSE on a
Business Day, the redemption will be effective as of the close of regular
trading on the NYSE on such Business Day and payment will be made on the next
bank business day following receipt of the redemption request. If all Shares are
redeemed, all accrued but unpaid dividends on those Shares will be paid with the
redemption proceeds.
An investor's brokerage firm may also redeem each day a sufficient number
of Shares of the Primary Zeta Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written request, together with any share
certificates issued to the investor, to The Zeta Family c/o PFPC, P.O. Box 8950,
Wilmington, Delaware 19899. Redemption requests must be signed by each
shareholder in the same manner as the Shares are registered. Redemption requests
for joint accounts require the signature of each joint owner. On redemption
requests of $5,000 or more, each signature must be guaranteed. A signature
guarantee may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine. The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the Portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
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telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by a broker-dealer,
financial institutions, securities dealers, financial planners, trustee,
custodian other than the Distributor or other agent, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
Proceeds of a telephone redemption request will be mailed by check to an
investor's registered address unless he has designated in his Application or
Telephone Authorization that such proceeds are to be sent by wire transfer to a
specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. The minimum redemption
for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Fund may modify this redemption service at any time
or charge a service fee upon prior notice to shareholders, although no fee is
currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
Additional Redemption Information. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. Although the Fund will redeem Shares purchased by check
before the check clears, payment of the redemption proceeds may be delayed for a
period of up to fifteen days after their purchase, pending a determination that
the check has cleared. This procedure does not apply to
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Shares purchased by wire payment. Investors should consider purchasing Shares
using a certified or bank check or money order if they anticipate an immediate
need for redemption proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in an Zeta Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such 30-day notice period
the amount invested in such account is not increased to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the value of the proportionate interest of each
class in the securities, cash, and other assets of the Portfolio, subtracting
the accrued and actual liabilities of the class and dividing the result by the
number of its shares outstanding of the class. The net asset value per share of
each class is determined independently of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
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
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operate seventeen separate investment portfolios. Each of the Zeta Classes
represents interests in one of the following such investment portfolios: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio.
Investment Adviser
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. In entering
into Portfolio transactions for a Portfolio with a broker, BIMC may take into
account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreements between BIMC and RBB with respect
to the Money Market and Government Obligations Money Market Portfolios provide
for BIMC to also assist generally in supervising the operations of each such
Portfolio, and to maintain the Portfolios' financial accounts and records. These
administrative responsibilities have been delegated to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit of
each of the Money Market and Government Obligations Money Market Portfolios,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of net assets in excess of $500
million.
For the services provided and expenses assumed by it with respect to the
Municipal Money Market and New York Municipal Money Market Portfolios, BIMC is
entitled to receive the following fees, computed daily and payable monthly based
on the
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Portfolio's average daily net assets: .35% of the first $250 million; .30% of
the next $250 million; and .25% of net assets in excess of $500 million.
PNC Bank was formerly sub-adviser to the Money Market, Municipal Money
Market and Government Obligations Money Market Portfolios and provided research,
credit analysis and recommendations with respect to each such 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 each such 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 Portfolios 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."
BIMC may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio.
Administrator
PFPC, an indirect wholly-owned subsidiary of PNC Bank Corp., serves as the
administrator for the Municipal Money Market and New York Municipal Money Market
Portfolios and generally assists those Portfolios in all aspects of their
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at .10% of the average daily net assets of
each of these Portfolios. Pursuant to its advisory agreements with the Fund with
respect to the Money Market and Government Obligations Money Market Portfolios,
BIMC provides administrative services to such Portfolios pursuant to the same
terms, but has delegated to PFPC all of its accounting and administrative
obligations under such advisory agreements. The Fund has agreed to pay directly
to PFPC the fees for accounting and administrative services to the Money Market
and Government Obligations Money Market Portfolios which PFPC would have
received directly from BIMC. Such arrangement has no effect on the total
advisory and administrative fees payable by such Portfolios to BIMC. PFPC's
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
-29-
<PAGE>
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank serves as the Fund's custodian and PFPC also serves as the Fund's
transfer agent and dividend disbursing agent. PFPC may enter into shareholder
servicing agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
Distributor
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as distributor of
the Shares of each of the Zeta Classes of the Fund pursuant to a distribution
agreement dated May 29, 1998 (the "Distribution Agreement").
Expenses
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio of
the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. In addition,
distribution expenses, transfer agency expenses, expenses of preparing, printing
and distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser may assume expenses of the Portfolios from time to
time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the
-30-
<PAGE>
reimbursement of such amounts will have the effect of increasing a Portfolio's
expense ratio and of decreasing yield to investors.
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant Zeta
Class a distribution fee, which is accrued daily and paid monthly, of up to .65%
on an annualized basis of the average daily net assets of the relevant Zeta
Class. The actual amount of such compensation is agreed upon from time to time
by the Fund's Board of Directors and the Distributor. Under the Distribution
Agreement the Distributor has agreed to accept compensation for its services
thereunder and under the Plans in the amount of .60% of the average daily net
assets of the relevant Class on an annualized basis in any year. Pursuant to the
conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to a Zeta
Class on any day to the extent necessary to assure that the fee required to be
accrued by such Class does not exceed the income of such Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor may
reallocate an amount up to the full fee that it receives to financial
institutions, including Dealers, based upon the aggregate investment amounts
maintained by and services provided to shareholders of any relevant Class
serviced by such financial institutions. The Distributor may also reimburse
Dealers for other expenses incurred in the promotion of the sale of Fund shares.
The Distributor and/or Dealers pay for the cost of printing (excluding
typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Fund as well as for related direct mail, advertising
and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Zeta Class the fee agreed to
under the relevant Distribution Agreement. Payments under the Plans are not
based on expenses actually incurred by the Distributor, and the payments may
exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Zeta Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends
-31-
<PAGE>
are payable to shareholders of record immediately prior to the determination of
net asset value made as of the close of regular trading on the NYSE. Net
short-term capital gains, if any, will be distributed at least annually.
TAXES
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will generally constitute tax-exempt income for
shareholders for federal income tax purposes. It is possible, depending upon the
Portfolios' investments, that a portion of the Portfolios' distributions could
be taxable to shareholders as ordinary income or capital gains, but it is not
expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio and the
New York Municipal Money Market Portfolio are exempt for federal income tax
purposes, they will generally constitute taxable income for state and local
income tax purposes except that, subject to limitations that vary depending on
the state, distributions from interest paid by a state or municipal entity may
be exempt from tax in that state.
-32-
<PAGE>
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by the
Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal income tax purposes,
in most cases does not result in an exemption under the tax laws of any other
state or local authority.
-33-
<PAGE>
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 each of its Money Market
Portfolio, Municipal Money Market Portfolio, Government Obligations Money Market
Portfolio and New York Municipal Money Market Portfolio to expand its marketing
alternatives and to broaden its
-34-
<PAGE>
range of services to different investors. The expenses of the various classes
within these Portfolios vary based upon the services provided, which may affect
performance. Each class of Common Stock of the Fund has a separate Rule 12b-1
distribution plan. Under the Distribution Agreement and pursuant to each of the
distribution plans, the Distributor is entitled to receive from each class as
compensation for distribution services provided to that class a distribution fee
based on average daily net assets. A salesperson or any other person entitled to
receive compensation for servicing Fund shares may receive different
compensation with respect to different classes in a Portfolio of the Fund. An
investor may contact the Fund's Distributor by calling 1-800-888-9723 to request
more information concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE ZETA CLASSES OF THE MONEY MARKET, MUNICIPAL MONEY
MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET
PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO THE ZETA CLASSES OF THESE PORTFOLIOS.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
-35-
<PAGE>
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of the
Fund.
The Fund will issue share certificates for any of the Zeta Shares only upon
the written request of a shareholder sent to PFPC.
OTHER INFORMATION
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call collect
(302) 791-1196).
-36-
<PAGE>
Prospectus
THE ETA FAMILY
Money Market Portfolio
- ----------------------
Municipal
Money Market Portfolio
- ----------------------
Government Obligations
Money Market Portfolio
- ----------------------
New York Municipal
Money Market Portfolio
December 29, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
INTRODUCTION...............................................................
FINANCIAL HIGHLIGHTS.......................................................
INVESTMENT OBJECTIVES AND POLICIES.........................................
YEAR 2000..................................................................
INVESTMENT LIMITATIONS.....................................................
PURCHASE AND REDEMPTION OF SHARES..........................................
NET ASSET VALUE............................................................
MANAGEMENT.................................................................
DISTRIBUTION OF SHARES.....................................................
DIVIDENDS AND DISTRIBUTIONS................................................
TAXES......................................................................
DESCRIPTION OF SHARES......................................................
OTHER INFORMATION..........................................................
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
THE ETA FAMILY
of
The RBB Fund, Inc.
The Eta Family consists of four classes of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company incorporated under
the laws of the State of Maryland on February 29, 1988. The Fund is currently
operating or proposing to operate seventeen separate investment portfolios. The
shares of the classes (collectively, the "Eta Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (together, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
Money Market Portfolio--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
Municipal Money Market Portfolio--to provide as high a level of
current interest income exempt from federal income taxes as is consistent
with maintaining liquidity and stability of principal. It seeks to achieve
such objective by investing substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations. "Municipal
Obligations" are obligations issued by or on behalf of states, territories
and possessions of the United States, the District of Columbia and their
political subdivisions, agencies, instrumentalities and authorities. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which
is exempt from the regular federal income tax but which may constitute an
item of tax preference for purposes of the federal alternative minimum tax.
Government Obligations Money Market Portfolio--to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
New York Municipal Money Market Portfolio--to provide as high a level
of current income that is exempt from federal, New York State and New York
City personal income taxes as is consistent with preservation of capital
and liquidity. It seeks to achieve its objective by investing primarily in
Municipal Obligations, the interest on which is exempt from regular federal
income tax and is not an item of tax preference for purposes of the federal
alternative minimum tax ("Tax-Exempt Interest") and is exempt from New York
State and New York City personal income taxes.
<PAGE>
The New York Municipal Money Market Portfolio may invest a significant
percentage of its assets in a single issuer, and therefore investment in this
Portfolio may be riskier than an investment in other types of money market
funds.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. An investment in the
Portfolios is neither insured nor guaranteed by the U.S. Government or any
governmental agency. There can be no assurance that the Portfolios will be able
to maintain a stable net asset value of $1.00 per share.
An investor may purchase and redeem Shares of any of the Eta classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
BlackRock Institutional Management Corporation ("BIMC") serves as
investment adviser for the Portfolios and PNC Bank, National Association ("PNC
Bank") serves as custodian for the Fund. PFPC Inc. ("PFPC") serves as the
administrator and transfer and dividend disbursing agent for the Fund. Provident
Distributors, Inc. (the "Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the
Internet Web Site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988 and is
currently operating or proposing to operate seventeen separate investment
portfolios. Each of the four classes of the Fund's shares (collectively, the
"Eta Classes") offered by this Prospectus represents interests in one of the
following investment portfolios: the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio. The Money Market, Municipal Money Market
and Government Obligations Money Market Portfolios are diversified investment
portfolios; the New York Municipal Money Market Portfolio is a non-diversified
investment portfolio.
The Money Market Portfolio's investment objective is to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets.
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. To achieve
this objective, the Municipal Money Market Portfolio invests substantially all
of its assets in a diversified portfolio of short-term Municipal Obligations
which meet certain ratings criteria and present minimal credit risks. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which is
exempt from the regular federal income tax but which may constitute an item of
tax preference for purposes of the federal alternative minimum tax.
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. To achieve its objective, the
Portfolio invests exclusively in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current income that is exempt from federal, New York
State and New York City personal income taxes as is consistent with preservation
of capital and liquidity. It seeks to achieve its objective by investing
primarily in Municipal Obligations, the interest on which is Tax-Exempt Interest
and is exempt from New York State and New York City personal income taxes and
which meet certain ratings criteria and present minimal credit risks.
-2-
<PAGE>
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
The Portfolios' investment adviser is BlackRock Institutional Management
Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank") serves as
custodian to the Fund. PFPC Inc. ("PFPC") serves as the administrator and
transfer and dividend disbursing agent to the Fund. Provident Distributors, Inc.
(the "Distributor") acts as distributor of the Fund's Shares.
An investor may purchase and redeem Shares of any of the Eta Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
An investment in any of the Eta Classes is subject to certain risks, as set
forth in detail under "Investment Objectives and Policies." Any or all of the
Portfolios, to the extent set forth under "Investment Objectives and Policies,"
may engage in the following investment practices: the use of repurchase
agreements and reverse repurchase agreements, the purchase of mortgage-related
securities, the purchase of securities on a "when-issued" or "forward
commitment" basis, the purchase of stand-by commitments and the lending of
securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
-3-
<PAGE>
FEE TABLE
Estimated Annual Fund Operating Expenses (Eta Classes)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating expenses of
the Eta Classes based on expenses expected to be incurred for the current fiscal
period, as a percentage of average daily net assets. An example based on the
summary is also shown.
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Management Fees (after
waivers)(1)................................. .22% .08% .30% .02%
12b-1 Fees(1) .............................. .53% .58% .56% .52%
Other Expenses.............................. .22% .23% .12% .28%
---- ---- ---- ----
Total Fund Operating
Expenses (after waivers)(1)................. .97% .89% .98% .82%
==== ==== ==== ====
</TABLE>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio and New York Municipal Money Market
Portfolio, Management Fees would be .37%, .33%, .41% and .35%,
respectively, and Total Fund Operating Expenses would be 1.12%, 1.14%,
1.09% and 1.13%, respectively.
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market*........................................ $10 $31 $54 $119
Municipal Money
Market*............................................. $ 9 $28 $49 $110
Government Obligations
Money Market*....................................... $10 $31 $54 $120
New York Municipal
Money Market*....................................... $ 8 $26 $46 $101
</TABLE>
* Other classes of these Portfolios are sold with different fees and expenses.
-4-
<PAGE>
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating Expenses
(Eta Classes)" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Eta Classes of the Fund will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management--Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on estimated costs and estimated fees
expected to be charged to the Eta Classes, taking into account anticipated fee
waivers and reimbursements. The Fee Table reflects a voluntary waiver of
Management Fees for each Portfolio. However, there can be no assurance that any
future waivers of Management Fees will not vary from the figures reflected in
the Fee Table. To the extent that any service providers assume additional
expenses of the Portfolios, such assumption will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of federal,
New York State and New York City personal income taxes at stated rates.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of any of the Eta Classes will fluctuate and is
not necessarily representative of future results. Any fees charged by
broker/dealers directly to their customers in connection with investments in the
Eta Classes are not reflected in the total return and yields of the Eta Shares,
and such fees, if charged, will reduce the actual return received by
shareholders on their investments. The total return and yield on Shares of the
Eta Classes may differ from the total return and yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
-5-
<PAGE>
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
No financial data is supplied for the Portfolios because, as of the date of
this Prospectus, the Portfolios had no performance history.
INVESTMENT OBJECTIVES AND POLICIES
Money Market Portfolio
The Money Market Portfolio's investment objective is to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. Portfolio obligations held by the Money Market Portfolio
have remaining maturities of 397 calendar days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." The following
descriptions illustrate the types of Money Market Instruments in which the Money
Market Portfolio invests. There is no assurance that the investment objective of
the Money Market Portfolio will be achieved.
Bank Obligations. The Portfolio may purchase obligations of issuers in the
banking industry such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less 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 (i) rated
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. These rating categories are described in the Appendix to the
Statement of Additional Information. The Portfolio may also purchase unrated
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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 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
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Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Guaranteed Investment Contracts. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
Municipal Obligations. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
When-Issued Securities. The Portfolio may purchase portfolio securities on
a "when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
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recorded as an asset at the time the commitment is entered into and are subject
to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two (2) highest rating categories
by at least two Rating Organizations (e.g., commercial paper rated "A-1" or
"A-2" by Standard & Poor's Rating Services ("S&P")), (3) securities that are
rated at the time of purchase by the only Rating Organization rating the
security in one of its two highest rating categories for such securities, (4)
securities issued by issuers (or, in certain cases guaranteed by persons) with
short-term debt having such ratings, and (5) securities that are not rated and
are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
The Money Market Portfolio's investment objective and policies described
above may be changed by the Fund's Board of Directors without shareholder
approval. The Portfolio may not, however, change the following investment
limitations without such a vote of shareholders. (A more detailed description of
the following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5% of
the value of the Portfolio's assets and may make time deposits.
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2. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
3. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry.
4. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by the Portfolio, except that up to 25% of the value
of the Portfolio's total assets may be invested without regard to such 5%
limitation.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization in its highest rating category for such securities, (iii) have
no short-term rating and are comparable in priority and security to a class
of short-term obligations of the issuer of such securities that have been
rated in accordance with (i) or (ii) above, or (iv) are Unrated Securities
that are determined to be of comparable quality to such securities.
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Purchases of First Tier Securities that come within categories (ii) and
(iv) above will be approved or ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. The
Municipal Money Market Portfolio invests substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Municipal Money Market Portfolio will be
achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
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being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio, as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
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Eligible Securities. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio-Eligible
Securities."
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio
- --Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
shareholder approval. The Municipal Money Market Portfolio may not, however,
change the following investment limitations without such a vote of shareholders.
(A more detailed description of the following investment limitations, together
with other investment limitations that cannot be changed without a vote of
shareholders, is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Municipal Money Market Portfolio may not:
1. Purchase the securities of any issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of the Portfolio's assets would be invested in the securities of such
issuer or more than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to this 5%
limitation.
2. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's assets at the
time of such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or mortgage,
pledge or hypothecate any of its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the
Portfolio's assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.)
3. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
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investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal.
Due to fluctuations in interest rates, the market value of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
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maturities exceeding 397 days if such securities provide for adjustments in
their interest rates not less frequently than every 397 days and the adjustments
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values. There is no assurance that the investment
objective of the Government Obligations Money Market Portfolio will be achieved.
Repurchase Agreements. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a description of repurchase agreements, see "Investment Objectives and
Policies--Money Market Portfolio--Repurchase Agreements."
Reverse Repurchase Agreements. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements."
Mortgage-Related Securities. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
The Portfolio may also acquire asset-backed securities as described under
"Investment Objectives and Policies -- Money Market Portfolio -- Asset-Backed
Securities."
Lending of Securities. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Government Obligations Money Market Portfolio's investment objective
and policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The following investment limitations may not be
changed, however, without such a vote of shareholders. (A more detailed
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description of the following investment limitations, together with other
investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowing and in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
Portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
New York Municipal Money Market Portfolio
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income that is exempt from federal,
New York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria and present minimal credit risks to the Portfolio. Portfolio
obligations held by the New York Municipal Money Market Portfolio will have
remaining maturities of 397 days or less ("short-term" obligations). Dividends
paid by the Portfolio which are derived from interest attributable to tax-exempt
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obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ("New York Municipal
Obligations"), will be excluded from gross income for federal income tax
purposes and exempt from New York State and New York City personal income taxes,
but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio --
Municipal Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative Minimum
Tax Securities. Investors should be aware of the possibility of federal, state
and local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may invest more than
25% of its net assets in (i) Municipal Obligations the interest on which is paid
solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
Tax-Exempt Derivative Securities. The New York Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
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Taxable Investments. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's Investor's Service, Inc. ("Moody's") or S&P; commercial paper rated in
the highest grade by Moody's or S&P; and certificates of deposit issued by
United States branches of United States banks with assets of $1 billion or more.
At no time will more than 20% of the Portfolio's total assets be invested in
taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of
an anticipated softening in the market for Municipal Obligations in general.
Eligible Securities. The New York Municipal Money Market Portfolio will
only purchase "eligible securities." For a more complete description of eligible
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Eligible Securities" and "Investment Objectives and Policies" in the Statement
of Additional Information.
Special Considerations. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio should be limited by its intention to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended, and by its policies restricting
investments to obligations with short-term maturities and obligations which
qualify as eligible securities.
The Portfolio's ability to meet its investment objective is dependent upon
the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic
problems that could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and lower market prices for their
outstanding debt obligations. Although several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's in recent years, the most
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recent actions of S&P and Moody's have been to place the debt obligations of
New York State and New York City on CreditWatch with positive implications and
to update the debt obligations of New York City, respectively. Strong demand
for New York Municipal Obligations has also at times had the effect of
permitting New York Municipal Obligations to be issued with yields relatively
lower, and after issuance to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of their existing
obligations and, possibly, in the obligations of other issuers of New York
Municipal Obligations. Although no issuers of New York Municipal Obligations
were as of the date of this Prospectus in default with respect to the payment of
their debt obligations, the occurrence of any such default could adversely
affect the market values and marketability of all New York Municipal Obligations
and, consequently, the net asset value of the Portfolio's shares. Some of the
significant financial considerations relating to the Fund's investments in New
York Municipal Obligations are summarized in the Statement of Additional
Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment objective and
the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The New York Municipal Money Market Portfolio may
not, however, change the following investment limitations without such a vote of
shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by non-governmental
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users (see the second investment limitation above) shall not be deemed to
be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
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PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
General. Eta Shares are sold without a sales load on a continuous basis by
the Distributor. The Distributor is located at Four Falls Corporate Center,
Conshohocken, Pennsylvania 19428. Investors may purchase Eta Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Eta Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which payment has been converted into Federal Funds by 12:00
noon Eastern Time, will be executed as of 12:00 noon that Business Day. Orders
which are accompanied by Federal Funds and received by the Fund after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day, but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
Purchases through an Account. Purchases of Shares may be effected through
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Eta Shares will be recorded by the broker and will be
reflected in the Account statements provided by the broker to such investors. A
broker may impose minimum investment Account requirements. Even if a broker does
not impose a sales charge for purchases of Eta Shares, depending on the terms of
an investor's Account with his broker, the broker may charge an investor's
Account fees for automatic investment and other services provided to the
Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker, and this Prospectus should be read
in conjunction with any information received from a broker.
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<PAGE>
Shareholders whose shares are held in the street name account of a broker
and who desire to transfer such shares to the street name account of another
broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability to purchase
Eta Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Eta Class designated by the investor as
the "Primary Eta Class" for his Purchase Program. The frequency of investments
and the minimum investment requirement will be established by the broker and the
Fund. In addition, the broker may require a minimum amount of cash and/or
securities to be deposited in an Account for participants in its Purchase
Program. The description of the particular broker's Purchase Program should be
read for details, and any inquiries concerning an Account under a Purchase
Program should be directed to the broker. A participant in a Purchase Program
may change the designation of the Primary Eta Class at any time by so
instructing his broker.
If a broker makes special arrangements under which orders for Eta Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the broker guarantees
that payment for such Shares will be made available in Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, on the same
day, such purchase orders will be effective and Shares will be purchased at the
offering price in effect as of 12:00 noon Eastern Time on the date the purchase
order is received by PFPC.
Direct Purchases. An investor may also make direct investments at any time
in any Eta Class he selects through any broker that has entered into a dealer
agreement with the Distributor (a "Dealer"). An investor may make an initial
investment in any of the Eta Classes by mail by fully completing and signing an
application obtained from a Dealer (the "Application"), specifying the Portfolio
in which he wishes to invest, and mailing it, together with a check payable to
"The Eta Family" to the Eta Family, c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. The check must specify the name of the Portfolio for which
shares are being purchased. An Application will be returned to the investor
unless it contains the name of the Dealer from whom it was obtained. Subsequent
purchases may be made through a Dealer or by forwarding payment to the Fund's
transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Eta Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
may impose a charge for this service. The Fund does not currently charge for
effecting wire transfers but reserves the right to do so in the future. In order
to ensure prompt receipt of an investor's Federal Funds wire, for an initial
investment, it is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 447-1139
(in Delaware call collect (302) 791-1149), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the Eta
Class selected, the amount being wired, and by which bank or Dealer. PFPC
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will then provide an investor with a Fund account number. (Investors with
existing accounts should also notify PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a
fully completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Retirement Plans. Eta Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
Redemption Procedures
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
Redemption of Shares in an Account. An investor who beneficially owns Eta
Shares in an Account may redeem Eta Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting his broker.
If such notice is received by PFPC by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds 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.
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<PAGE>
An investor's brokerage firm may also redeem each day a sufficient number
of Shares of the Primary Eta Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written request, together with any share
certificates issued to the investor, to The Eta Family c/o PFPC, P.O. Box 8950,
Wilmington, Delaware 19899. Redemption requests must be signed by each
shareholder in the same manner as the Shares are registered. Redemption requests
for joint accounts require the signature of each joint owner. On redemption
requests of $5,000 or more, each signature must be guaranteed. A signature
guarantee may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine. The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the Portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by a broker-dealer,
financial institutions, securities dealers, financial planners, trustee,
custodian other than the Distributor or other agent, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
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Proceeds of a telephone redemption request will be mailed by check to an
investor's registered address unless he has designated in his Application or
Telephone Authorization that such proceeds are to be sent by wire transfer to a
specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. The minimum redemption
for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Fund may modify this redemption service at any time
or charge a service fee upon prior notice to shareholders, although no fee is
currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
Additional Redemption Information. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. Although the Fund will redeem Shares purchased by check
before the check clears, payment of the redemption proceeds may be delayed for a
period of up to fifteen days after their purchase, pending a determination that
the check has cleared. This procedure does not apply to Shares purchased by wire
payment. Investors should consider purchasing Shares using a certified or bank
check or money order if they anticipate an immediate need for redemption
proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in an Eta Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such 30-day notice period
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the amount invested in such account is not increased to at least $500. Payment
for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the value of the proportionate interest of each
class in the securities, cash, and other assets of the Portfolio, subtracting
the accrued and actual liabilities of the class and dividing the result by the
number of its shares outstanding of the class. The net asset value per share of
each class is determined independently of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
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 separate investment portfolios. Each
of the Eta Classes represents interests in one of the following such investment
portfolios: the Money Market Portfolio, the Municipal Money Market Portfolio,
the Government Obligations Money Market Portfolio and the New York Municipal
Money Market Portfolio.
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Investment Adviser
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. In entering
into Portfolio transactions for a Portfolio with a broker, BIMC may take into
account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreements between BIMC and RBB with respect
to the Money Market and Government Obligations Money Market Portfolios provide
for BIMC to also assist generally in supervising the operations of each such
Portfolio, and to maintain the Portfolios' financial accounts and records. These
administrative responsibilities have been delegated to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit of
each of the Money Market and Government Obligations Money Market Portfolios,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of net assets in excess of $500
million.
For the services provided and expenses assumed by it with respect to the
Municipal Money Market and New York Municipal Money Market Portfolios, BIMC is
entitled to receive the following fees, computed daily and payable monthly based
on the Portfolio's average daily net assets: .35% of the first $250 million;
.30% of the next $250 million; and .25% of net assets in excess of $500 million.
PNC Bank was formerly sub-adviser to the Money Market, Municipal Money
Market and Government Obligations Money Market Portfolios and provided research,
credit
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analysis and recommendations with respect to each such 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 each such 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 Portfolios 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."
BIMC may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio.
Administrator
PFPC, an indirect wholly-owned subsidiary of PNC Bank Corp., serves as the
administrator for the Municipal Money Market and New York Municipal Money Market
Portfolios and generally assists those Portfolios in all aspects of their
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at .10% of the average daily net assets of
each of these Portfolios. Pursuant to its advisory agreements with the Fund with
respect to the Money Market and Government Obligations Money Market Portfolios,
BIMC provides administrative services to such Portfolios pursuant to the same
terms, but has delegated to PFPC all of its accounting and administrative
obligations under such advisory agreements. The Fund has agreed to pay directly
to PFPC the fees for accounting and administrative services to the Money Market
and Government Obligations Money Market Portfolios which PFPC would have
received directly from BIMC. Such arrangement has no effect on the total
advisory and administrative fees payable by such Portfolios to BIMC. PFPC's
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank serves as the Fund's custodian and PFPC also serves as the Fund's
transfer agent and dividend disbursing agent. PFPC may enter into shareholder
servicing agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
-28-
<PAGE>
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
Distributor
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as distributor of
the Shares of each of the Eta Classes of the Fund pursuant to a distribution
agreement dated May 29, 1998 (the "Distribution Agreement").
Expenses
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio of
the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. In addition,
distribution expenses, transfer agency expenses, expenses of preparing, printing
and distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser may assume expenses of the Portfolios from time to
time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
-29-
<PAGE>
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant Eta
Class a distribution fee, which is accrued daily and paid monthly, of up to .65%
on an annualized basis of the average daily net assets of the relevant Eta
Class. The actual amount of such compensation is agreed upon from time to time
by the Fund's Board of Directors and the Distributor. Under the Distribution
Agreement the Distributor has agreed to accept compensation for its services
thereunder and under the Plans in the amount of .60% of the average daily net
assets of the relevant Class on an annualized basis in any year. Pursuant to the
conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to a Eta
Class on any day to the extent necessary to assure that the fee required to be
accrued by such Class does not exceed the income of such Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor may
reallocate an amount up to the full fee that it receives to financial
institutions, including Dealers, based upon the aggregate investment amounts
maintained by and services provided to shareholders of any relevant Class
serviced by such financial institutions. The Distributor may also reimburse
Dealers for other expenses incurred in the promotion of the sale of Fund shares.
The Distributor and/or Dealers pay for the cost of printing (excluding
typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Fund as well as for related direct mail, advertising
and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Eta Class the fee agreed to
under the relevant Distribution Agreement. Payments under the Plans are not
based on expenses actually incurred by the Distributor, and the payments may
exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Eta Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of the close of regular trading
on the NYSE. Net short-term capital gains, if any, will be distributed at least
annually.
-30-
<PAGE>
TAXES
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will generally constitute tax-exempt income for
shareholders for federal income tax purposes. It is possible, depending upon the
Portfolios' investments, that a portion of the Portfolios' distributions could
be taxable to shareholders as ordinary income or capital gains, but it is not
expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio and the
New York Municipal Money Market Portfolio are exempt for federal income tax
-31-
<PAGE>
purposes, they will generally constitute taxable income for state and local
income tax purposes except that, subject to limitations that vary depending on
the state, distributions from interest paid by a state or municipal entity may
be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by the
Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal income tax purposes,
in most cases does not result in an exemption under the tax laws of any other
state or local authority.
-32-
<PAGE>
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 each of its Money Market
Portfolio, Municipal Money Market Portfolio, Government Obligations Money Market
Portfolio and New York Municipal Money Market Portfolio to expand its marketing
alternatives and to broaden its range of services to different investors. The
expenses of the various classes within these Portfolios vary based upon the
services provided, which may affect performance. Each class of Common Stock of
the Fund has a separate Rule 12b-1 distribution plan. Under the Distribution
-33-
<PAGE>
Agreement and pursuant to each of the distribution plans, the Distributor is
entitled to receive from each class as compensation for distribution services
provided to that class a distribution fee based on average daily net assets. A
salesperson or any other person entitled to receive compensation for servicing
Fund shares may receive different compensation with respect to different classes
in a Portfolio of the Fund. An investor may contact the Fund's Distributor by
calling 1-800-888-9723 to request more information concerning other classes
available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE ETA CLASSES OF THE MONEY MARKET, MUNICIPAL MONEY
MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET
PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO THE ETA CLASSES OF THESE PORTFOLIOS.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of the
Fund.
-34-
<PAGE>
The Fund will issue share certificates for any of the Eta Shares only upon
the written request of a shareholder sent to PFPC.
OTHER INFORMATION
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call collect
(302) 791-1196).
-35-
<PAGE>
Prospectus
THE THETA FAMILY
Money Market Portfolio
- ----------------------
Municipal
Money Market Portfolio
- ----------------------
Government Obligations
Money Market Portfolio
- ----------------------
New York Municipal
Money Market Portfolio
December 29, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION...............................................................
FINANCIAL HIGHLIGHTS.......................................................
INVESTMENT OBJECTIVES AND POLICIES.........................................
YEAR 2000..................................................................
INVESTMENT LIMITATIONS.....................................................
PURCHASE AND REDEMPTION OF SHARES..........................................
NET ASSET VALUE............................................................
MANAGEMENT.................................................................
DISTRIBUTION OF SHARES.....................................................
DIVIDENDS AND DISTRIBUTIONS................................................
TAXES......................................................................
DESCRIPTION OF SHARES......................................................
OTHER INFORMATION..........................................................
Investment Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
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
<PAGE>
THE THETA FAMILY
of
The RBB Fund, Inc.
The Theta Family consists of four classes of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company incorporated under
the laws of the State of Maryland on February 29, 1988. The Fund is currently
operating or proposing to operate seventeen separate investment portfolios. The
shares of the classes (collectively, the "Theta Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (together, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
Money Market Portfolio--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
Municipal Money Market Portfolio--to provide as high a level of
current interest income exempt from federal income taxes as is consistent
with maintaining liquidity and stability of principal. It seeks to achieve
such objective by investing substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations. "Municipal
Obligations" are obligations issued by or on behalf of states, territories
and possessions of the United States, the District of Columbia and their
political subdivisions, agencies, instrumentalities and authorities. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which
is exempt from the regular federal income tax but which may constitute an
item of tax preference for purposes of the federal alternative minimum tax.
Government Obligations Money Market Portfolio--to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
New York Municipal Money Market Portfolio--to provide as high a level
of current income that is exempt from federal, New York State and New York
City personal income taxes as is consistent with preservation of capital
and liquidity. It seeks to achieve its objective by investing primarily in
Municipal Obligations, the interest on which is exempt from regular federal
income tax and is not an item of tax preference for purposes of the federal
alternative minimum tax ("Tax-Exempt Interest") and is exempt from New York
State and New York City personal income taxes.
<PAGE>
The New York Municipal Money Market Portfolio may invest a significant
percentage of its assets in a single issuer, and therefore investment in this
Portfolio may be riskier than an investment in other types of money market
funds.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. An investment in the
Portfolios is neither insured nor guaranteed by the U.S. Government or any
governmental agency. There can be no assurance that the Portfolios will be able
to maintain a stable net asset value of $1.00 per share.
An investor may purchase and redeem Shares of any of the Theta classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
BlackRock Institutional Management Corporation ("BIMC") serves as
investment adviser for the Portfolios and PNC Bank, National Association ("PNC
Bank") serves as custodian for the Fund. PFPC Inc. ("PFPC") serves as the
administrator and transfer and dividend disbursing agent for the Fund. Provident
Distributors, Inc. (the "Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained upon request free of charge from the Fund by
calling (800) 430-9618. The Prospectus and Statement of Additional Information
are also available for reference, along with other related materials, on the
Internet Web Site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988 and is
currently operating or proposing to operate seventeen separate investment
portfolios. Each of the four classes of the Fund's shares (collectively, the
"Theta Classes") offered by this Prospectus represents interests in one of the
following investment portfolios: the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio. The Money Market, Municipal Money Market
and Government Obligations Money Market Portfolios are diversified investment
portfolios; the New York Municipal Money Market Portfolio is a non-diversified
investment portfolio.
The Money Market Portfolio's investment objective is to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets.
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. To achieve
this objective, the Municipal Money Market Portfolio invests substantially all
of its assets in a diversified portfolio of short-term Municipal Obligations
which meet certain ratings criteria and present minimal credit risks. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which is
exempt from the regular federal income tax but which may constitute an item of
tax preference for purposes of the federal alternative minimum tax.
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. To achieve its objective, the
Portfolio invests exclusively in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current income that is exempt from federal, New York
State and New York City personal income taxes as is consistent with preservation
of capital and liquidity. It seeks to achieve its objective by investing
primarily in Municipal Obligations, the interest on which is Tax-Exempt Interest
and is exempt from New York State and New York City personal income taxes and
which meet certain ratings criteria and present minimal credit risks.
-2-
<PAGE>
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
The Portfolios' investment adviser is BlackRock Institutional Management
Corporation ("BIMC"). PNC Bank, National Association ("PNC Bank") serves as
custodian to the Fund. PFPC Inc. ("PFPC") serves as the administrator and
transfer and dividend disbursing agent to the Fund. Provident Distributors, Inc.
(the "Distributor") acts as distributor of the Fund's Shares.
An investor may purchase and redeem Shares of any of the Theta Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
An investment in any of the Theta Classes is subject to certain risks, as
set forth in detail under "Investment Objectives and Policies." Any or all of
the Portfolios, to the extent set forth under "Investment Objectives and
Policies," may engage in the following investment practices: the use of
repurchase agreements and reverse repurchase agreements, the purchase of
mortgage-related securities, the purchase of securities on a "when-issued" or
"forward commitment" basis, the purchase of stand-by commitments and the lending
of securities. All of these transactions involve certain special risks, as set
forth under "Investment Objectives and Policies."
-3-
<PAGE>
FEE TABLE
Estimated Annual Fund Operating Expenses (Theta Classes)
(as a percentage of average daily net assets)
The Fee Table below contains a summary of the annual operating expenses of
the Theta Classes based on expenses expected to be incurred for the current
fiscal period, as a percentage of average daily net assets. An example based on
the summary is also shown.
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Management Fees (after
waivers)(1)................................. .22% .08% .30% .02%
12b-1 Fees(1) .............................. .53% .58% .56% .52%
Other Expenses.............................. .22% .23% .12% .28%
---- ---- ---- ----
Total Fund Operating
Expenses (after waivers)(1)................. .97% .89% .98% .82%
==== ==== ==== ====
</TABLE>
(1) Management Fees and 12b-1 Fees are based on average daily net assets
and are calculated daily and paid monthly. Before waivers for the Money
Market Portfolio, Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio and New York Municipal Money Market
Portfolio, Management Fees would be .37%, .33%, .41% and .35%,
respectively, and Total Fund Operating Expenses would be 1.12%, 1.14%,
1.09% and 1.13%, respectively.
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market*........................................ $10 $31 $54 $119
Municipal Money
Market*............................................. $ 9 $28 $49 $110
Government Obligations
Money Market*....................................... $10 $31 $54 $120
New York Municipal
Money Market*....................................... $ 8 $26 $46 $101
</TABLE>
* Other classes of these Portfolios are sold with different fees and expenses.
-4-
<PAGE>
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating Expenses
(Theta Classes)" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Theta Classes of the Fund
will bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management--Investment Adviser" and "Distribution of
Shares" below.) Expense figures are based on estimated costs and estimated fees
expected to be charged to the Theta Classes, taking into account anticipated fee
waivers and reimbursements. The Fee Table reflects a voluntary waiver of
Management Fees for each Portfolio. However, there can be no assurance that any
future waivers of Management Fees will not vary from the figures reflected in
the Fee Table. To the extent that any service providers assume additional
expenses of the Portfolios, such assumption will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "total return", "yield" and
"effective yield." Total return and yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of a
Portfolio refers to the income generated by an investment in a Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of federal,
New York State and New York City personal income taxes at stated rates.
The total return and yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
total return and yield on Shares of any of the Theta Classes will fluctuate and
is not necessarily representative of future results. Any fees charged by
broker/dealers directly to their customers in connection with investments in the
Theta Classes are not reflected in the total return and yields of the Theta
Shares, and such fees, if charged, will reduce the actual return received by
shareholders on their investments. The total return and yield on Shares of the
Theta Classes may differ from the total return and yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
-5-
<PAGE>
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
No financial data is supplied for the Portfolios because, as of the date of
this Prospectus, the Portfolios had no performance history.
INVESTMENT OBJECTIVES AND POLICIES
Money Market Portfolio
The Money Market Portfolio's investment objective is to provide as high a
level of current interest income as is consistent with maintaining liquidity and
stability of principal. Portfolio obligations held by the Money Market Portfolio
have remaining maturities of 397 calendar days or less (exclusive of securities
subject to repurchase agreements). In pursuing its investment objective, the
Money Market Portfolio invests in a diversified portfolio of U.S.
dollar-denominated instruments, such as government, bank and commercial
obligations, that may be available in the money markets ("Money Market
Instruments") and that meet certain ratings criteria and present minimal credit
risks to the Money Market Portfolio. See "Eligible Securities." The following
descriptions illustrate the types of Money Market Instruments in which the Money
Market Portfolio invests. There is no assurance that the investment objective of
the Money Market Portfolio will be achieved.
Bank Obligations. The Portfolio may purchase obligations of issuers in the
banking industry such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements and less 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 (i) rated (at
the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. These rating categories are described in the Appendix to the
Statement of Additional Information. The Portfolio may also purchase unrated
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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 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
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Portfolio since the remaining maturity of any asset-backed security acquired
will be 13 months or less. Asset-backed securities are considered an industry
for industry concentration purposes. See "Investment Limitations." In periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During these periods, the reinvestment of proceeds by a portfolio will generally
be at lower rates than the rates on the prepaid obligations.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time and price. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Portfolio may decline below the price
at which the Portfolio is obligated to repurchase them. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
Guaranteed Investment Contracts. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
Municipal Obligations. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
When-Issued Securities. The Portfolio may purchase portfolio securities on
a "when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset at the time the commitment is entered into and are subject
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to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two (2) highest rating categories
by at least two Rating Organizations (e.g., commercial paper rated "A-1" or
"A-2" by Standard & Poor's Rating Services ("S&P")), (3) securities that are
rated at the time of purchase by the only Rating Organization rating the
security in one of its two highest rating categories for such securities, (4)
securities issued by issuers (or, in certain cases guaranteed by persons) with
short-term debt having such ratings, and (5) securities that are not rated and
are issued by an issuer that does not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, GICs, and other securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
INVESTMENT LIMITATIONS
The Money Market Portfolio's investment objective and policies described
above may be changed by the Fund's Board of Directors without shareholder
approval. The Portfolio may not, however, change the following investment
limitations without such a vote of shareholders. (A more detailed description of
the following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5% of
the value of the Portfolio's assets and may make time deposits.
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2. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
3. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry.
4. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by the Portfolio, except that up to 25% of the value
of the Portfolio's total assets may be invested without regard to such 5%
limitation.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization in its highest rating category for such securities, (iii) have
no short-term rating and are comparable in priority and security to a class
of short-term obligations of the issuer of such securities that have been
rated in accordance with (i) or (ii) above, or (iv) are Unrated Securities
that are determined to be of comparable quality to such securities.
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Purchases of First Tier Securities that come within categories (ii) and
(iv) above will be approved or ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and stability of principal. The
Municipal Money Market Portfolio invests substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the federal alternative minimum tax ("AMT Interest"). There is no assurance that
the investment objective of the Municipal Money Market Portfolio will be
achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
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being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio, as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
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Eligible Securities. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies -- Money Market Portfolio -- Eligible
Securities."
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio
- --Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
shareholder approval. The Municipal Money Market Portfolio may not, however,
change the following investment limitations without such a vote of shareholders.
(A more detailed description of the following investment limitations, together
with other investment limitations that cannot be changed without a vote of
shareholders, is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Municipal Money Market Portfolio may not:
1. Purchase the securities of any issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of the Portfolio's assets would be invested in the securities of such
issuer or more than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to this 5%
limitation.
2. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's assets at the
time of such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or mortgage,
pledge or hypothecate any of its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the
Portfolio's assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.)
3. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested in the
obligations at the time of purchase of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
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investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal.
Due to fluctuations in interest rates, the market value of securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
may vary. Certain government securities held by the Portfolio may have remaining
maturities exceeding 397 days if such securities provide for adjustments in
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their interest rates not less frequently than every 397 days and the adjustments
are sufficient to cause the securities to have market values, after adjustment,
which approximate their par values. There is no assurance that the investment
objective of the Government Obligations Money Market Portfolio will be achieved.
Repurchase Agreements. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a description of repurchase agreements, see "Investment Objectives and
Policies--Money Market Portfolio--Repurchase Agreements."
Reverse Repurchase Agreements. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements."
Mortgage-Related Securities. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
The Portfolio may also acquire asset-backed securities as described under
"Investment Objectives and Policies -- Money Market Portfolio -- Asset-Backed
Securities."
Lending of Securities. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Government Obligations Money Market Portfolio's investment objective
and policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The following investment limitations may not be
changed, however, without such a vote of shareholders. (A more detailed
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description of the following investment limitations, together with other
investment limitations that cannot be changed without a vote of shareholders, is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate any of its assets except
in connection with any such borrowing and in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
Portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
New York Municipal Money Market Portfolio
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income that is exempt from federal,
New York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria and present minimal credit risks to the Portfolio. Portfolio
obligations held by the New York Municipal Money Market Portfolio will have
remaining maturities of 397 days or less ("short-term" obligations). Dividends
paid by the Portfolio which are derived from interest attributable to tax-exempt
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obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ("New York Municipal
Obligations"), will be excluded from gross income for federal income tax
purposes and exempt from New York State and New York City personal income taxes,
but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio --
Municipal Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative Minimum
Tax Securities. Investors should be aware of the possibility of federal, state
and local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may invest more than
25% of its net assets in (i) Municipal Obligations the interest on which is paid
solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated. The
Portfolio may invest a significant percentage of its assets in a single issuer,
and therefore investment in this Portfolio may be riskier than an investment in
other types of money market funds.
Tax-Exempt Derivative Securities. The New York Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-By
Commitments."
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Taxable Investments. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's Investor's Service, Inc. ("Moody's") or S&P; commercial paper rated in
the highest grade by Moody's or S&P; and certificates of deposit issued by
United States branches of United States banks with assets of $1 billion or more.
At no time will more than 20% of the Portfolio's total assets be invested in
taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of an
anticipated softening in the market for Municipal Obligations in general.
Eligible Securities. The New York Municipal Money Market Portfolio will
only purchase "eligible securities." For a more complete description of eligible
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Eligible Securities" and "Investment Objectives and Policies" in the Statement
of Additional Information.
Special Considerations. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security than a diversified
portfolio. In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio should be limited by its intention to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended, and by its policies restricting
investments to obligations with short-term maturities and obligations which
qualify as eligible securities.
The Portfolio's ability to meet its investment objective is dependent upon
the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic
problems that could seriously affect their ability and that of other issuers
of New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and lower market prices for their
outstanding debt obligations. Although several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's in recent years, the most
recent actions of S&P and Moody's have been to place the debt obligations of
New York State and New York City on CreditWatch with positive implications and
to update the debt obligations of New York City, respectively. Strong demand
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for New York Municipal Obligations has also at times had the effect of
permitting New York Municipal Obligations to be issued with yields relatively
lower, and after issuance to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by such issuers
could result in defaults or declines in the market values of their existing
obligations and, possibly, in the obligations of other issuers of New York
Municipal Obligations. Although no issuers of New York Municipal Obligations
were as of the date of this Prospectus in default with respect to the payment of
their debt obligations, the occurrence of any such default could adversely
affect the market values and marketability of all New York Municipal Obligations
and, consequently, the net asset value of the Portfolio's shares. Some of the
significant financial considerations relating to the Fund's investments in New
York Municipal Obligations are summarized in the Statement of Additional
Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment objective and
the policies described above may be changed by the Fund's Board of Directors
without shareholder approval. The New York Municipal Money Market Portfolio may
not, however, change the following investment limitations without such a vote of
shareholders. (A more detailed description of the following investment
limitations, together with other investment limitations that cannot be changed
without a vote of shareholders, is contained in the Statement of Additional
Information under "Investment Objectives and Policies.")
The New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of
its assets except in connection with any such borrowing and in amounts not
in excess of 10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by non-governmental
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users (see the second investment limitation above) shall not be deemed to
be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
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PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
General. Theta Shares are sold without a sales load on a continuous basis
by the Distributor. The Distributor is located at Four Falls Corporate Center,
Conshohocken, Pennsylvania 19428. Investors may purchase Theta Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Theta
Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. Purchases will be effected at the net asset value next determined after
PFPC, the Fund's transfer agent, has received a purchase order in good order and
the Fund's custodian has Federal Funds immediately available to it. In those
cases where payment is made by check, Federal Funds will generally become
available two Business Days after the check is received. A "Business Day" is any
day that both the New York Stock Exchange (the "NYSE") and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. On any Business Day, orders which are
accompanied by Federal Funds and received by PFPC by 12:00 noon Eastern Time,
and orders as to which payment has been converted into Federal Funds by 12:00
noon Eastern Time, will be executed as of 12:00 noon that Business Day. Orders
which are accompanied by Federal Funds and received by the Fund after 12:00 noon
Eastern Time but prior to the close of regular trading on the NYSE (generally
4:00 p.m. Eastern Time), and orders as to which payment has been converted into
Federal Funds after 12:00 noon Eastern Time but prior to the close of regular
trading on the NYSE on any Business Day of the Fund, will be executed as of the
close of regular trading on the NYSE on that Business Day, but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of the close of regular
trading on the NYSE or later, and orders as to which payment has been converted
to Federal Funds as of the close of regular trading on the NYSE or later on a
Business Day will be processed as of 12:00 noon Eastern Time on the following
Business Day.
Purchases through an Account. Purchases of Shares may be effected through
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Theta Shares will be recorded by the broker and will be
reflected in the Account statements provided by the broker to such investors. A
broker may impose minimum investment Account requirements. Even if a broker does
not impose a sales charge for purchases of Theta Shares, depending on the terms
of an investor's Account with his broker, the broker may charge an investor's
Account fees for automatic investment and other services provided to the
Account. Information concerning Account requirements, services and charges
should be obtained from an investor's broker, and this Prospectus should be read
in conjunction with any information received from a broker.
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<PAGE>
Shareholders whose shares are held in the street name account of a broker
and who desire to transfer such shares to the street name account of another
broker should contact their current broker.
A broker may offer investors maintaining Accounts the ability to purchase
Theta Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Theta Class designated by the investor
as the "Primary Theta Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the broker. A participant in a Purchase
Program may change the designation of the Primary Theta Class at any time by so
instructing his broker.
If a broker makes special arrangements under which orders for Theta Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the broker guarantees
that payment for such Shares will be made available in Federal Funds to the
Fund's custodian prior to the close of regular trading on the NYSE, on the same
day, such purchase orders will be effective and Shares will be purchased at the
offering price in effect as of 12:00 noon Eastern Time on the date the purchase
order is received by PFPC.
Direct Purchases. An investor may also make direct investments at any time
in any Theta Class he selects through any broker that has entered into a dealer
agreement with the Distributor (a "Dealer"). An investor may make an initial
investment in any of the Theta Classes by mail by fully completing and signing
an application obtained from a Dealer (the "Application"), specifying the
Portfolio in which he wishes to invest, and mailing it, together with a check
payable to "The Theta Family" to the Theta Family, c/o PFPC, P.O. Box 8950,
Wilmington, Delaware 19899. The check must specify the name of the Portfolio for
which shares are being purchased. An Application will be returned to the
investor unless it contains the name of the Dealer from whom it was obtained.
Subsequent purchases may be made through a Dealer or by forwarding payment to
the Fund's transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Theta Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
may impose a charge for this service. The Fund does not currently charge for
effecting wire transfers but reserves the right to do so in the future. In order
to ensure prompt receipt of an investor's Federal Funds wire, for an initial
investment, it is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 447-1139
(in Delaware call collect (302) 791-1149), and provide your name, address,
telephone number, Social Security or Tax Identification Number, the Theta
Class selected, the amount being wired, and by which bank or Dealer. PFPC
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will then provide an investor with a Fund account number. (Investors with
existing accounts should also notify PFPC prior to wiring funds.)
B. Instruct your bank or Dealer to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process initial purchases until it receives a
fully completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Retirement Plans. Theta Shares may be purchased in conjunction with
individual retirement accounts ("IRAs") and rollover IRAs where PNC Bank acts as
custodian. For further information as to applications and annual fees, contact
the Distributor or your broker. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
Redemption Procedures
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
Redemption of Shares in an Account. An investor who beneficially owns Theta
Shares in an Account may redeem Theta Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting his broker.
If such notice is received by PFPC by 12:00 noon Eastern Time on 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.
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<PAGE>
An investor's brokerage firm may also redeem each day a sufficient number
of Shares of the Primary Theta Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
Redemption of Shares Owned Directly. A direct investor may redeem any
number of Shares by sending a written request, together with any share
certificates issued to the investor, to The Theta Family c/o PFPC, P.O. Box
8950, Wilmington, Delaware 19899. Redemption requests must be signed by each
shareholder in the same manner as the Shares are registered. Redemption requests
for joint accounts require the signature of each joint owner. On redemption
requests of $5,000 or more, each signature must be guaranteed. A signature
guarantee may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are Securities Transfer Agents Medallion Program (STAMP),
Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc.
Medallion Signature Program (MSP). Signature guarantees that are not part of
these programs will not be accepted.
Direct investors may redeem Shares without charge by telephone if they have
completed and returned an account application containing the appropriate
telephone election. To add a telephone option to an existing account that
previously did not provide for this option, a Telephone Authorization Form must
be filed with PFPC. This form is available from PFPC. Once this election has
been made, the shareholder may simply contact PFPC by telephone to request the
redemption by calling (888) 261-4073. Neither the Fund, the Distributor, the
Portfolios, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following the procedures below or for
following instructions communicated by telephone that they reasonably believe to
be genuine. The Fund's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the Portfolio, all of which must match the
Fund's records; (3) requiring the Fund's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by a broker-dealer,
financial institutions, securities dealers, financial planners, trustee,
custodian other than the Distributor or other agent, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by
attorney-in-fact under power of attorney.
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Proceeds of a telephone redemption request will be mailed by check to an
investor's registered address unless he has designated in his Application or
Telephone Authorization that such proceeds are to be sent by wire transfer to a
specified checking or savings account. If proceeds are to be sent by wire
transfer, a telephone redemption request received prior to the close of regular
trading on the NYSE will result in redemption proceeds being wired to the
investor's bank account on the next bank business day. The minimum redemption
for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds
sent by wire transfer. The Fund may modify this redemption service at any time
or charge a service fee upon prior notice to shareholders, although no fee is
currently contemplated.
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards (available from PFPC), and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional Shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
representing the amount being redeemed by check until such time as the check is
presented to PNC Bank. Pursuant to rules under the 1940 Act, checks may not be
presented for cash payment at the offices of PNC Bank. This limitation does not
affect checks used for the payment of bills or cash at other banks.
Additional Redemption Information. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. Although the Fund will redeem Shares purchased by check
before the check clears, payment of the redemption proceeds may be delayed for a
period of up to fifteen days after their purchase, pending a determination that
the check has cleared. This procedure does not apply to Shares purchased by wire
payment. Investors should consider purchasing Shares using a certified or bank
check or money order if they anticipate an immediate need for redemption
proceeds.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in an Theta Class involuntarily, on thirty days'
notice, if such account falls below $500 and during such 30-day notice period
the amount invested in such account is not increased to at least $500. Payment
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for Shares redeemed may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission.
NET ASSET VALUE
The net asset value per share of each class of the Portfolios for the
purpose of pricing purchase and redemption orders is determined twice each day,
once as of 12:00 noon Eastern Time and once as of the close of regular trading
on the NYSE on each weekday with the exception of those holidays on which either
the NYSE or the FRB is closed. Currently, the NYSE is closed on weekends and the
customary national business holidays of New Year's Day, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays on which the NYSE is closed
as well as Veterans' Day and Columbus Day. The net asset value per share of each
class is calculated by adding the value of the proportionate interest of each
class in the securities, cash, and other assets of the Portfolio, subtracting
the accrued and actual liabilities of the class and dividing the result by the
number of its shares outstanding of the class. The net asset value per share of
each class is determined independently of any of the Fund's other classes.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
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 separate investment portfolios. Each
of the Theta Classes represents interests in one of the following such
investment portfolios: the Money Market Portfolio, the Municipal Money Market
Portfolio, the Government Obligations Money Market Portfolio and the New York
Municipal Money Market Portfolio.
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Investment Adviser
BIMC, an indirect majority-owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. BIMC has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809. PNC Bank and its subsidiaries currently manage over $45.9 billion of
assets, of which approximately $31.4 billion are mutual funds. PNC Bank, a
national bank whose principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103, is a wholly owned subsidiary of PNC Bancorp,
Inc. PNC Bancorp, Inc. is a bank holding company and a wholly owned subsidiary
of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, BIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. In entering
into Portfolio transactions for a Portfolio with a broker, BIMC may take into
account the sale by such broker of shares of the Fund, subject to the
requirements of best execution. The agreements between BIMC and RBB with respect
to the Money Market and Government Obligations Money Market Portfolios provide
for BIMC to also assist generally in supervising the operations of each such
Portfolio, and to maintain the Portfolios' financial accounts and records. These
administrative responsibilities have been delegated to PFPC, as described below.
For the services provided to and expenses assumed by it for the benefit of
each of the Money Market and Government Obligations Money Market Portfolios,
BIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of net assets in excess of $500
million.
For the services provided and expenses assumed by it with respect to the
Municipal Money Market and New York Municipal Money Market Portfolios, BIMC is
entitled to receive the following fees, computed daily and payable monthly based
on the Portfolio's average daily net assets: .35% of the first $250 million;
.30% of the next $250 million; and .25% of net assets in excess of $500 million.
PNC Bank was formerly sub-adviser to the Money Market, Municipal Money
Market and Government Obligations Money Market Portfolios and provided
research, credit
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analysis and recommendations with respect to each such 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 each such 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 Portfolios 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."
BIMC may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio.
Administrator
PFPC, an indirect wholly-owned subsidiary of PNC Bank Corp., serves as the
administrator for the Municipal Money Market and New York Municipal Money Market
Portfolios and generally assists those Portfolios in all aspects of their
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at .10% of the average daily net assets of
each of these Portfolios. Pursuant to its advisory agreements with the Fund with
respect to the Money Market and Government Obligations Money Market Portfolios,
BIMC provides administrative services to such Portfolios pursuant to the same
terms, but has delegated to PFPC all of its accounting and administrative
obligations under such advisory agreements. The Fund has agreed to pay directly
to PFPC the fees for accounting and administrative services to the Money Market
and Government Obligations Money Market Portfolios which PFPC would have
received directly from BIMC. Such arrangement has no effect on the total
advisory and administrative fees payable by such Portfolios to BIMC. PFPC's
principal business address is 400 Bellevue Parkway, Wilmington, Delaware 19809.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank serves as the Fund's custodian and PFPC also serves as the Fund's
transfer agent and dividend disbursing agent. PFPC may enter into shareholder
servicing agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
-28-
<PAGE>
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
Distributor
Provident Distributors, Inc., with a principal business address at Four
Falls Corporate Center, Conshohocken, Pennsylvania 19428, acts as distributor of
the Shares of each of the Theta Classes of the Fund pursuant to a distribution
agreement dated May 29, 1998 (the "Distribution Agreement").
Expenses
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio of
the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios. In addition,
distribution expenses, transfer agency expenses, expenses of preparing, printing
and distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser may assume expenses of the Portfolios from time to
time. In certain circumstances, it may assume such expenses on the condition
that it is reimbursed by the Portfolios for such amounts prior to the end of a
fiscal year. In such event, the reimbursement of such amounts will have the
effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
-29-
<PAGE>
DISTRIBUTION OF SHARES
The Board of Directors of the Fund approved and adopted the Distribution
Agreement and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant
Theta Class a distribution fee, which is accrued daily and paid monthly, of up
to .65% on an annualized basis of the average daily net assets of the relevant
Theta Class. The actual amount of such compensation is agreed upon from time to
time by the Fund's Board of Directors and the Distributor. Under the
Distribution Agreement the Distributor has agreed to accept compensation for its
services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Class on an annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Theta Class on any day to the extent necessary to assure that the fee required
to be accrued by such Class does not exceed the income of such Class on that
day. In addition, the Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee.
Under the Distribution Agreement and the relevant Plan, the Distributor may
reallocate an amount up to the full fee that it receives to financial
institutions, including Dealers, based upon the aggregate investment amounts
maintained by and services provided to shareholders of any relevant Class
serviced by such financial institutions. The Distributor may also reimburse
Dealers for other expenses incurred in the promotion of the sale of Fund shares.
The Distributor and/or Dealers pay for the cost of printing (excluding
typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Fund as well as for related direct mail, advertising
and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Theta Class the fee agreed
to under the relevant Distribution Agreement. Payments under the Plans are not
based on expenses actually incurred by the Distributor, and the payments may
exceed distribution expenses actually incurred.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Theta Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of the close of regular trading
on the NYSE. Net short-term capital gains, if any, will be distributed at least
annually.
-30-
<PAGE>
TAXES
Distributions from the Money Market Portfolio and the Government
Obligations 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.
Distributions from the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will generally constitute tax-exempt income for
shareholders for federal income tax purposes. It is possible, depending upon the
Portfolios' investments, that a portion of the Portfolios' distributions could
be taxable to shareholders as ordinary income or capital gains, but it is not
expected that this will be the case.
Although distributions from the Municipal Money Market Portfolio and the
New York Municipal Money Market Portfolio are exempt for federal income tax
-31-
<PAGE>
purposes, they will generally constitute taxable income for state and local
income tax purposes except that, subject to limitations that vary depending on
the state, distributions from interest paid by a state or municipal entity may
be exempt from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio generally will not be deductible for federal income tax
purposes.
You should note that a portion of the exempt-interest dividends paid by the
Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
Exempt interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
(but not corporate franchise) taxes. The New York Municipal Money Market
Portfolio will determine annually the percentage amounts exempt from New York
State and New York City personal income taxes, and the amounts, if any, subject
to such taxes. The exclusion or exemption of interest income for federal income
tax purposes, or New York State or New York City personal income tax purposes,
in most cases does not result in an exemption under the tax laws of any other
state or local authority.
-32-
<PAGE>
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 each of its Money Market
Portfolio, Municipal Money Market Portfolio, Government Obligations Money Market
Portfolio and New York Municipal Money Market Portfolio to expand its marketing
alternatives and to broaden its range of services to different investors. The
expenses of the various classes within these Portfolios vary based upon the
services provided, which may affect performance. Each class of Common Stock of
the Fund has a separate Rule 12b-1 distribution plan. Under the Distribution
-33-
<PAGE>
Agreement and pursuant to each of the distribution plans, the Distributor is
entitled to receive from each class as compensation for distribution services
provided to that class a distribution fee based on average daily net assets. A
salesperson or any other person entitled to receive compensation for servicing
Fund shares may receive different compensation with respect to different classes
in a Portfolio of the Fund. An investor may contact the Fund's Distributor by
calling 1-800-888-9723 to request more information concerning other classes
available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE THETA CLASSES OF THE MONEY MARKET, MUNICIPAL
MONEY MARKET, GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK MUNICIPAL MONEY
MARKET PORTFOLIOS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE THETA CLASSES OF THESE
PORTFOLIOS.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of the
Fund.
-34-
<PAGE>
The Fund will issue share certificates for any of the Theta Shares only
upon the written request of a shareholder sent to PFPC.
OTHER INFORMATION
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call collect
(302) 791-1196).
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(Institutional Class)
of
The RBB Fund, Inc.
Boston Partners Large Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Institutional Class ("Shares") offered by this
Prospectus represent interests in the Fund. The Fund is a diversified fund that
seeks long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks and securities
convertible into common stocks. It seeks to achieve its objectives by investing
at least 65% of its total assets in a diversified portfolio consisting of equity
securities of issuers with a market capitalization of primarily $1 billion or
greater and identified by Boston Partners Asset Management, L.P. (the "Adviser")
as equity securities that it believes possess value characteristics. The Adviser
examines various factors in determining the value characteristics of such
issuers, including, but not limited to, price to book value ratios and price to
earnings ratios. These value characteristics are examined in the context of the
issuer's operating and financial fundamentals such as return on equity, earnings
growth and cash flow.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling (888)
261-4073. The Prospectus and the Statement of Additional Information are
available for reference, along with other related materials, on the SEC Internet
Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management company incorporated under the laws of the
State of Maryland currently operating or proposing to operate seventeen separate
investment portfolios. The Shares offered by this Prospectus represent interests
in the Boston Partners Large Cap Value Fund. RBB was incorporated in Maryland on
February 29, 1988.
FEE TABLE
The following table illustrates annual operating expenses incurred by
Institutional Shares of the Fund (after fee waivers and expense reimbursements)
for the fiscal period ended August 31, 1998, as a percentage of average daily
net assets. An example based on the summary is also shown.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers)*.................................. .49%
-----
12b-1 Fees........................................................0.00%
====
Other Expenses (after waivers and reimbursements)................. .51%
Total Fund Operating Expenses (after waivers
and expense reimbursements)*.............................1.00%
====
* In the absence of fee waivers and expense reimbursements, Management
Fees would be 0.75%; Other Expenses would be .74%; and Total Fund
Operating Expenses would be 1.49%. Management Fees are based on
average daily net assets and are calculated daily and paid monthly.
Example
An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time
period-
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Boston Partners Large Cap Value Fund $10 $32 $55 $122
</TABLE>
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" and "Distribution of Shares" below.) The Fee Table reflects
expense reimbursements and voluntary waivers of Management Fees and
Administrative Services Fees for the Fund. However, there can be no assurance
that any future expense reimbursements and waivers of Management Fees and
Administrative Services Fees will not vary from the figures reflected in the Fee
Table.
-2-
<PAGE>
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating
Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The "Financial Highlights" presented below set forth certain investment
results for shares of the Institutional Class of the Fund for the period January
2, 1997 (date of inception) through August 31, 1997 and for the fiscal year
ended August 31, 1998. The financial data included in this table should be read
in conjunction with the financial statements and notes thereto and the
unqualified report of PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"),
RBB's independent accountant, which are incorporated by reference into the
Statement of Additional Information. Further information about the performance
of the Institutional Class of the Fund is available in the Annual Report to
Shareholders. Both the Statement of Additional Information and the Annual Report
to Shareholders may be obtained from the Fund free of charge by calling the
telephone number on page 1 of the prospectus.
-3-
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(For an Institutional Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Fiscal January 2, 1997*
Year Ended through August 31,
August 31, 1998 1997
--------------- ------------------
<S> <C> <C>
Per Share Operating Performance**
Net asset value, beginning of period................................. $ 12.46 $ 10.00
------- -------
Net investment income (1)............................................ 0.12 0.05
Net realized and unrealized gain/(loss) on investments (2)........... (1.31) 2.41
------- -------
Net increase/(decrease) in net assets resulting
from operations...................................................... (1.19) 2.46
------- -------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income................................................ (0.08) --
Net realized capital gains........................................... (0.61) --
------- -------
Net asset value, end of period....................................... $ 10.58 $ 12.46
======= =======
Total investment return (3).......................................... (10.23%) 24.60%
======= =======
Ratios/Supplemental Data $50,724 $24,603
Net assets, end of period (000)......................................
Ratio of expenses to average net
assets(1)(4).................................................... 1.00% 1.00%(5)
Ratio of net investment income to
average net assets(1)........................................... 0.87% 1.19%(5)
Portfolio turnover rate.......................................... 111.68% 67.16%(6)
</TABLE>
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not in
accord with the change in the aggregate gains and losses in investments
during the period because of the timing of sales and repurchases of Fund
shares in relation to fluctuating net asset value during the respective
periods.
(3) Total return is calculated assuming a purchase of shares on the first day
and a sale of shares on the last day of the period reported and will
include reinvestments of dividends and distributions, if any. Total return
is not annualized.
-4-
<PAGE>
(4) Until May 29, 1998, the Institutional Class of the Fund paid .03% of its
average daily net assets to the Fund's previous Distributor in 12b-1 fees.
From May 29, 1998 through August 31, 1998, the Institutional Class of the
Fund paid .03% of its average daily net assets to the Administrative
Services Agent pursuant to the Administrative Services Plan for
Institutional shares in lieu of 12b-1 fees. Without the waiver of advisory,
12b-1, administration and transfer agent fees and without the reimbursement
of certain operating expenses, the ratio of expenses to average net assets
annualized for the period ended August 31, 1997 and the year ended August
31, 1998 would have been 2.64% and 1.49%, respectively, for the
Institutional Class.
(5) Annualized.
(6) Not annualized.
-5-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term growth of capital
with current income as a secondary objective. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in a diversified
portfolio consisting primarily of equity securities, such as common stocks and
securities convertible into common stocks, of issuers with a market
capitalization of $1 billion or greater and identified by the Adviser as
possessing value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including, but not limited to, price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study of
trends in industries and companies, earnings power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers. Investing in securities of foreign issuers involves considerations not
typically associated with investing in securities of companies organized and
operated in the United States. Foreign securities generally are denominated and
pay dividends or interest in foreign currencies. The Fund may hold from time to
time various foreign currencies pending their investment in foreign securities
or their conversion into U.S. dollars. The value of the assets of the Fund as
measured in U.S. dollars may therefore be affected favorably or unfavorably by
changes in exchange rates. There may be less publicly available information
concerning foreign issuers than is available with respect to U.S. issuers.
Foreign securities may not be registered with the U.S. Securities and Exchange
Commission, and generally, foreign companies are not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to U.S. issuers. See "Investment Objective and Policies--Foreign
Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity securities
of issuers with lower capitalization; derivative securities; debt securities
issued by U.S. banks, corporations and other business organizations that are
investment grade securities; and debt securities issued by the U.S. Government
or government agencies.
In accordance with the above-mentioned policies, the Fund may also invest
in indexed securities, convertible securities, repurchase and reverse repurchase
agreements and dollar rolls, financial futures contracts, options on futures
contracts and may lend portfolio securities. See "Investment Objective and
Policies" in the Statement of Additional Information.
The Fund may invest in registered investment companies and investment funds
in foreign countries subject to the provisions of the Investment Company Act of
1940 (the "1940 Act") and as discussed in "Investment Objective and Policies" in
-6-
<PAGE>
the Statement of Additional Information. If the Fund invests in such investment
companies, the Fund will bear its proportionate share of the costs incurred by
such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all times in
accordance with the above mentioned policies, the Fund reserves the right to
hold up to 100% of its assets, as a temporary defensive measure, in cash and
eligible U.S. dollar-denominated money market instruments. The Adviser will
determine when market conditions warrant temporary defensive measures.
The Fund's investment objective and the policies described above may be
changed by RBB's Board of Directors without the affirmative vote of the holders
of a majority of the outstanding Shares representing interests in the Fund.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment limitations that cannot
be changed without such a vote of the shareholders is contained in the Statement
of Additional Information under "Investment Objective and Policies.")
The Fund may not:
1. Purchase the securities of any one issuer, other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchases more than 5% of the
value of the Fund's total assets would be invested in the securities of
such issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by the Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of purchase, 25% or
more of the value of the total assets of the Fund to be invested in the
obligations of issuers in any single industry, provided that there is no
limitation with respect to investments in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements and dollar rolls
for temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate
any assets, except in connection with any such borrowing and then in
amounts not in excess of one-third of the value of the Fund's total assets
at the time of such borrowing. The Fund will not purchase securities while
its aggregate borrowings (including reverse repurchase agreements, dollar
rolls and borrowings from banks) are in excess of 5% of its total assets.
Securities held in escrow or separate accounts in connection with the
-7-
<PAGE>
Fund's investment practices are not considered to be borrowings or deemed
to be pledged for purposes of this limitation.
If a percentage restriction under one of the Fund's investment policies or
restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation (except with respect to any restrictions that may apply
to borrowings or senior securities issued by the Fund).
RISK FACTORS
- --------------------------------------------------------------------------------
As with other mutual funds, there can be no assurance that the Fund will
achieve its objective. The net asset value per share of Shares representing
interests in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. Other risk
factors are discussed above under "Investment Objective and Policies" and in the
Statement of Additional Information under "Investment Objective and Policies."
European Currency Unification. Many European countries are about to adopt a
single European currency, the euro. On January 1, 1999, the euro will become
legal tender for all countries participating in the Economic and Monetary Union
("EMU"). A new European Central Bank will be created to manage the monetary
policy of the new unified region. On the same date, the exchange rates will be
irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by euro coins and bank notes by
the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the Fund may invest and may result in the Fund facing additional risks
in pursuing its investment objective. These risks, which include, but are not
limited to, uncertainty as to the proper tax treatment of the currency
conversion, volatility of currency exchange rates as a result of the conversion,
uncertainty as to capital market reaction, conversion costs that may affect
issuer profitability and creditworthiness, and lack of participation by some
European countries, may increase the volatility of the Fund's net asset value
per share.
YEAR 2000
- --------------------------------------------------------------------------------
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved. The Year
2000 Problem could also hurt companies whose securities the Fund holds or
securities markets generally.
ASSET ALLOCATION
- --------------------------------------------------------------------------------
From time to time, the Fund may experience relatively large purchases
or redemptions due to asset allocation decisions made by the Advisor for clients
receiving Asset Allocation account management services involving investments in
the Fund. These transactions may have a material effect on the Fund, since
redemptions caused by reallocations may result in the Fund selling portfolio
securities, and purchases caused by reallocations may result in the Fund
receiving additional cash that it will have to invest. While it is impossible to
predict the overall impact of these transactions over time, there could be
adverse effects on portfolio management to the extent that the Fund may be
required to sell securities at times when it would not otherwise do so, or
receive cash that cannot be invested in an expeditious manner. These
transactions could also have tax consequences if the sale of securities results
in gains and could also increase transaction costs. The Advisor is committed to
minimizing the impact of such transactions on the Fund to the extent it is
consistent with pursuing the investment objectives of clients for which the
Advisor provides Asset Allocation account management services involving
investments in the Fund and monitors the impact of asset allocation decisions on
the Fund.
-8-
<PAGE>
General. Investment methods described in this Prospectus are among those
that the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
MANAGEMENT
- --------------------------------------------------------------------------------
Board of Directors
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
Investment Adviser
Boston Partners Asset Management, L.P., located at 28 State Street, 21st
Floor, Boston, Massachusetts 02109, serves as the Fund's investment adviser. The
Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of October 31, 1998 in excess of $16.0 billion. The
adviser is organized as a Delaware limited partnership whose sole general
partner is Boston Partners, Inc., a Delaware corporation.
Subject to the supervision and direction of RBB's Board of Directors, the
Adviser manages the Fund's portfolio in accordance with the Fund's investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities, and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For its services
to the Fund, the Adviser is entitled to receive under the Advisory Agreement a
monthly advisory fee computed at an annual rate of 0.75% of the Fund's average
daily net assets. The Adviser intends to limit total Fund operating expenses to
1.00% of the Fund's average daily net assets.
Portfolio Management
The day-to-day portfolio management of the Fund is the responsibility of
Mark E. Donovan and Wayne S. Sharp who are senior portfolio managers of the
Adviser. Mr. Donovan is Chairperson of the Adviser's Equity Strategy Committee
which oversees the investment activities of the Adviser's $5.5 billion in Large
Cap Value institutional equity assets under management. Prior to joining the
Adviser on April 16, 1995, Mr. Donovan was a Senior Vice President and Vice
Chairman of The Boston Company Asset Management, Inc.'s Equity Policy Committee.
Mr. Donovan is a Chartered Financial Analyst and has over fifteen years of
investment experience. Ms. Sharp is Vice Chairperson of the Adviser's Equity
Strategy Committee and has over twenty-one years of investment
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experience. Prior to joining the Adviser on April 16, 1995, Ms. Sharp was a
Senior Vice President and member of the Equity Policy Committee of The Boston
Company Asset Management, Inc. Ms. Sharp is also a Chartered Financial Analyst.
Administrator
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC is entitled to receive a fee under an administration and
accounting services agreement calculated at an annual rate of .125% of the
Fund's average daily net assets with a minimum fee of $75,000 payable monthly on
a pro rata basis.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank, National Association ("PNC Bank") serves as the Fund's custodian
and PFPC serves as the Fund's transfer agent and dividend disbursing agent. The
principal offices of PFPC, an indirect, wholly-owned subsidiary of PNC Bank, are
located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
Administrative Services Agent
Provident Distributors, Inc. ("PDI"), with a principal business address at
Four Falls Corporate Center, Conshohocken, Pennsylvania 19428, provides certain
administrative services to the Fund's Institutional Shares not otherwise
provided by PFPC. PDI furnishes certain internal quasi-legal, executive and
administrative services to the Fund, acts as a liaison between the Fund and its
various service providers and coordinates and assists in the preparation of
reports prepared on behalf of the Fund. For its services, PDI is entitled to a
monthly fee calculated at the annual rate of .15% of the respective average
daily net assets of the Fund's Institutional Class. PDI is currently waiving
fees in excess of .03% of the average daily net assets of the Fund's
Institutional Class.
Distributor
PDI acts as distributor for the Shares pursuant to a distribution agreement
(the "Distribution Agreement") with RBB on behalf of the Shares.
Expenses
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Institutional Class of the Fund pays an
administrative services fee, and may pay a different share than the other
classes of the Fund of other expenses (excluding advisory and custodial fees) if
those expenses are actually incurred in a different amount by the Institutional
Class or if it receives different services.
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The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expenses of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
of increasing its yield to investors.
DISTRIBUTION OF SHARES
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The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled
to receive from the Fund a distribution fee with respect to the Shares,
which is accrued daily and paid monthly, of up to 0.25% on an annualized basis
of the average daily net assets of the Shares. The actual amount of such
compensation under the Plan is agreed upon by RBB's Board of Directors and by
the Distributor in the Distribution Agreement. The Distributor may, in its
discretion, from time to time waive voluntarily all or any Portion of its
distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub- transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to Service Agents. See
"How to Purchase Shares-Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Shares the fee agreed to under the
Distribution Plan. Payments under the Plan are not tied exclusively to expenses
actually incurred by the Distributor, and payments may exceed distribution
expenses actually incurred.
Purchases Through Intermediaries.
Shares of the Fund may be available through certain brokerage firms,
financial institutions and programs sponsored by other industry professionals
(collectively, "Service Organizations"). Certain features of the Shares, such as
the initial and subsequent investment minimums and certain trading restrictions,
may be modified or waived by Service Organizations. Service Organizations may
impose transaction or administrative charges or other direct fees, which charges
or fees would not be imposed if Shares are purchased directly from the Fund.
Therefore, a client or customer should contact the Service Organization acting
on his behalf concerning the fees (if any) charged in connection with a purchase
or redemption of Shares and should read this Prospectus in light of the terms
governing his accounts with the Service Organization. Service Organizations will
be responsible for promptly transmitting client or customer purchase and
redemption orders to the Fund in accordance with their agreements with clients
or customers. Service Organizations or, if applicable, their designees that have
entered into agreements with the Fund or its agent may enter confirmed purchase
orders on behalf of clients and customers, with payment to follow no later than
the Fund's pricing on the following Business Day. If payment is not received by
such time, the Service Organization could be held liable for resulting fees or
losses. The Fund will be deemed to have received a purchase or redemption order
when a Service Organization, or, if applicable, its authorized designee, accepts
a purchase or redemption order in good order. Orders received by the Fund in
good order will be priced at the Fund's net asset value next computed after they
are accepted by the Service Organization or its authorized designee.
For administration, subaccounting, transfer agency and/or other
services, the Adviser or the Distributor or their affiliates may pay Service
Organizations and certain recordkeeping organizations with whom they have
entered into agreements a fee of up to .35% (the "Service Fee') of the average
annual value of accounts with the Fund maintained by such Service Organizations
or recordkeepers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization
or recordkeeper.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares consisting of securities dealers who have sold
Shares, or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
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HOW TO PURCHASE SHARES
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General
Shares representing interests in the Fund are offered continuously for sale
by the Distributor and may be purchased without imposition of a sales charge.
Shares may be purchased initially by completing the application included in this
Prospectus and forwarding the application to the Fund's transfer agent, PFPC.
Purchases of Shares may be effected by wire to an account to be specified by
PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston Partners Large Cap Value Fund," c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. Shareholders may not purchase shares of the
Boston Partners Large Cap Value Fund with a check issued by a third party and
endorsed over to the Fund. The name of the Fund, Boston Partners Large Cap Value
Fund, must also appear on the check or Federal Reserve Draft. Federal Reserve
Drafts are available at national banks or any state bank which is a member of
the Federal Reserve System. Initial investments in the Fund must be at least
$100,000 and subsequent investments must be at least $5,000. For purposes of
meeting the minimum initial purchase, clients which are part of endowments,
foundations or other related groups may be aggregated. The Fund reserves the
right to suspend the offering of Shares for a period of time or to reject any
purchase order.
Shares may be purchased on any Business Day. A "Business Day" is any day
that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value next
computed after a purchase order is received in good order by the Fund or its
agents. Orders received by the Fund or its agents prior to the close of the NYSE
(generally 4:00 p.m. Eastern Time) are priced at that Business Day's net asset
value. Orders received by the Fund or its agents after the close of the NYSE
(generally 4:00 p.m. Eastern Time) are priced at the net asset value next
determined on the following Business Day. In those cases where an investor pays
for Shares by check, the purchase will be effected at the net asset value next
determined after the Fund or its agents receives the order and the completed
application.
Shares may be purchased and subsequent investments may be made by
principals and employees of the Adviser, and by their spouses and children,
either directly or through their individual retirement accounts, and by any
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pension and profit-sharing plan of the Adviser, without being subject to the
minimum investment limitations.
An investor may also purchase Shares by having his bank or his broker wire
Federal Funds to PFPC. An investor's bank or broker may impose a charge for this
service. The Fund does not currently impose a service charge for effecting wire
transfers but reserves the right to do so in the future. In order to ensure
prompt receipt of an investor's Federal Funds wire for an initial investment, it
is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888) 261-4073,
and provide PFPC with your name, address, telephone number, Social
Security or Tax Identification Number, the Fund selected, the amount
being wired, and by which bank. PFPC will then provide an investor
with a Fund account number. Investors with existing accounts should
also notify PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together
with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the Fund)
FOR PURCHASE OF: Boston Partners Large Cap Value Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the address
shown thereon. PFPC will not process redemptions until it receives a
fully completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
Automatic Investing
Additional investments in Shares may be made automatically by authorizing
the Fund's transfer agent to withdraw funds from your bank account. Investors
desiring to participate in the automatic investing program should call the
Fund's transfer agent, PFPC, at (888) 261-4073 to obtain the appropriate forms.
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HOW TO REDEEM AND EXCHANGE SHARES
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Redemption by Mail
Shareholders may redeem for cash some or all of their Shares of the Fund at
any time. To do so, a written request in proper form must be sent directly to
Boston Partners Large Cap Value Fund, c/o PFPC Inc., P.O. Box 8852, Wilmington,
Delaware 19899-8852. There is no charge for a redemption.
A request for redemption must be signed by all persons in whose names the
Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "How to Redeem
and Exchange Shares -- Exchange Privilege."
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding share
certificates, the certificates for the shares being redeemed must accompany the
redemption request. Additional documentary evidence of authority is also
required by the Fund's transfer agent in the event redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
Involuntary Redemption
The Fund reserves the right to redeem a shareholder's account at any time
the net asset value of the account falls below $500 as the result of a
redemption or an exchange request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.
Payment of Redemption Proceeds
In all cases, the redemption price is the net asset value per share next
determined after the request for redemption is received in proper form by the
Fund or its agents. Payment for Shares redeemed is made by check mailed within
seven days after acceptance by the Fund or its agents of the request and any
other necessary documents in proper order. Such payment may be postponed or the
right of redemption suspended as permitted by the rules of the SEC. If the
Shares to be redeemed have been recently purchased by check, the Fund's transfer
agent may delay mailing a redemption check, which may be a period of up to 15
days, pending a determination that the check has cleared. The Fund has elected
to be governed by Rule 18f-1 under the 1940 Act so that a portfolio is obligated
to redeem its shares solely in cash up to the lesser of $250,000 or 1% of its
net asset value during any 90-day period for any one shareholder of a portfolio.
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Exchange Privilege
The exchange privilege is available to shareholders residing in any state
in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Institutional Shares of any other Boston
Partners Fund of RBB, subject to restrictions described under "Exchange
Privilege Limitations" below. Such exchange will be effected at the net asset
value of the exchanged Fund and the net asset value of the Fund being acquired
next determined after receipt of a request for an exchange by the Fund or its
agents. An exchange of Shares will be treated as a sale for federal income tax
purposes. See "Taxes." A shareholder wishing to make an exchange may do so by
sending a written request to PFPC.
If the exchanging shareholder does not currently own Institutional Shares
of the Boston Partners Fund into which he/she would like to exchange, a new
account will be established with the same registration, dividend and capital
gain options as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted. The exchange privilege may be modified
or terminated at any time, or from time to time, by RBB, upon 60 days' written
notice to shareholders.
If an exchange is to a new account in the acquired Fund, the dollar value
of Shares acquired must equal or exceed that Fund's minimum for a new account;
if to an existing account, the dollar value must equal or exceed that Fund's
minimum for subsequent investments. If any amount remains in the Fund from which
the exchange is being made, such amount must not drop below the minimum account
value required by the Fund.
Exchange Privilege Limitations
The Fund's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Fund and increase transactions costs, the Fund has established
a policy of limiting excessive exchange activity.
Shareholders are entitled to six (6) exchange redemptions (at least 30 days
apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
Telephone Transactions
In order to request an exchange or redemption by telephone, a shareholder
must have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
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that previously did not provide for this option, a Telephone Authorization Form
must be filed with PFPC. This form is available from PFPC. Once this election
has been made, the shareholder may simply contact PFPC by telephone to request
the exchange or redemption by calling (888) 261-4073. Neither RBB, the Fund, the
Distributor, the Administrator nor any Fund agent will be liable for any loss,
liability, cost or expense for following RBB's telephone transaction procedures
described below or for following instructions communicated by telephone that
they reasonably believe to be genuine.
RBB's telephone transaction procedures include the following measures: (1)
requiring the appropriate telephone transaction privilege forms; (2) requiring
the caller to provide the names of the account owners, the account social
security number and name of the Fund, all of which must match RBB's records; (3)
requiring RBB's service representative to complete a telephone transaction form,
listing all of the above caller identification information; (4) permitting
exchanges only if the two account registrations are identical; (5) requiring
that redemption proceeds be sent only by check to the account owners of record
at the address of record, or by wire only to the owners of record at the bank
account of record; (6) sending a written confirmation for each telephone
transaction to the owners of record at the address of record within five (5)
Business Days of the call; and (7) maintaining tapes of telephone transactions
for six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by broker-dealers (other than the Distributor),
financial institutions, securities dealers, financial planners and other
industry professionals, additional documentation or information regarding the
scope of a caller's authority is required. Finally, for telephone transactions
in accounts held jointly, additional information regarding other account holders
is required. Telephone transactions will not be permitted in connection with IRA
or other retirement plan accounts or by an attorney-in-fact under a power of
attorney.
NET ASSET VALUE
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The net asset value for each class of a fund is calculated by adding the
value of the proportionate interest of the class in a fund's securities, cash
and other assets, deducting the actual and accrued liabilities of the class and
dividing by the result of outstanding shares of the class. The net asset value
of each class is calculated independently of each other class. The net asset
values are calculated as of 4:00 p.m. Eastern Time on each Business Day.
Valuation of securities held by the Fund is as follows: securities traded
on a national securities exchange or on the NASDAQ National Market System are
valued at the last reported sale price that day; securities traded on a national
securities exchange or on the NASDAQ National Market System for which there were
no sales on that day and securities traded on other over-the-counter markets for
which market quotations are readily available are valued at the mean of the bid
and asked prices; and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of RBB's Board of Directors. The amortized cost method of
valuation may also be used with respect to debt obligations with sixty days or
less remaining to maturity.
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With the approval of RBB's Board of Directors, the Fund may use a pricing
service, bank or broker-dealer experienced in such matters to value the Fund's
securities. A more detailed discussion of net asset value and security valuation
is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
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The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Fund to the Fund's shareholders. All
distributions are reinvested in the form of additional full and tractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income annually
and pays them in the calendar year in which they are declared, generally in
December. Net realized capital gains (including net short-term capital gains),
if any, will be distributed at least annually.
TAXES
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The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation.
The Fund will elect to be taxed as a regulated investment company for
federal income tax purposes. So long as the Fund qualifies for this tax
treatment, it will be relieved of federal income tax on amounts distributed to
shareholders. The Fund intends to make sufficient actual or deemed distributions
prior to the end of each calendar year to avoid liability for federal income or
excise tax.
Fund distributions to shareholders, unless otherwise exempt, will be
taxable (except distributions that are treated for federal income tax purposes
as a return of capital) regardless of whether the distributions are received in
cash or reinvested in additional shares. Distributions out of the "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss), if any, of a Fund will be taxed to shareholders as long-term capital gain
regardless of the length of time a shareholder has held his Shares. All other
taxable distributions are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the tax
status of distributions made by the Fund. Dividends declared in October,
November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, if such dividends are paid during January of the
following year.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
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purchasing shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who sell or redeem shares, or exchange shares representing
interests in one Fund for shares representing interests in another Fund, will
generally recognize capital gain or loss for federal income tax purposes. The
gain or loss will be long-term capital gain or loss if the shares have been held
for more than twelve months, and short-term otherwise, except that a loss on
shares held six months or less will be treated as long-term capital loss to the
extent of any capital gains distribution received on the shares.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships are generally subject to
different U.S. Federal income tax treatment from that described above. In
particular, such shareholders will generally not be subject to U.S. federal
income tax on capital gains on or with respect to their shares, and other
distributions to them will be subject to 30% withholding tax unless such tax is
reduced or eliminated under an applicable tax treaty.
MULTI-CLASS STRUCTURE
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The Fund offers one other class of shares, Investor Shares, which are
offered directly to individual investors, pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance quotations in the same
manner. The Fund will quote performance of the Investor Shares separately
from Institutional Shares. Because of different expenses paid by the
Institutional Shares, the total return on such shares can be expected, at any
time, to be different than the total return on Investor Shares.
Information concerning this other class may be obtained by calling
the Fund at (888) 261-4073.
DESCRIPTION OF SHARES
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RBB has authorized capital of thirty billion shares of Common Stock, $.001
par value per share, of which 97 billion shares are currently classified into
18.326 different classes of Common Stock. See "Description of Shares" in the
Statement of Additional Information."
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO BOSTON PARTNERS LARGE CAP VALUE FUND AND DESCRIBE
ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER
MATTERS RELATING TO BOSTON PARTNERS LARGE CAP VALUE FUND.
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Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares will be fully paid and
non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of Shares of the Fund will vote in the aggregate and not by class
on all matters, except where otherwise required by law. Further, shareholders of
all investment portfolios of RBB will vote in the aggregate and not by portfolio
except as otherwise required by law or when RBB's Board of Directors determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular investment portfolio. (See the Statement of Additional
Information under "Additional Information Concerning Fund Shares" for examples
when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of RBB.
OTHER INFORMATION
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Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to the Fund's
transfer agent, PFPC, at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-tree (888) 261-4073.
Share Certificates
In the interest of economy and convenience, physical certificates
representing Shares in the Fund are not normally issued.
Historical Performance Information
For the period from commencement of operations (January 2, 1997) through
August 31, 1998, the total return since inception (not annualized) for the
Institutional Class of Shares of the Fund was as follows:
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Unannualized investment returns for the period ended August 31, 1998
Since
Inception
---------
Boston Partners Large Cap Value Fund
(Institutional Shares)................................. 11.85%
The total return assumes reinvestment of all dividends and capital gains
and reflects expense reimbursements and investment advisory fee waivers in
effect. Without these expense reimbursements or waivers, the Fund's performance
would have been lower. Of course, past performance is no guarantee of future
results. Investment return and principal value will fluctuate, so that Shares,
when redeemed, may be worth more or less than the original cost. For more
information on performance, see "Performance Information" in the Statement of
Additional Information.
The table below presents the Composite performance history of certain of
the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1998. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Fund, which commenced
operations on January 2, 1997. The Composite performance information includes
the reinvestment of dividends received in the underlying securities and reflects
investment advisory fees. The privately managed accounts in the Composite are
only available to the Adviser's institutional advisory clients. The past
performance of the accounts which comprise the Composite is not indicative of
the future performance of the Fund. These accounts have lower investment
advisory fees than the Fund, and the Composite performance figures would have
been lower if subject to the higher fees and expenses incurred by the Fund.
These private accounts are also not subject to the same investment limitations,
diversification requirements and other restrictions, which are imposed upon
mutual funds under the 1940 Act and the Internal Revenue Code, which, if
imposed, may have adversely affected the performance results of the Composite.
Listed below the performance history for the Composite is a comparative index
comprised of securities similar to those in which accounts contained in the
Composite are invested.
Annualized investment returns for the period ended August 31, 1998
Since
One Year Inception*
-------- ----------
Composite Performance.............. (14.68)% 6.97%
S&P 500 Stock Index................ 8.11% 18.64%
* The Adviser commenced managing these accounts on January 2, 1997.
The S&P 500 Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the NYSE.
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<PAGE>
Future Performance Information
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding the compounded average
annual total return for each time period that would equate the assumed initial
investment of $1,000 to the ending redeemable value, net of fees, according to a
required standardized calculation. The standard calculation is required by the
SEC to provide consistency and comparability in investment company advertising.
The Fund may also from time to time include in such advertising an aggregate
total return figure or a total return figure that is not calculated according to
the standardized formula in order to compare more accurately the Fund's
performance with other measures of investment return. For example, the Fund's
total return may be compared with data published by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. or Weisenberger Investment Company
Service, or with the performance of the Standard & Poor's 500 Stock Index or the
Dow Jones Industrial Average. Performance information may also include
evaluation of the Fund by nationally recognized ranking services and information
as reported in financial publications such as Business Week, Fortune,
Institutional Investor, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, or other national, regional or local publications.
All advertisements containing performance data will include a legend disclosing
that such performance data represents past performance and that the investment
return and principal value of an investment will fluctuate so that an investor's
Shares, when redeemed, may be worth more or less than their original cost.
-20-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-21-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS OR IN RBB'S STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY RBB OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
-------------------------
TABLE OF CONTENTS
Page
----
INTRODUCTION.........................................2
FINANCIAL HIGHLIGHTS.................................3
INVESTMENT OBJECTIVES AND POLICIES...................6
INVESTMENT LIMITATIONS...............................7
RISK FACTORS.........................................8
MANAGEMENT...........................................8
ADMINISTRATIVE SERVICES AGENT.......................10
DISTRIBUTION OF SHARES..............................11
HOW TO PURCHASE SHARES..............................11
HOW TO REDEEM AND EXCHANGE SHARES...................13
NET ASSET VALUE.....................................15
DIVIDENDS AND DISTRIBUTIONS.........................16
TAXES...............................................16
MULTI-CLASS STRUCTURE...............................17
DESCRIPTION OF SHARES...............................17
OTHER INFORMATION...................................18
Investment Adviser
Boston Partners Asset Management, L.P.
Boston, Massachusetts
Custodian
PNC Bank, N.A.
Philadelphia, Pennsylvania
Transfer Agent and Administrator
PFPC Inc.
Wilmington, Delaware
Distributor and Administrative Services Agent
Provident Distributors, Inc.
Conshohocken, Pennsylvania
Counsel
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Independent Accountants
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
<PAGE>
PROSPECTUS
December 29, 1998
BOSTON PARTNERS
LARGE CAP
VALUE FUND
(Institutional Shares)
bp
BOSTON PARTNERS
---------------
ASSET MANAGEMENT, L.P.
----------------------
<PAGE>
Boston Partners Large Cap Value Fund bp
(Institutional Class) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
--------------------------------------
ACCOUNT APPLICATION
Please Note: Do not use this form to open a retirement plan account. For an IRA
application or help with this Application, please call 1-888-261-4073
(Please check the appropriate box(es) below.)
- -------------------
1.
Account
Registration:
- -------------------
|_| Individual |_| Joint Tenant |_| Other
- --------------------------------------------------------------------------------
Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
- --------------------------------------------------------------------------------
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts, the account registrants will be
joint tenants with right of survivorship and not
tenants in common unless tenants in common or community
property registrations are requested.
- -------------------
GIFT TO MINOR:
- -------------------
|_| Uniform Gifts/Transfer to Minor's Act
- --------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
- --------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
- --------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
- -------------------
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
- -------------------
- --------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
STREET OR P.O. BOX AND/OR APARTMENT NUMBER
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
Minimum initial investment of $100,000 Amount of investment $____________
Make the check payable to Boston Partners Large Cap Value Fund.
Shareholders may not purchase shares of this Fund with a check issued by a third
party and endorsed over to the Fund.
- -------------------
2.
Mailing
Address:
- -------------------
- -------------------
3
Investment
Information:
- -------------------
- -------------------
DISTRIBUTION
OPTIONS:
- -------------------
Note: Dividends and capital gains may be reinvested or paid by check. If no
options are selected below, both dividends and capital gains will be reinvested
in additional Fund shares.
Dividends |_| Pay by check |_| Reinvest |_| Capital Gains |_| Pay by check
|_| Reinvest |_|
<PAGE>
- -------------------
4
Telephone
Redemption:
- -------------------
To use this option, you must initial the appropriate line below.
I authorize the Transfer Agent to accept instructions from any persons to redeem
or exchange shares in my account(s) by telephone in accordance with the
procedures and conditions set forth in the
______________________ __________________________ Redeem shares, and send
individual initial joint initial the proceeds to the
address of record.
______________________ __________________________ Exchange shares for
individual initial joint initial shares of The Boston
Partners Mid Cap Value
Fund, Bond Fund, Micro
Cap Value Fund, Market
Neutral Fund or
Long-Short Equity Fund.
- -------------------
5
Automatic
Investment
Plan:
- -------------------
The Account Investment Plan which is available to shareholders of the Fund,
makes possible regularly scheduled purchases of Fund shares to allow dollar-cost
averaging. The Fund's Transfer Agent can arrange for an amount of money selected
by you to be deducted from your checking account and used to purchase shares of
the Fund.
Please debit $________ from my checking account (named below) on or about the
20th of the month. Please attach an unsigned, voided check.
|_| Monthly |_| Every Alternate Month |_| Quarterly |_| Other
- -------------------
BANK OF RECORD:
- -------------------
- --------------------------------------------------------------------------------
BANK NAME STREET ADDRESS OR P.O. BOX
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
- -------------------
6
Signatures
- -------------------
The undersigned warrants that I (we) have full authority and, if a natural
person, I (we) am (are) of legal age to purchase shares pursuant to this Account
Application, and I (we) have received a current prospectus for the Fund in which
I (we) am (are) investing.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required
to have the following certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to), and (2) I am not subject to
backup withholding because (a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue Service that I am subject to 31%
backup withholding as a result of a failure to report all interest or dividends,
or (c) the IRS has notified me that I am no longer subject to backup
withholding.
Note: You must cross out item (2) above if you have been notified by the IRS
that you are currently subject to backup withholding because you have failed to
report all interest and dividends on your tax return. The Internal Revenue
Service does not require your consent to any provision of this document other
than the certification required to audit backup withholding.
- --------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
- --------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
- --------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER DATE
- --------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or
title. If you wish additional signatories on the account, please include a
corporate resolution. If signing as a fiduciary, you must indicate capacity.)
For information on additional options, such as IRA Applications, rollover
requests for qualified retirement plans, or for wire instructions, please call
us at 1-888-261-4073.
Mail completed Account Application and check to: The Boston Partners Large Cap
Value Fund
c/o PFPC Inc.
P.O. Box 8852
Wilmington, DE 19899-8852
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(Investor Class)
of
The RBB Fund, Inc.
Boston Partners Large Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Investor Class ("Shares") offered by this Prospectus
represent interests in the Fund. The Fund is a diversified fund that seeks
long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks and securities
convertible into common stocks. It seeks to achieve its objectives by investing
at least 65% of its total assets in a diversified portfolio consisting of equity
securities of issuers with a market capitalization of primarily $1 billion or
greater and identified by Boston Partners Asset Management, L.P. (the "Adviser")
as equity securities that it believes possess value characteristics. The Adviser
examines various factors in determining the value characteristics of such
issuers, including, but not limited to, price to book value ratios and price to
earnings ratios. These value characteristics are examined in the context of the
issuer's operating and financial fundamentals such as return on equity, earnings
growth and cash flow.
This Prospectus contains information that a prospective investor needs
to know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling (888)
261-4073. The Prospectus and the Statement of Additional Information are
available for reference, along with other related material, on the SEC Internet
Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
seventeen separate investment portfolios. The Shares offered by this Prospectus
represent interests in the Boston Partners Large Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
FEE TABLE
The following table illustrates annual operating expenses incurred by
Investor Shares of the Fund (after fee waivers and expense reimbursements) for
the fiscal period ended August 31, 1998, as a percentage of average daily net
assets. An example based on the summary is also shown.
Annual Fund Operating Expenses (as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C>
Management Fees (after waivers)*............................................................ .49%
12b-1 Fees (after waivers)*................................................................. .19%
Other Expenses (after waivers and
reimbursements)*............................................................................ .51%
Total Fund Operating Expenses
(after waivers and expense reimbursements)*................................................. 1.19%
=====
</TABLE>
* In the absence of expense reimbursements and fee waivers, Management
Fees would be 0.75%, 12b-1 Fees would be 0.25%, Other Expenses would be
.74%, and Total Fund Operating Expenses would be 1.74%. Management
Fees and 12b-1 Fees are each based on average daily net assets and are
calculated daily and paid monthly.
Example
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Boston Partners Large
Cap Value Fund.............................. $12 $38 $65 $144
</TABLE>
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" and "Distribution of Shares" below.) The Fee Table reflects
expense reimbursements and voluntary waivers of Management Fees and 12b-1 Fees
for the Fund. However, the Adviser, the Distributor and the other service
-2-
<PAGE>
providers are under no obligation with respect to such expense reimbursements
and waivers and there can be no assurance that any future expense reimbursements
and waivers of Management Fees and 12b-1 Fees will not vary from the figures
reflected in the Fee Table.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The "Financial Highlights" presented below set forth certain investment
results for shares of the Investor Class of the Fund for the period January 16,
1997 (date of inception) through August 31, 1997 and for the fiscal year ended
August 31, 1998. The financial data included in this table should be read in
conjunction with the financial statements and notes thereto and the unqualified
report of PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), RBB's
independent accountant, which are incorporated by reference into the Statement
of Additional Information. Further information about the performance of the
Investor Class of the Fund is available in the Annual Report to Shareholders.
Both the Statement of Additional Information and the Annual Report to
Shareholders may be obtained from the Fund free of charge by calling the
telephone number on page 1 of the prospectus.
-3-
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(For an Investor Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the Period
Fiscal Year January 16, 1997*
Ended through
August 31, 1998 August 31, 1997
--------------- ---------------
<S> <C>
Per Share Operating Performance**
Net asset value, beginning of period........................ $12.45 $10.20
------ ------
Net investment income(1).................................... 0.06 0.02
Net realized and unrealized gain/(loss) on investments(2)... (1.27) 2.23
------ ------
Net increase/(decrease) in net assets resulting from
operations................................................ (1.21) 2.25
------ ------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income....................................... (0.06) --
Net realized capital gains.................................. (0.48) --
------ ------
Net asset value, end of period.............................. $10.70 $12.45
====== ======
Total investment return(3).................................. (10.28%) 22.06%
====== ======
Ratios/Supplemental Data
Net assets, end of period (000's omitted)................... $6,150 $683
Ratio of expenses to average net assets***(1)(4)............ 1.19% 1.11%(5)
Ratio of net investment income to average net assets***(1).. 0.68% .91%(5)
Portfolio turnover rate****................................. 111.68% 67.16%(6)
</TABLE>
- ----------------------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of
the period, except dividends and distributions, if any, which are
based on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating net asset value
during the respective periods.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Without the waiver of advisory, 12b-1, administration and transfer
agent fees and without the reimbursement of certain operating
expenses, the ratio of expenses to average net assets annualized for
the period ended August 31, 1997 and the year ended August 31, 1998
would have been 3.05% and 1.74%, respectively, for the Investor Class.
(5) Annualized.
(6) Not annualized.
-4-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term growth of
capital with current income as a secondary objective. The Fund seeks to achieve
its objective by investing at least 65% of its total assets in a diversified
portfolio consisting primarily of equity securities, such as common stocks and
securities convertible into common stocks, of issuers with a market
capitalization of $1 billion or greater and identified by the Adviser as
possessing value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including but not limited to price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study
of trends in industries and companies, earnings power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operating in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold from time to time various foreign currencies pending their
investment in foreign securities or their conversion into U.S. dollars. The
value of the assets of the Fund as measured in U.S. dollars may therefore be
affected favorably or unfavorably by changes in exchange rates. There may be
less publicly available information concerning foreign issuers than is available
with respect to U.S. issuers. Foreign securities may not be registered with the
U.S. Securities and Exchange Commission, and generally, foreign companies are
not subject to uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers. See "Investment Objective and
Policies--Foreign Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity
securities of issuers with lower capitalizations; derivative securities; debt
securities issued by U.S. banks, corporations and other business organizations
that are investment grade securities; and debt securities issued by the U.S.
Government or government agencies.
In accordance with the above-mentioned policies, the Fund may also
invest in indexed securities, convertible securities, repurchase agreements,
reverse repurchase agreements, dollar rolls, financial futures contracts,
options on futures contracts and may lend portfolio securities. See "Investment
Objective and Policies" in the Statement of Additional Information.
The Fund may invest in registered investment companies and investment
funds in foreign countries subject to the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act") and as discussed in "Investment
Objective and Policies" in the Statement of
-5-
<PAGE>
Additional Information. If the Fund invests in such investment companies, the
Fund will bear its proportionate share of the costs incurred by such companies,
including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all
times in accordance with the above-mentioned policies, the Fund reserves the
right to hold up to 100% of its assets, as a temporary defensive measure, in
cash and eligible U.S. dollar-denominated money market instruments. The Adviser
will determine when market conditions warrant temporary defensive measures.
The Fund's investment objective and the policies described above may be
changed by RBB's Board of Directors without the affirmative vote of the holders
of a majority of the outstanding Shares representing interests in the Fund.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment limitations that cannot
be changed without such a vote of the shareholders is contained in the Statement
of Additional Information under "Investment Objective and Policies.")
The Fund may not:
1. Purchase the securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchases, more than 5% of the value of the Fund's total assets would
be invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of
purchase, 25% or more of the value of the total assets of the Fund to
be invested in the obligations of issuers in any single industry,
provided that there is no limitation with respect to investments in
U.S. Government obligations.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks and enter into reverse repurchase agreements
and dollar rolls for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing; or
mortgage, pledge or hypothecate any assets, except in connection with
any such borrowing and then in amounts not in excess of one-third of
the value of the Fund's total assets at the time of such borrowing. The
Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings
from banks) are in excess of 5% of its total assets. Securities held in
escrow or separate accounts in connection with the Fund's investment
practices are not considered to be borrowings or deemed to be pledged
for purposes of this limitation.
-6-
<PAGE>
If a percentage restriction under one of the Fund's investment policies
or restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation (except with respect to any restrictions that may apply
to borrowings or senior securities issued by the Fund).
RISK FACTORS
- --------------------------------------------------------------------------------
As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The net asset value per share of Shares representing
interests in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. Other risk
factors are discussed above under "Investment Objective and Policies" and in the
Statement of Additional Information under "Investment Objective and Polices."
European Currency Unification
Many European countries are about to adopt a single European currency,
the euro. On January 1, 1999, the euro will become legal tender for all
countries participating in the Economic and Monetary Union ("EMU"). A new
European Central Bank will be created to manage the monetary policy of the new
unified region. On the same date, the exchange rates will be irrevocably fixed
between the EMU member countries. National currencies will continue to circulate
until they are replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital
markets in which the Fund may invest and may result in the Fund facing
additional risks in pursuing its investment objective. These risks, which
include, but are not limited to, uncertainty as to the proper tax treatment of
the currency conversion, volatility of currency exchange rates as a result of
the conversion, uncertainty as to capital market reaction, conversion costs that
may affect issuer profitability and creditworthiness, and lack of participation
by some European countries, may increase the volatility of the Fund's net asset
value per share.
YEAR 2000
- --------------------------------------------------------------------------------
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved. The Year
2000 Problem could also hurt companies whose securities the Fund holds or
securities markets generally.
ASSET ALLOCATION
From time to time, the Fund may experience relatively large purchases
or redemptions due to asset allocation decisions made by the Advisor for clients
receiving Asset Allocation account management services involving investments in
the Fund. These transactions may have a material effect on the Fund, since
redemptions caused by reallocations may result in the Fund selling portfolio
securities, and purchases caused by reallocations may result in the Fund
receiving additional cash that it will have to invest. While it is impossible to
predict the overall impact of these transactions over time, there could be
adverse effects on portfolio management to the extent that the Fund may be
required to sell securities at times when it would not otherwise do so, or
receive cash that cannot be invested in an expeditious manner. These
transactions could also have tax consequences if the sale of securities results
in gains and could also increase transaction costs. The Advisor is committed to
minimizing the impact of such transactions on the Fund to the extent it is
consistent with pursuing the investment objectives of clients for which the
Advisor provides Asset Allocation account management services involving
investments in the Fund and monitors the impact of asset allocation decisions on
the Fund.
-7-
<PAGE>
General
Investment methods described in this Prospectus are among those which
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
MANAGEMENT
- --------------------------------------------------------------------------------
Board of Directors
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
Investment Adviser
Boston Partners Asset Management, L.P. located at 28 State Street, 21st
Floor, Boston, Massachusetts 02109 serves as the Fund's investment adviser. The
Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of October 31, 1998, in excess of $16.0 billion. The
adviser is organized as a Delaware limited partnership whose sole general
partner is Boston Partners, Inc., a Delaware corporation.
Subject to the supervision and direction of RBB's Board of Directors,
the Adviser manages the Fund's portfolio in accordance with the Fund's
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research services to the
Fund. For its services to the Fund, the Adviser is entitled to receive under the
Advisory Agreement a monthly advisory fee computed at an annual rate of 0.75% of
the Fund's average daily net assets. The Adviser intends to limit total Fund
operating expenses to 1.25% of the Fund's average daily net assets.
Portfolio Management
The day-to-day portfolio management of the Fund is the responsibility
of Mark E. Donovan and Wayne S. Sharp who are senior portfolio managers of the
Adviser. Mr. Donovan is Chairperson of the Adviser's Equity Strategy Committee
which oversees the investment activities of the Adviser's $5.5 billion in Large
Cap Value institutional equity assets under management. Prior to joining the
Adviser on April 16, 1995, Mr. Donovan was a Senior Vice President and Vice
Chairman of The Boston Company Asset Management, Inc.'s
-8-
<PAGE>
Equity Policy Committee. Mr. Donovan is a Chartered Financial Analyst and has
over fifteen years of investment experience. Ms. Sharp is Vice Chairperson of
the Adviser's Equity Strategy Committee and has over twenty-one years of
investment experience. Prior to joining the Adviser on April 16, 1995, Ms. Sharp
was a Senior Vice President and member of the Equity Policy Committee of The
Boston Company Asset Management, Inc. Ms. Sharp is also a Chartered Financial
Analyst.
Administrator
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC is entitled to receive a fee under an administration and
accounting services agreement calculated at an annual rate of .125% of the
Fund's average daily net assets with a minimum fee of $75,000 payable monthly on
a pro rata basis.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank, National Association ("PNC Bank") serves as the Fund's
custodian and PFPC serves as the Fund's transfer agent and dividend disbursing
agent. The principal offices of PFPC, an indirect, wholly-owned subsidiary of
PNC Bank, are located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
Distributor
Provident Distributors, Inc. ("PDI"), with offices at Four Falls
Corporate Center, West Conshohocken, Pennsylvania 19428, acts as distributor for
the Shares pursuant to a distribution agreement (the "Distribution Agreement")
with RBB on behalf of the Shares.
Expenses
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Investor Class of the Fund pays its own
distribution fees, and may pay a different share than the other classes of the
Fund of other expenses (excluding advisory and custodial fees) if those expenses
are actually incurred in a different amount by the Investor Class or if it
receives different services.
-9-
<PAGE>
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expenses of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
increasing its yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive
from the Fund a distribution fee with respect to the Shares, which is accrued
daily and paid monthly, of up to 0.25% on an annualized basis of the average
daily net assets of the Shares. The actual amount of such compensation under the
Plan is agreed upon by RBB's Board of Directors and by the Distributor in the
Distribution Agreement. The Distributor may, in its discretion, from time to
time waive voluntarily all or any Portion of its distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to Service Agents. See
"How to Purchase Shares--Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of the Shares the fee agreed to
under the Distribution Plan. Payments under the Plan are not tied exclusively to
expenses actually incurred by the Distributor, and payments may exceed
distribution expenses actually incurred.
Purchases Through Intermediaries.
Shares of the Fund may be available through certain brokerage firms,
financial institutions and programs sponsored by other industry professionals
(collectively, "Service Organizations"). Certain features of the Shares, such as
the initial and subsequent investment minimums and certain trading restrictions,
may be modified or waived by Service Organizations. Service Organizations may
impose transaction or administrative charges or other direct fees, which charges
or fees would not be imposed if Shares are purchased directly from the Fund.
Therefore, a client or customer should contact the Service Organization acting
on his behalf concerning the fees (if any) charged in connection with a purchase
or redemption of Shares and should read this Prospectus in light of the terms
governing his accounts with the Service Organization. Service Organizations will
be responsible for promptly transmitting client or customer purchase and
redemption orders to the Fund in accordance with their agreements with clients
or customers. Service Organizations or, if applicable, their designees that have
entered into agreements with the Fund or its agent may enter confirmed purchase
orders on behalf of clients and customers, with payment to follow no later than
the Fund's pricing on the following Business Day. If payment is not received by
such time, the Service Organization could be held liable for resulting fees or
losses. The Fund will be deemed to have received a purchase or
-10-
<PAGE>
redemption order when a Service Organization, or, if applicable, its authorized
designee, accepts a purchase or redemption order in good order. Orders received
by the Fund in good order will be priced at the Fund's net asset value next
computed after they are accepted by the Service Organization or its authorized
designee.
For administration, subaccounting, transfer agency and/or other
services, the Adviser or the Distributor or their affiliates may pay Service
Organizations and certain recordkeeping organizations with whom they have
entered into agreements a fee of up to .35% (the "Service Fee") of the average
annual value of accounts with the Fund maintained by such Service Organizations
or recordkeepers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization
or recordkeeper.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares consisting of securities dealers who have sold
Shares, or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
General
Shares representing interests in the Fund are offered continuously for
sale by the Distributor and may be purchased without imposition of a sales
charge. Shares may be purchased initially by completing the application included
in this Prospectus and forwarding the application to the Fund's transfer agent,
PFPC. Purchases of Shares may be effected by wire to an account to be specified
by PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston Partners Large Cap Value Fund," c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. The name of the Fund, Boston Partners Large Cap
Value Fund, must also appear on the check or Federal Reserve Draft. Shareholders
may not purchase shares of the Boston Partners Large Cap Value Fund with a check
issued by a third party and endorsed over to the Fund. Federal Reserve Drafts
are available at national banks or any state bank which is a member of the
Federal Reserve System. Initial investments in the Fund must be at least $2,500
and subsequent investments must be at least $100. The Fund reserves the right to
suspend the offering of Shares for a period of time or to reject any purchase
order.
-11-
<PAGE>
Shares may be purchased on any Business Day. A "Business Day" is any
day that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value
next computed after a purchase order is received in good order by the Fund or
its agents. Orders received by the Fund or its agents prior to the close of the
NYSE (generally 4:00 p.m. Eastern Time) are priced at that Business Day's net
asset value. Orders received by the Fund or its agents after the close of the
NYSE are priced at the net asset value next determined on the following Business
Day. In those cases where an investor pays for Shares by check, the purchase
will be effected at the net asset value next determined after the Fund or its
agents receives the order and the completed application.
Provided that the investment is at least $2,500, an investor may also
purchase Shares by having his bank or her broker wire Federal Funds to PFPC. An
investor's bank or broker may impose a charge for this service. The Fund does
not currently impose a service charge for effecting wire transfers, but reserves
the right to do so in the future. In order to ensure prompt receipt of an
investor's Federal Funds wire for an initial investment, it is important that an
investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888)
261-4073, and provide PFPC with your name, address, telephone number,
Social Security or Tax Identification Number, the Fund selected, the
amount being wired, and by which bank. PFPC will then provide an
investor with a Fund account number. Investors with existing accounts
should also notify PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount,
together with your assigned account number, to PFPC's account with PNC
Bank:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the Fund)
FOR PURCHASE OF: Boston Partners Large Cap Value Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the
address shown thereon. PFPC will not process redemptions until it
receives a fully completed and signed application.
-12-
<PAGE>
For subsequent investments, an investor should follow steps A and B
above.
Automatic Investing
Additional investments in Shares may be made automatically by
authorizing the Fund's transfer agent to withdraw funds from your bank account.
Investors desiring to participate in the Automatic Investment Plan should call
the Fund's transfer agent, PFPC, at (888) 261-4073 to obtain the appropriate
forms.
Retirement Plans
Shares may be purchased in conjunction with individual retirement
accounts ("IRAs") and rollover IRAs where PNC Bank acts as Custodian. For
further information as to applications and annual fees, contact PFPC at (888)
261-4073. To determine whether the benefits of an IRA are available and/or
appropriate, a shareholder should consult with a tax adviser.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
Redemption By Mail
Shareholders may redeem for cash some or all of their Shares of the
Fund at any time. To do so, a written request in proper form must be sent
directly to Boston Partners Large Cap Value Fund, c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. There is no charge for a redemption.
A request for redemption must be signed by all persons in whose names
the Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "How to Redeem
and Exchange Shares -- Exchange Privilege."
Generally, a properly signed written request with any required
signature guarantee is all that is required for a redemption. In some cases,
however, other documents may be necessary. In the case of shareholders holding
share certificates, the certificates for the shares being redeemed must
accompany the redemption request. Additional documentary evidence of authority
is also required by the Fund's transfer agent in the event redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator.
Systematic Withdrawal Plan
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan and receive regular periodic payments. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to PFPC at
P.O. Box 8852, Wilmington, Delaware 19899-8852. Each withdrawal redemption will
be processed on or about the 25th of the month
-13-
<PAGE>
and mailed as soon as possible thereafter. There are no service charges for
maintenance, the minimum amount that you may withdraw each period is $100. (This
is merely the minimum amount allowed and should not be mistaken for a
recommended amount.) The holder of a Systematic Withdrawal Plan will have any
income dividends and any capital gains distributions reinvested in full and
fractional shares at net asset value. To provide funds for payment, Shares will
be redeemed in such amount as is necessary at the redemption price, which is net
asset value next determined after the Fund's receipt of a redemption request.
Redemption of Shares may reduce or possibly exhaust the Shares in your account,
particularly in the event of a market decline. As with other redemptions, a
redemption to make a withdrawal payment is a sale for federal income tax
purposes. Payments made pursuant to a Systematic Withdrawal Plan cannot be
considered as actual yield or income since part of such payments may be a return
of capital.
You will ordinarily not be allowed to make additional investments of
less than the aggregate annual withdrawals under the Systematic Withdrawal Plan
during the time you have the plan in effect and, while a Systematic Withdrawal
Plan is in effect, you may not make periodic investments under the Automatic
Investment Plan. You will receive a confirmation of each transaction showing the
sources of the payment and the Share and cash balance remaining in your plan.
The plan may be terminated on written notice by the shareholder or by the Fund
and will terminate automatically if all Shares are liquidated or withdrawn from
the account or upon the death or incapacity of the shareholder. You may change
the amount and schedule of withdrawal payments or suspend such payments by
giving written notice to the Fund's transfer agent at least seven Business Days
prior to the end of the month preceding a scheduled payment.
Involuntary Redemption
The Fund reserves the right to redeem a shareholder's account at any
time the net asset value of the account falls below $500 as the result of a
redemption or an exchange request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.
Payment of Redemption Proceeds
In all cases, the redemption price is the net asset value per share
next determined after the request for redemption is received in proper form by
the Fund or its agents. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund or its agents of the request and
any other necessary documents in proper order. Such payment may be postponed or
the right of redemption suspended as permitted by the 1940 Act. If the Shares to
be redeemed have been recently purchased by check, the Fund's transfer agent may
delay mailing a redemption check, which may be a period of up to 15 days,
pending a determination that the check has cleared. The Fund has elected to be
governed by Rule 18f-1 under the 1940 Act so that it is obligated to redeem its
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder of a portfolio.
-14-
<PAGE>
Exchange Privilege
The exchange privilege is available to shareholders residing in any
state in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Investor Shares of any other Boston Partners
Fund of RBB, subject to the restrictions described under "Exchange Privilege
Limitations" below. Such exchange will be effected at the net asset value of the
exchanged Fund and the net asset value of the Fund being acquired next
determined after receipt of a request for an exchange by the Fund or its agents.
An exchange of Shares will be treated as a sale for federal income tax purposes.
See "Taxes." A shareholder wishing to make an exchange may do so by sending a
written request to PFPC.
If the exchanging shareholder does not currently own Investor Shares of
the Boston Partners Fund into which he would like to exchange, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted. The exchange privilege may be modified
or terminated at any time, or from time to time, by RBB, upon 60 days' written
notice to shareholders.
If an exchange is to a new account in the acquired Fund, the dollar
value of Investor Shares acquired must equal or exceed that Fund's minimum for a
new account; if to an existing account, the dollar value must equal or exceed
that Fund's minimum for subsequent investments. If any amount remains in the
Fund from which the exchange is being made, such amount must not drop below the
minimum account value required by the Fund.
Exchange Privilege Limitations
The Fund's exchange privilege is not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Fund and increase transactions costs, the Fund has established
a policy of limiting excessive exchange activity.
Shareholders are entitled to six (6) exchange redemptions (at least 30
days apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
Telephone Transactions
In order to request an exchange or redemption by telephone, a
shareholder must have completed and returned an account application containing
the appropriate telephone election. To add a telephone option to an existing
account that previously did not provide for this option, a Telephone
Authorization Form must be filed with PFPC. This form is available from PFPC.
-15-
<PAGE>
Once this election has been made, the shareholder may simply contact PFPC by
telephone to request the exchange or redemption by calling (888) 261-4073.
Neither RBB, the Fund, the Distributor, the Administrator nor any other Fund
agent will be liable for any loss, liability, cost or expense for following
RBB's telephone transaction procedures described below or for following
instructions communicated by telephone that they reasonably believe to be
genuine.
RBB's telephone transaction procedures include the following measures:
(1) requiring the appropriate telephone transaction privilege forms; (2)
requiring the caller to provide the names of the account owners, the account
social security number and name of the Fund, all of which must match RBB's
records; (3) requiring RBB's service representative to complete a telephone
transaction form, listing all of the above caller identification information;
(4) permitting exchanges only if the two account registrations are identical;
(5) requiring that redemption proceeds be sent only by check to the account
owners of record at the address of record, or by wire only to the owners of
record at the bank account of record; (6) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) Business Days of the call; and (7) maintaining tapes of
telephone transactions for six months, if the Fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners and other industry professionals, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by an
attorney-in-fact under a power of attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each class of a fund is calculated by adding
the value of the proportionate interest of the class in a fund's securities,
cash and other assets, deducting the actual and accrued liabilities of the class
and dividing the result by the number of outstanding shares of the class. The
net asset value of each class is calculated independently from each other class.
The net asset values are calculated as of 4:00 p.m. Eastern Time on each
Business Day.
Valuation of securities held by the Fund is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; and securities for which market quotations are not
readily available are valued at fair market value as determined in good faith by
or under the direction of RBB's Board of Directors. The amortized cost method of
valuation may also be used with respect to debt obligations with sixty days or
less remaining to maturity.
With the approval of RBB's Board of Directors, the Fund may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Fund's securities. A more detailed
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<PAGE>
discussion of net asset value and security valuation is contained in the
Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Fund to the Fund's shareholders.
All distributions are reinvested in the form of additional full and fractional
shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually, and pays them in the calendar year in which they are declared,
generally in December. Net realized capital gains (including net short-term
capital gains), if any, will be distributed at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders
and is not intended as a substitute for careful tax planning. Accordingly,
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation.
The Fund will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. So long as the
Fund qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on amounts so distributed (except
distributions that are treated as a return of capital) regardless of whether
such distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the Fund
will be taxed to shareholders as long-term capital gain regardless of the length
of time a shareholder has held his shares, whether such gain was reflected in
the price paid for the shares, or whether such gain was attributable to bonds
bearing tax-exempt interest. All other distributions, to the extent they are
taxable, are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the
tax status of distributions made by the Fund. Dividends declared in December of
any year payable to shareholders of record on a specified date in such a month
will be deemed to have been received by the shareholders on December 31,
provided such dividends are paid during January of the following year. The Fund
intends to make sufficient actual or deemed distributions prior to the end of
each calendar year to avoid liability for federal excise tax.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing shares immediately prior to a distribution
-17-
<PAGE>
will nevertheless be taxed on the entire amount of the distribution received,
although the distribution is, in effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize gain or
loss for federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Institutional Shares,
which are offered directly to institutional investors, pursuant to a separate
prospectus. Shares of each class represent equal pro rata interests in the
Fund and accrue dividends and calculate net asset value and performance
quotations in the same manner. The Fund will quote performance of the
Institutional Shares separately from Investor Shares. Because of different
expenses paid by the Investor Shares, the total return on such shares can be
expected. at any time, to be different than the total return on Institutional
Shares. Information concerning these other classes may be obtained by calling
the Fund at (888) 261-4073.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB 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.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE BOSTON PARTNERS LARGE CAP VALUE FUND
AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS
AND OTHER MATTERS RELATING TO THE BOSTON PARTNERS LARGE CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares will be fully paid and
non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides
-18-
<PAGE>
shareholders with the right to call for a meeting of shareholders to consider
the removal of one or more directors. To the extent required by law, the Fund
will assist in shareholder communication in such matters.
Holders of Shares of the Fund will vote in the aggregate and not by
class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of RBB will vote in the aggregate and
not by portfolio except as otherwise required by law or when RBB's Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples of when the 1940 Act requires voting by investment portfolio or by
class.) Shareholders of the Fund are entitled to one vote for each full share
held (irrespective of class or portfolio) and fractional votes for fractional
shares held. Voting rights are not cumulative and, accordingly, the holders of
more than 50% of the aggregate shares of Common Stock of the Fund may elect all
of the directors.
As of November 16, 1998 to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
RBB.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to the Fund's
transfer agent, PFPC, at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (888) 261-4073.
Share Certificates
In the interest of economy and convenience, physical certificates
representing shares in the Fund are not normally issued.
Historical Performance Information
For the period from commencement of operations (January 16, 1997)
through August 31, 1998, the total return since inception (not annualized) for
the Investor Class of Shares of the Fund was as follows:
Unannualized investment returns for the period ended August 31, 1998
<TABLE>
<CAPTION>
Since
Inception
---------
<S> <C>
Boston Partners Large Cap Value Fund
(Investor Shares).......................................... 9.51%
</TABLE>
-19-
<PAGE>
The total return assumes the reinvestment of all dividends and capital
gains and reflects expense reimbursements and investment advisory fee and 12b-1
fee waivers in effect. Without these expense reimbursements or waivers, the
Fund's performance would have been lower. Of course, past performance is no
guarantee of future results. Investment return and principal value will
fluctuate, so that Shares, when redeemed, may be worth more or less than the
original cost. For more information on performance, see "Performance
Information" in the Statement of Additional Information.
The table below presents the Composite performance history of certain
of the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1998. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Fund, which commenced
operations on January 16, 1997. The Composite performance information includes
the reinvestment of dividends received in the underlying securities and reflects
the payment of investment advisory fees. The privately managed accounts in the
Composite are only available to the Adviser's institutional advisory clients.
The past performance of the funds and accounts which comprise the Composite is
not indicative of or a substitute for the future performance of the Fund. These
accounts have lower investment advisory fees than the Fund, and the Composite
performance figures would have been lower if subject to the higher fees and
expenses incurred by the Fund. These private accounts are also not subject to
the same investment limitations, diversification requirements and other
restrictions which are imposed upon mutual funds under the 1940 Act and the
Internal Revenue Code, which, if imposed, may have adversely affected the
performance results of the Composite. Listed below the performance history for
the Composite is a comparative index comprised of securities similar to those in
which accounts contained in the Composite are invested.
Annualized investment returns for the period ended August 31, 1998
<TABLE>
<CAPTION>
Since
One Year Inception*
-------- ----------
<S> <C> <C>
Composite Performance................................ (10.28)% 5.75%
S&P 500 Stock Index.................................. 8.11% 16.30%
</TABLE>
* The Adviser commenced managing these accounts on June 1, 1995.
The S&P 500 Stock Index is an unmanaged index of 500 selected common stocks,
most of which are listed on the NYSE.
Future Performance Information
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods
-20-
<PAGE>
or, if such periods have not yet elapsed, shorter periods corresponding to the
life of the Fund. Such total return quotations will be computed by finding the
compounded average annual total return for each time period that would equate
the assumed initial investment of $1,000 to the ending redeemable value, net of
fees, according to a required standardized calculation. The standard calculation
is required by the SEC to provide consistency and comparability in investment
company advertising. The Fund may also from time to time include in such
advertising an aggregate total return figure or a total return figure that is
not calculated according to the standardized formula in order to compare more
accurately the Fund's performance with other measures of investment return. For
example, the Fund's total return may be compared with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of the Standard & Poor's 500
Stock Index or the Dow Jones Industrial Average. Performance information may
also include evaluation of the Fund by nationally recognized ranking services
and information as reported in financial publications such as Business Week,
Fortune, Institutional Investor, Money Magazine, Forbes, Barron's, The Wall
Street Journal, The New York Times, or other national, regional or local
publications. All advertisements containing performance data will include a
legend disclosing that such performance data represents past performance and
that the investment return and principal value of an investment will fluctuate
so that an investor's Shares, when redeemed, may be worth more or less than
their original cost.
-21-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR PROSPECTUS
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
IN RBB'S STATEMENT OF ADDITIONAL INFORMATION INCORPORATED DECEMBER 29, 1998
HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB OR BY THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
TABLE OF CONTENTS
Page
----
INTRODUCTION.......................................2 BOSTON PARTNERS
FINANCIAL HIGHLIGHTS...............................3 LARGE CAP
INVESTMENT OBJECTIVES AND POLICIES.................5 VALUE FUND
INVESTMENT LIMITATIONS.............................6 (Investor Shares)
RISK FACTORS.......................................7
MANAGEMENT.........................................8
DISTRIBUTION OF SHARES.............................9
HOW TO PURCHASE SHARES............................11
HOW TO REDEEM AND EXCHANGE SHARES.................13
NET ASSET VALUE...................................16
DIVIDENDS AND DISTRIBUTIONS.......................16
TAXES.............................................17
MULTI-CLASS STRUCTURE.............................17
DESCRIPTION OF SHARES.............................18
OTHER INFORMATION.................................19
Investment Adviser
Boston Partners Asset Management, L.P.
Boston, Massachusetts
Custodian
PNC Bank, N.A.
Philadelphia, Pennsylvania
Transfer Agent and Administrator
PFPC Inc.
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania bp
BOSTON PARTNERS ASSET MANAGEMENT, L.P.
Counsel --------------------------------------
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Independent Accountants
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Boston Partners Large Cap Value Fund bp
(Investor Class) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
--------------------------------------
ACCOUNT APPLICATION
Please Note: Do not use this form to open a retirement plan account. For an IRA application or help with this Application, please
call 1-888-261-4073
(Please check the appropriate box(es) below.)
1.
Account
Registration:
|_| Individual |_| Joint Tenant |_| Other
---------------------------------------------------------------------------------------------------------
Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
---------------------------------------------------------------------------------------------------------
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts, the account registrants will be joint tenants with right of survivorship and not
tenants in common unless tenants in common or community property registrations are requested.
- --------------
GIFT TO MINOR: |_| Uniform Gifts/Transfer to Minor's Act
- --------------
---------------------------------------------------------------------------------------------------------
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
---------------------------------------------------------------------------------------------------------
NAME OF MINOR (ONLY ONE PERMITTED)
---------------------------------------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
- -------------
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
- -------------
---------------------------------------------------------------------------------------------------------
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
---------------------------------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
2.
Mailing
Address: ---------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX AND/OR APARTMENT NUMBER
---------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
---------------------------------------------------------------------------------------------------------
DAY PHONE NUMBER EVENING PHONE NUMBER
3.
Investment
Information:
Minimum initial investment of $2,500 Amount of investment $____________
Make the check payable to Boston Partners Large Cap Value Fund.
Shareholders may not purchase shares of this Fund with a check issued by a third party and endorsed
over to the Fund.
- -------------
DISTRIBUTION Note: Dividends and capital gains may be reinvested or paid by check. If not options are selected
OPTIONS: below, both dividends and capital gains will be reinvested in additional Fund shares.
- -------------
Dividends |_| Pay by check |_| Reinvest |_| Capital Gains |_| Pay by check |_| Reinvest |_|
<PAGE>
- -------------
SYSTEMATIC To select this portion please fill out the information below:
WITHDRAWAL
PLAN: Amount__________________________________________ Startup Month ____________________________________
- -------------
Frequency Options: Annually Monthly Quarterly
- A minimum account value of $10,000 in a single account is required to establish a Systematic
Withdrawal Plan
- Payments will be made on or near the 25th of the month
Please check one of the following options: _______ Please mail checks to Address of Record
(Named in Section 2)
_______ Please electronically credit my Bank of Record
(Named in Section 5)
4.
Telephone
Redemption:
To use this option, you must initial the appropriate line below.
I authorize the Transfer Agent to accept instructions from any persons to redeem or exchange shares in
my account(s) by telephone in accordance with the procedures and conditions set forth in the Fund's
current prospectus.
________________________ ____________________ Redeem shares, and send the proceeds to
individual initial joint initial the address of record.
________________________ ____________________ Exchange shares for shares of The Boston
individual initial joint initial Partners Mid Cap Value Fund, Bond Fund,
Micro Cap Value Fund, Market Neutral Fund
or Long-Short Equity Fund.
5.
Automatic The Account Investment Plan which is available to shareholders of the Fund, makes possible regularly
Investment scheduled purchases of Fund shares to allow dollar-cost averaging. The Fund's Transfer Agent can
Plan: arrange for an amount of money selected by you to be deducted from your checking account and used to
purchase shares of the Fund.
Please debit $________ from my checking account (named below on or about the 20th of the month. Please
attach an unsigned, voided check.
|_| Monthly |_| Every Alternate Month |_| Quarterly |_| Other
- ------------- ---------------------------------------------------------------------------------------------------------
BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
- -------------
---------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
---------------------------------------------------------------------------------------------------------
BANK ABA NUMBER BANK ACCOUNT NUMBER
6.
Signatures
The undersigned warrants that I (we) have fully authority and, if a natural person, I (we) am (are)
of legal age to purchase shares pursuant to this Account Application, and I (we) have received a
current prospectus for the Fund in which I (we) am (are) investing. Under the Interest and Dividend Tax
Compliance Act of 1983, the Fund is required to have the following certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a
number to be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service that I am subject to 31% backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
Note: You must cross out item (2) above if you have been notified by the IRS that you are currently
subject to backup withholding because you have failed to report all interest and dividends on your tax
return. The Internal Revenue Service does not require your consent to any provision of this document
other than the certification required to audit backup withholding.
---------------------------------------------------------------------------------------------------------
SIGNATURE OF APPLICANT DATE
---------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
---------------------------------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER DATE
---------------------------------------------------------------------------------------------------------
PRINT NAME TITLE (IF APPLICABLE)
<PAGE>
(If you are signing for a corporation, you must indicate corporate office or title. If you wish
additional signatories on the account, please include a corporate resolution. If signing as a fiduciary,
you must indicate capacity.)
For information on additional options, such as IRA Applications, rollover requests for qualified
retirement plans, or for wire instructions, please call us at 1-888-261-4073.
Mail completed Account Application and check to: The Boston Partners Large Cap Value Fund
c/o PFPC Inc.
P.O. Box 8852
Wilmington, DE 19899-8852
</TABLE>
<PAGE>
BOSTON PARTNERS MID CAP VALUE FUND
(Institutional Shares)
of
The RBB Fund, Inc.
Boston Partners Mid Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Institutional Class ("Shares") offered by this
Prospectus represent interests in the Fund. The Fund is a diversified fund that
seeks long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks. It seeks to achieve
its objectives by investing at least 65% of its total assets in a diversified
portfolio consisting of equity securities of issuers with a market
capitalization of primarily between $200 million to $6 billion, and identified
by Boston Partners Asset Management, L.P. (the "Adviser") as equity securities
that it believes possess value characteristics. The Adviser examines various
factors in determining the value characteristics of such issuers, including, but
not limited to, price to book value ratios and price to earnings ratios. These
value characteristics are examined in the context of the issuer's operating and
financial fundamentals such as return on equity, earnings growth and cash flow.
This Prospectus contains information that a prospective investor needs
to know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling (888)
261-4073. The Prospectus and the Statement of Additional Information are
available for reference, along with other related materials, on the SEC Internet
Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
<PAGE>
EXPENSE TABLE
The following table illustrates annual operating expenses incurred by
Institutional Shares of the Fund (after fee waivers and expense reimbursements)
for the period ended August 31, 1998, as a percentage of average daily net
assets. An example based on the summary is also shown.
Annual Fund Operating Expenses (as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C>
Management Fees (after waivers)*..................................................................... .58%
12b-1 Fees ..........................................................................................0.00%
Other Expenses (after waivers and expense reimbursements)*........................................... .42%
Total Fund Operating Expenses (after waivers and
expense reimbursements)*....................................................................1.00%
====
</TABLE>
* In the absence of fee waivers and expense reimbursements, Management
Fees would be 0.80%; Other Expenses would be .77% and Total Fund
Operating Expenses would be 1.57%. Management Fees are based on average
daily net assets and are calculated daily and paid monthly.
Example
An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C>
Boston Partners Mid Cap Value Fund $10 $32 $55 $122
</TABLE>
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" below.) The Fee Table reflects expense reimbursements and
voluntary waivers of Management Fees and administrative services fees for the
Fund, which are expected to be in effect during the current fiscal year.
However, the Adviser, the Administrative Services Agent and the Fund's other
service providers are under no obligation with respect to such expense
reimbursements and waivers and there can be no assurance that any future expense
reimbursements and waivers of Management Fees will not vary from the figures
reflected in the Fee Table.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
-2-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The "Financial Highlights" presented below set forth certain investment
results for shares of the Institutional Class of the Fund for the period June 2,
1997 (date of inception) through August 31, 1997 and for the fiscal year ended
August 31, 1998. The financial data included in this table should be read in
conjunction with the financial statements and notes thereto and the unqualified
report of PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), RBB's
independent accountant, which are incorporated by reference into the Statement
of Additional Information. Further information about the performance of the
Institutional Class of the Fund is available in the Annual Report to
Shareholders. Both the Statement of Additional Information and the Annual Report
to Shareholders may be obtained from the Fund free of charge by calling the
telephone number on page 1 of the prospectus.
-3-
<PAGE>
BOSTON PARTNERS MID CAP VALUE FUND
(For an Institutional Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Fiscal June 2, 1997*
Year Ended through
August 31, 1998 August 31, 1997
--------------- ---------------
<S> <C>
Per Share Operating Performance**
Net asset value, beginning of period................................. $ 11.01 $ 10.00
------- -------
Net investment income (1)............................................ 0.01 .01
Net realized and unrealized gain/(loss) on investments(2)............ (1.39) 1.00
------- -------
Net increase/(decrease) in net assets resulting
from operations.................................................... (1.38) 1.01
------- -------
DIVIDEND TO SHAREHOLDERS FROM:
Net investment income................................................ (0.01) --
Net realized capital gains........................................... (0.14) --
------- -------
Net asset value, end of period....................................... $ 9.48 $ 11.01
======= =======
Total investment return(3)........................................... (12.73%) 10.10%
======= =======
Ratios/Supplemental Data
Net assets, end of period (000)...................................... $67,568 $3,750
Ratio of expenses to average net
assets(1)(4).................................................... 1.00% 1.00%(5)
Ratio of net investment income to
average net assets(1)........................................... 0.13% 1.08%(5)
Portfolio turnover rate.......................................... 167.86% 21.80%(6)
</TABLE>
- ----------------------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating net asset value
during the respective periods.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Until May 29, 1998, the Institutional Class of the Fund paid .03% of
its average daily net assets to the Fund's previous Distributor in
12b-1 fees. From May 29, 1998
-4-
<PAGE>
through August 31, 1998, the Institutional Class of the Fund paid .03%
of its average daily net assets to the Administrative Services Agent
pursuant to the Administrative Services Plan for Institutional Shares,
in lieu of 12b-1 fees. Without the waiver of advisory, 12b-1,
administrative services, administration and transfer agent fees and
without the reimbursement of certain operating expenses, the ratio of
expenses to average net assets annualized for the period ended August
31, 1997 and the year ended August 31, 1998 would have been 12.37% and
1.57%, respectively, for the Institutional Class.
(5) Annualized.
(6) Not annualized.
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
seventeen separate investment portfolios. The Shares offered by this Prospectus
represent interest in the Boston Partners Mid Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term growth of
capital with current income as a secondary objective. The Fund seeks to achieve
its objective by investing, under normal market conditions, at least 65% of its
total assets in a diversified portfolio consisting primarily of equity
securities such as common stocks of issuers with a market capitalization of
between $200 million and $4 billion and identified by the Adviser as equity
securities that it believes possess value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including, but not limited to, price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study
of trends in industries and companies, earning power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers. Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operating in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold from time to time various foreign currencies pending their
investment in foreign securities or their conversion into U.S. dollars. The
value of the assets of the Fund as measured in U.S. dollars may therefore be
affected favorably or unfavorably by changes in exchange rates. There may be
less publicly available information concerning foreign issuers than is available
with respect to U.S. issuers. Foreign securities may not be registered with the
U.S. Securities
-5-
<PAGE>
and Exchange Commission, and generally, foreign companies are not subject to
uniform accounting, auditing and financial reporting requirements comparable to
those applicable to U.S. issuers. See "Investment Objective and
Policies--Foreign Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity
securities of issuers with lower or higher capitalizations; derivative
securities; debt securities issued by U.S. banks, corporations and other
business organizations that are investment grade securities; and debt securities
issued by the U.S. government or government agencies.
In accordance with the above-mentioned policies, the Fund may also
invest in indexed securities, repurchase agreements, reverse repurchase
agreements, dollar rolls, financial futures contracts, options on futures
contracts and may lend portfolio securities. See "Investment Objectives and
Policies" in the Statement of Additional Information.
The Fund may invest in registered investment companies and investment
funds in foreign countries subject to the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act"), and as discussed in "Investment
Objectives and Policies" in the Statement of Additional Information. If the Fund
invests in such investment companies, the Fund will bear its proportionate share
of the costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all
times in accordance with the above-mentioned policies, the Fund reserves the
right to hold up to 100% of its assets, as a temporary defensive measure, in
cash and eligible U.S. dollar-denominated money market instruments. The Adviser
would determine when market conditions warrant temporary defensive measures.
The Fund's investment objectives and the policies described above may
be changed by RBB's Board of Directors without the affirmative vote of the
holders of a majority of the outstanding Shares representing interests in the
Fund.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment limitations that cannot
be changed without such a vote of the shareholders is contained in the Statement
of Additional Information under "Investment Objectives and Policies.")
The Fund may not:
1. Purchase the securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting securities
of
-6-
<PAGE>
such issuer would be owned by the Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of the Fund to be invested in the
obligations of issuers in any single industry, provided that there is no
limitation with respect to investments in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements and dollar rolls
for temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and then in amounts not in
excess of one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation.
If a percentage restriction under one of the Fund's investment policies
or restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation (except with respect to any restrictions that may apply
to borrowings or senior securities issued by the Fund).
RISK FACTORS
- --------------------------------------------------------------------------------
As with other mutual funds, there can be no assurance that the Fund
will achieve its objective. The net asset value per share of Shares representing
an interest in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. Other risk
factors are discussed above under "Investment Objective and Policies" and in the
Statement of Additional Information under "Investment Objective and Policies."
European Currency Unification. Many European countries are about to
adopt a single European currency, the euro. On January 1, 1999, the euro will
become legal tender for all countries participating in the Economic and Monetary
Union ("EMU"). A new European Central Bank will be created to manage the
monetary policy of the new unified region. On the same date, the exchange rates
will be irrevocably fixed between the EMU member countries. National currencies
will continue to circulate until they are replaced by euro coins and bank notes
by the middle of 2002.
This change is likely to significantly impact the European capital
markets in which the Fund may invest and may result in the Fund facing
additional risks in pursuing its investment objective. These risks, which
include, but are not limited to, uncertainty as to
-7-
<PAGE>
the proper tax treatment of the currency conversion, volatility of currency
exchange rates as a result of the conversion, uncertainty as to capital market
reaction, conversion costs that may affect issuer profitability and
creditworthiness, and lack of participation by some European countries, may
increase the volatility of the Fund's net asset value per share.
YEAR 2000
- --------------------------------------------------------------------------------
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved. The Year
2000 Problem could also hurt companies whose securities the Fund holds or
securities markets generally.
General. Investment methods described in this Prospectus are among
those which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
MANAGEMENT
- --------------------------------------------------------------------------------
Board of Directors
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
Investment Adviser
Boston Partners Asset Management, L.P., located at 28 State Street,
21st Floor, Boston, Massachusetts 02109, serves as the Fund's investment
adviser. The Adviser provides investment management and investment advisory
services to investment companies and other institutional accounts that had
aggregate total assets under management as of October 31, 1998 in excess of
$16.0 billion. The adviser is organized as a Delaware limited partnership whose
sole general partner is Boston Partners, Inc., a Delaware corporation.
Subject to the supervision and direction of the Fund's Board of
Directors, the Adviser manages the Fund's portfolio in accordance with the
Fund's investment objective and policies, makes investment decisions for the
Fund, places orders to purchase and sell securities, and employs professional
portfolio managers and securities analysts who provide research services to the
Fund. For its services to the Fund, the Adviser is paid a monthly advisory fee
-8-
<PAGE>
computed at an annual rate of 0.80% of the Fund's average daily net assets. The
Adviser has notified RBB, however, that it intends to limit total Fund operating
expenses to 1.00% during the current fiscal year.
Portfolio Management
The day-to-day portfolio management of the Fund is the responsibility
of Wayne J. Archambo who is senior portfolio manager of the Adviser and a member
of the Adviser's Equity Strategy Committee. Mr. Archambo oversees the investment
activities of the Advisers' $1.5 billion of mid-capitalization activities as
well as $1.0 billion in small capitalization activities. Prior to joining the
Adviser in April 1995, Mr. Archambo was employed by The Boston Company Asset
Management from 1989 through April 1995 where he was a senior portfolio manager
and a member of the firm's Equity Policy Committee. Mr. Archambo has over 15
years of investment experience and is a Chartered Financial Analyst.
Administrator
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC receives a fee calculated at an annual rate of .125% of the
Fund's average daily net assets, with a minimum annual fee of $75,000 payable
monthly on a pro rata basis.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank, National Association ("PNC Bank") serves as the Fund's
custodian and PFPC serves as the Fund's transfer agent and dividend disbursing
agent. The principal offices of PFPC, an indirect, wholly-owned subsidiary of
PNC Bank, are located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
Administrative Services Agent
Provident Distributors, Inc. ("PDI") provides certain administrative
services to the Fund's Institutional Shares not otherwise provided by PFPC.
PDI's principal business address is Four Falls Corporate Center, West
Conshohocken, Pennsylvania 19428. PDI furnishes certain internal quasi-legal,
executive and administrative services to the Fund, acts as a liaison between the
Fund and its various service providers and coordinates and assists in the
preparation of reports prepared on behalf of the Fund. For its services, PDI is
entitled to a monthly fee calculated at the annual rate of .15% of the
respective average daily net assets of the Fund's Institutional Class. PDI is
currently waiving fees in excess of .03% of the average daily net assets of the
Fund's Institutional Class.
-9-
<PAGE>
Distributor
PDI acts as distributor for the Shares pursuant to a distribution
agreement (the "Distribution Agreement") with RBB on behalf of the Shares.
Expenses
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Institutional Class of the Fund pays an
administrative services fee, and may pay a different share than the Investor
Class of other expenses (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount by the Institutional Class
or if it receives different services.
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expenses of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
increasing its yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled
to receive from the Fund a distribution fee with respect to the Shares,
which is accrued daily and paid monthly, of up to 0.25% on an annualized basis
of the average daily net assets of the Shares. The actual amount of such
compensation under the Plan is agreed upon by RBB's Board of Directors and by
the Distributor in the Distribution Agreement. The Distributor may, in its
discretion, from time to time waive voluntarily all or any Portion of its
distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub- transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to Service Agents. See
"How to Purchase Shares-Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Shares the fee agreed to under the
Distribution Plan. Payments under the Plan are not tied exclusively to expenses
actually incurred by the Distributor, and payments may exceed distribution
expenses actually incurred.
Purchases Through Intermediaries.
Shares of the Fund may be available through certain brokerage firms,
financial institutions and programs sponsored by other industry professionals
(collectively, "Service Organizations"). Certain features of the Shares, such as
the initial and subsequent investment minimums and certain trading restrictions,
may be modified or waived by Service Organizations. Service Organizations may
impose transaction or administrative charges or other direct fees, which charges
or fees would not be imposed if Shares are purchased directly from the Fund.
Therefore, a client or customer should contact the Service Organization acting
on his behalf concerning the fees (if any) charged in connection with a purchase
or redemption of Shares and should read this Prospectus in light of the terms
governing his accounts with the Service Organization. Service Organizations will
be responsible for promptly transmitting client or customer purchase and
redemption orders to the Fund in accordance with their agreements with clients
or customers. Service Organizations or, if applicable, their designees that have
entered into agreements with the Fund or its agent may enter confirmed purchase
orders on behalf of clients and customers, with payment to follow no later than
the Fund's pricing on the following Business Day. If payment is not received by
such time, the Service Organization could be held liable for resulting fees or
losses. The Fund will be deemed to have received a purchase or redemption order
when a Service Organization, or, if applicable, its authorized designee, accepts
a purchase or redemption order in good order. Orders received by the Fund in
good order will be priced at the Fund's net asset value next computed after they
are accepted by the Service Organization or its authorized designee.
For administration, subaccounting, transfer agency and/or other
services, the Adviser or the Distributor or their affiliates may pay Service
Organizations and certain recordkeeping organizations with whom they have
entered into agreements a fee of up to .35% (the "Service Fee') of the average
annual value of accounts with the Fund maintained by such Service Organizations
or recordkeepers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization
or recordkeeper.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares consisting of securities dealers who have sold
Shares, or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
<PAGE>
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
General
Shares representing an interest in the Fund are offered continuously
for sale by the Distributor. Shares may be purchased initially by completing the
application included in this Prospectus and forwarding the application to the
Fund's transfer agent, PFPC. Purchases of Shares may be effected by wire to an
account to be specified by PFPC or by mailing a check or Federal Reserve Draft,
payable to the order of "The Boston Partners Mid Cap Value Fund," c/o PFPC Inc.,
P.O. Box 8852, Wilmington, Delaware 19899-8852. The name of the Fund, Boston
Partners Mid Cap Value Fund, must also appear on the check or Federal Reserve
Draft. Shareholders may not purchase shares of the Boston Partners Mid Cap Value
Fund with a check issued by a third party and endorsed over to the Fund. Federal
Reserve Drafts are available at national banks or any state bank which is a
member of the Federal Reserve System. Initial investments in the Fund must be at
least $100,000 and subsequent investments must be at least $5,000. For purposes
of meeting the minimum initial purchase, clients which are part of endowments,
foundation or other related groups may be aggregated. The Fund reserves the
right to suspend the offering of Shares for a period of time or to reject any
purchase order.
Shares may be purchased on any Business Day. A "Business Day" is any
day that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas
-10-
<PAGE>
Day and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value
next computed after a purchase order is received in good order by the Fund or
its agents. Orders received by the Fund or its agents prior to the close of the
NYSE (generally 4:00 p.m. Eastern Time) are priced at that Business Day's net
asset value. Orders received by the Fund or its agents after its close of the
NYSE are priced at the net asset value next determined on the following Business
Day. In those cases where an investor pays for Shares by check, the purchase
will be effected at the net asset value next determined after the Fund or its
agents receives the order and the completed application.
Shares may be purchased and subsequent investments may be made by
principals and employees of the Adviser, and by their spouses and children,
either directly or through their individual retirement accounts, and by any
pension and profit-sharing plan of the Adviser, without being subject to the
minimum investment limitations.
An investor may also purchase Shares by having his bank or his broker
wire Federal Funds to PFPC. An investor's bank or broker may impose a charge for
this service. The Fund does not currently impose a service charge for effecting
wire transfers but reserves the right to do so in the future. In order to ensure
prompt receipt of an investor's Federal Funds wire for an initial investment, it
is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888) 261-4073,
and provide PFPC with your name, address, telephone number, Social Security or
Tax Identification Number, the Fund selected, the amount being wired, and by
which bank. PFPC will then provide an investor with a Fund account number.
Investors with existing accounts should also notify PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together
with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the Fund)
FOR PURCHASE OF: (name of the Fund)
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the address
shown thereon. PFPC will not process purchases until it receives a fully
completed and signed application.
For subsequent investments, an investor should follow steps A and B
above.
-11-
<PAGE>
Automatic Investing
Additional investments in Shares may be made automatically by
authorizing the Fund's transfer agent to withdraw funds from your bank account.
Investors desiring to participate in the automatic investing program should call
the Fund's transfer agent, PFPC, at (888) 261-4073 to obtain the appropriate
forms.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
Redemption by Mail
Shareholders may redeem for cash some or all of their Shares of the
Fund at any time. To do so, a written request in proper form must be sent
directly to Boston Partners Mid Cap Value Fund, c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. There is no charge for a redemption.
A request for redemption must be signed by all persons in whose names
the Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "Exchange
Privilege."
Generally, a properly signed written request with any required
signature guarantee is all that is required for a redemption. In some cases,
however, other documents may be necessary. In the case of shareholders holding
share certificates, the certificates for the shares being redeemed must
accompany the redemption request. Additional documentary evidence of authority
is also required by the Fund's transfer agent in the event redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator.
Involuntary Redemption
The Fund reserves the right to redeem a shareholder's account at any
time the net asset value of the account falls below $500 as the result of a
redemption or an exchange request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.
Payment of Redemption Proceeds
In all cases, the redemption price is the net asset value per share
next determined after the request for redemption is received in proper form by
the Fund or its agents. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund or its agents of the request and
any other necessary documents in proper order. Such payment may be postponed or
the right of redemption suspended as provided by the 1940 Act. If the Shares to
be redeemed have been recently purchased by check, the Fund's transfer agent may
delay mailing a redemption check, which may be a period of up to 15 days,
pending a determination that the
-12-
<PAGE>
check has cleared. The Fund has elected to be governed by Rule 18f-1 under the
1940 Act so that a portfolio is obligated to redeem its shares solely in cash up
to the lesser of $250,000 or 1% of its net asset value during any 90-day period
for any one shareholder of a portfolio.
Exchange Privilege
The exchange privilege is available to shareholders residing in any
state in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Institutional Shares of any other Boston
Partners Fund of RBB, subject to restrictions described under "Exchange
Privilege Limitations" below. Such exchange will be effected at the net asset
value of the exchanged Fund and the net asset value of the Fund being acquired
next determined after receipt of a request for an exchange by the Fund or its
agents. An exchange of Shares will be treated as a sale for federal income tax
purposes. See "Taxes." A shareholder wishing to make an exchange may do so by
sending a written request to PFPC.
If the exchanging shareholder does not currently own Institutional
Shares of the Fund into which he would like to exchange, a new account will be
established with the same registration, dividend and capital gain options as the
account from which shares are exchanged, unless otherwise specified in writing
by the shareholder with all signatures guaranteed. A signature guarantee may be
obtained from a domestic bank or trust company, broker, dealer, clearing agency
or savings association who are participants in a medallion program recognized by
the Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(MSP). Signature guarantees that are not part of these programs will not be
accepted. The exchange privilege may be modified or terminated at any time, or
from time to time, by RBB, upon 60 days' written notice to shareholders.
If an exchange is to a new account in the acquired Fund, the dollar
value of Shares acquired must equal or exceed that Fund's minimum for a new
account; if to an existing account, the dollar value must equal or exceed that
Fund's minimum for subsequent investments. If any amount remains in the Fund
from which the exchange is being made, such amount must not drop below the
minimum account value required by the Fund.
Exchange Privilege Limitations
The Fund's exchange privilege is not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Fund and increase transactions costs, the Fund has established
a policy of limiting excessive exchange activity.
Shareholders are entitled to six (6) exchange redemptions (at least 30
days apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
-13-
<PAGE>
Telephone Transactions
In order to request a telephone exchange or redemption, a shareholder
must have completed and returned an account application containing a telephone
election. To add a telephone option to an existing account that previously did
not provide for this option, a Telephone Authorization Form must be filed with
PFPC. This form is available from PFPC. Once this election has been made, the
shareholder may simply contact PFPC by telephone to request the exchange or
redemption by calling (888) 261-4073. Neither RBB, the Fund, the Distributor,
the Administrator nor any other Fund agent will be liable for any loss,
liability, cost or expense for following RBB's telephone transaction procedures
described below or for following instructions communicated by telephone that
they reasonably believe to be genuine.
RBB's telephone transaction procedures include the following measures:
(1) requiring the appropriate telephone transaction privilege forms; (2)
requiring the caller to provide the names of the account owners, the account
social security number and name of the Fund, all of which must match RBB's
records; (3) requiring RBB's service representative to complete a telephone
transaction form, listing all of the above caller identification information;
(4) permitting exchanges only if the two account registrations are identical;
(5) requiring that redemption proceeds be sent only by check to the account
owners of record at the address of record, or by wire only to the owners of
record at the bank account of record; (6) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) Business Days of the call; and (7) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions. For accounts held of record by broker-dealers (other
than the Distributor), financial institutions, securities dealers, financial
planners and other industry professionals, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by an
attorney-in-fact under a power of attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each class of a fund is calculated by adding
the value of the proportionate interest of the class in a fund's cash,
securities and other assets, deducting actual and accrued liabilities of the
class and dividing the result by the number of outstanding shares of the class.
The net asset value of each class is calculated independently of each other
class. The net asset values are calculated as of the close of regular trading on
the NYSE, generally 4:00 p.m. Eastern Time on each Business Day.
Valuation of securities held by the Fund is as follows: securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day; securities traded on a
national securities exchange or on the NASDAQ National Market System for which
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
of the bid and asked prices; and securities for which market quotations are not
readily
-14-
<PAGE>
available are valued at fair market value as determined in good faith by or
under the direction of RBB's Board of Directors. The amortized cost method of
valuation may also be used with respect to debt obligations with sixty days or
less remaining to maturity.
With the approval of RBB's Board of Directors, the Fund may use a
pricing service, bank or broker-dealer experienced in such matters to value the
Fund's securities. A more detailed discussion of net asset value and security
valuation is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of the Fund to the Fund's shareholders.
All distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually and pays them in the calendar year in which they are declared,
generally in December. Net realized capital gains (including net short-term
capital gains), if any, will be distributed at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders
and is not intended as a substitute for careful tax planning. Accordingly,
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation.
The Fund will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. So long as the
Fund qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on amounts so distributed (except
distributions that are treated as a return of capital) regardless of whether
such distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the Fund
will be taxed to shareholders as long-term capital gains regardless of the
length of time a shareholder has held his Shares, whether such gain was
reflected in the price paid for the Shares, or whether such gain was
attributable to bonds bearing tax-exempt interest. All other distributions, to
the extent they are taxable, are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the
tax status of distributions made by the Fund. Dividends declared in December of
any year payable to shareholders of record on a specified date in such a month
will be deemed to have been received by the shareholders on December 31,
provided such dividends are paid during January of the
-15-
<PAGE>
following year. The Fund intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
federal excise tax.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize capital
gain or loss for federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Investor Shares, which are
offered directly to individual investors pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance quotations in the same
manner. The Fund will quote performance of the Investor Shares separately from
Institutional Shares. Because of different expenses paid by the Institutional
Shares, the total return on such shares can be expected, at any time, to be
different than the total return on Investor Shares. Information concerning these
other classes may be obtained by calling the Fund at (888) 261-4073.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB 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."
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO BOSTON PARTNERS MID CAP VALUE FUND AND
DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO BOSTON PARTNERS MID CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in
-16-
<PAGE>
the Fund, even where a share has a different class designation than another
share representing an interest in the Fund. Shares of the Fund do not have
preemptive or conversion rights. When issued for payment as described in this
Prospectus, Shares will be fully paid and non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund will vote in the aggregate and not by
class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of RBB will vote in the aggregate and
not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of
record or beneficially 25% or more of the outstanding shares of all classes of
RBB.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC Inc.,
the Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (888) 261-4073.
Share Certificates
In the interest of economy and convenience, physical certificates
representing Shares in the Fund are not normally issued.
Historical Performance Information
For the period from commencement of operations (June 2, 1997) through
August 31, 1998, the total return (not annualized) for the Institutional Class
of Shares of the Fund was as follows:
-17-
<PAGE>
Unannualized investment returns for the period ended August 31, 1998.
<TABLE>
<CAPTION>
Since
Inception
---------
<S> <C>
Boston Partners Mid Cap Value Fund
(Institutional Shares)..................................................... (3.92%)
</TABLE>
The total return assumes the reinvestment of all dividends and capital
gains and reflects expense reimbursements and investment advisory fee waivers in
effect. Without these expense reimbursements or waivers, the Fund's performance
would have been lower. Of course, past performance is no guarantee of future
results. Investment return and principal value will fluctuate, so that Shares,
when redeemed, may be worth more or less than the original cost. For more
information on performance, see "Performance Information" in the Statement of
Additional Information.
The table below presents the Composite performance history of certain
of the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1998. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Fund, which commenced
operations on June 2, 1997. The Composite performance information includes the
reinvestment of dividends received in the underlying securities and includes
payment of investment advisory fees. The privately managed accounts in the
Composite are only available to the Adviser's institutional advisory clients.
The past performance of the accounts which comprise the Composite is not
indicative of the future performance of the Fund. These accounts have lower
investment advisory fees than the Fund and the Composite performance figures
would have been lower if subject to the higher fees and expenses incurred by the
Fund. These private accounts are not subject to the same investment limitations,
diversification requirements and other restrictions which are imposed upon
mutual funds under the 1940 Act and the Internal Revenue Code, which, if
imposed, may have adversely affected the performance results of the Composite.
Listed below the performance history for the Composite is a comparative index
comprised of securities similar to those in which accounts contained in the
Composite are invested.
-18-
<PAGE>
<TABLE>
<CAPTION>
Annualized investment returns for the period ended August 31, 1998.
One Three Since
Year Years Inception*
---- ----- ----------
<S> <C> <C> <C>
Composite Performance (12.73)% N/A (3.15)%
Russell 2500 Index (16.84)% N/A (5.74)%
</TABLE>
* The Adviser commenced managing these accounts on June 2, 1997.
The Russell 2500 Index represents the largest 3,000 companies domiciled in the
United States minus the largest 500 companies as determined by the market value
of such companies.
Future Performance Information
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding the compounded average
annual total return for each time period that would equate the assumed initial
investment of $1,000 to the ending redeemable value, net of fees, according to a
required standardized calculation. The standard calculation is required by the
SEC to provide consistency and comparability in investment company advertising.
The Fund may also from time to time include in such advertising an aggregate
total return figure or a total return figure that is not calculated according to
the standardized formula in order to compare more accurately the Fund's
performance with other measures of investment return. For example, the Fund's
total return may be compared with data published by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. or Weisenberger Investment Company
Service, or with the performance of the Russell 2500 Index. Performance
information may also include evaluation of the Fund by nationally recognized
ranking services and information as reported in financial publications such as
Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal, The New York Times, or other national,
regional or local publications. All advertisements containing performance data
will include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's Shares, when redeemed, may be worth more or
less than their original cost.
-19-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-20-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY PROSPECTUS
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN RBB'S
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY DECEMBER 29, 1998
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
RBB OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
Page
----
FINANCIAL HIGHLIGHTS....................................3 BOSTON PARTNERS
INTRODUCTION............................................5 MID CAP
INVESTMENT OBJECTIVES AND POLICIES......................5 VALUE FUND
INVESTMENT LIMITATIONS..................................6
RISK FACTORS............................................7 (Institutional Shares)
MANAGEMENT..............................................8
DISTRIBUTION OF SHARES.................................10
HOW TO PURCHASE SHARES.................................10
HOW TO REDEEM AND EXCHANGE SHARES......................12
NET ASSET VALUE........................................14
DIVIDENDS AND DISTRIBUTIONS............................15
TAXES..................................................15
MULTI-CLASS STRUCTURE..................................16
DESCRIPTION OF SHARES..................................16
OTHER INFORMATION......................................17
Investment Adviser
Boston Partners Asset Management, L.P.
Boston, Massachusetts
Custodian
PNC Bank, N.A.
Philadelphia, Pennsylvania
Transfer Agent and Administrator
PFPC Inc.
Wilmington, Delaware
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
Counsel
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Independent Accountants bp
PricewaterhouseCoopers LLP BOSTON PARTNERS ASSET MANAGEMENT, L.P.
Philadelphia, Pennsylvania --------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Boston Partners Mid Cap Value Fund bp
(Institutional Class) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
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ACCOUNT APPLICATION
Please Note: Do not use this form to open a retirement plan account. For an IRA application or help with this Application,
please call 1-888-261-4073
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(Please check the appropriate box(es) below.)
1. Account Registration:
|_| Individual |_| Joint Tenant |_| Other
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Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
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NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts, the account registrants will be joint tenants with right of survivorship and not
tenants in common unless tenants in common or community property registrations are requested.
GIFT TO MINOR: Uniform Gifts/Transfer to Minor's Act
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NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
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NAME OF MINOR (ONLY ONE PERMITTED)
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MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
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NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
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TAXPAYER IDENTIFICATION NUMBER
2. Mailing Address: ---------------------------------------------------------------------------------------------------------
STREET OR P.O. BOX AND/OR APARTMENT NUMBER
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CITY STATE ZIP CODE
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DAY PHONE NUMBER EVENING PHONE NUMBER
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3. Investment Information: Minimum initial investment of $100,000 Amount of investment $____________
Make the check payable to Boston Partners Large Cap Value Fund.
Shareholders may not purchase shares of this Fund with a check issued by a third party and endorsed
over to the Fund.
DISTRIBUTION Note: Dividends and capital gains may be reinvested or paid by check. If no options are selected
OPTIONS: below, both dividends and capital gains will be reinvested in additional Fund shares.
Dividends |_| Pay by check |_| Reinvest |_| Capital Gains |_| Pay by check |_| Reinvest |_|
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4. Telephone Redemption:
To use this option, you must initial the appropriate line below.
I authorize the Transfer Agent to accept instructions from any persons
to redeem or exchange shares in my account(s) by telephone in
accordance with the procedures and conditions set forth in the Fund's current prospectus.
________________________ ____________________ Redeem shares, and send the proceeds to
individual initial joint initial the address of record.
________________________ ____________________ Exchange shares for shares of The Boston
individual initial joint initial Partners Large Cap Value Fund, Bond Fund,
Micro Cap Value Fund, Market Neutral
Fund or Long-Short Equity Fund.
5. Automatic Investment
Plan: The Account Investment Plan which is available to shareholders of the Fund, makes possible regularly
scheduled purchases of Fund shares to allow dollar-cost averaging. The Fund's Transfer Agent can
arrange for an amount of money selected by you to be deducted from your checking account and used to
purchase shares of the Fund.
Please debit $________ from my checking account (named below) on or about the 20th of the month. Please
attach an unsigned, voided check.
|_| Monthly |_| Every Alternate Month |_| Quarterly |_| Other
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BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
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CITY STATE ZIP CODE
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BANK ABA NUMBER BANK ACCOUNT NUMBER
6. Signatures
The undersigned warrants that I (we) have full authority and, if a natural person, I (we) am (are)
of legal age to purchase shares pursuant to this Account Application, and I (we) have received a
current prospectus for the Fund in which I (we) am (are) investing.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following
certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a
number to be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service that I am subject to 31% backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Note: You must cross out item (2) above if you have been notified by the IRS that you are currently
subject to backup withholding because you have failed to report all interest and dividends on your tax
return. The Internal Revenue Service does not require your consent to any provision of this document
other than the certification required to audit backup withholding.
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SIGNATURE OF APPLICANT DATE
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PRINT NAME TITLE (IF APPLICABLE)
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SIGNATURE OF JOINT OWNER DATE
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PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or title. If you wish
additional signatories on the account, please include a corporate resolution. If signing as a fiduciary,
you must indicate capacity.)
For information on additional options, such as IRA Applications, rollover requests for qualified
retirement plans, or for wire instructions, please call us at 1-888-261-4073.
Mail completed Account Application and check to: The Boston Partners Mid Cap Value Fund
c/o PFPC Inc.
P.O. Box 8852
Wilmington, DE 19899-8852
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BOSTON PARTNERS MID CAP VALUE FUND
(Investor Class)
of
The RBB Fund, Inc.
Boston Partners Mid Cap Value Fund (the "Fund") is an investment portfolio
of The RBB Fund, Inc. ("RBB"), an open-end management investment company. The
shares of the Investor Class ("Shares") offered by this Prospectus represent
interests in the Fund. The Fund is a diversified fund that seeks long-term
growth of capital, with current income as a secondary objective, primarily
through equity investments, such as common stocks. It seeks to achieve its
objectives by investing at least 65% of its total assets in a diversified
portfolio consisting of equity securities of issuers with a market
capitalization of primarily between $200 million to $6 billion, and identified
by Boston Partners Asset Management, L.P. (the "Adviser") as equity securities
that it believes possess value characteristics. The Adviser examines various
factors in determining the value characteristics of such issuers, including but
not limited to, price to book value ratios and price to earnings ratios. These
value characteristics are examined in the context of the issuer's operating and
financial fundamentals such as return on equity, earnings growth and cash flow.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling (888)
261-4073. The Prospectus and the Statement of Additional Information are
available for reference, along with other related material on the SEC Internet
Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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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 29 , 1998
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EXPENSE TABLE
The following table illustrates annual operating expenses incurred by
Investor Shares of the Fund (after fee waivers and expense reimbursements) for
the fiscal period ended August 31, 1998, as a percentage of average daily net
assets. An example based on the summary is also shown.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers)*................... .58%
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12b-1 Fees (after waivers)*........................ .15%
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Other Expenses (after waivers and expense
reimbursements).................................. .42%
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Total Fund Operating Expenses (after waivers
and expense reimbursements)*..................... 1.15%
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* In the absence of fee waivers and expense reimbursements, Management
Fees would be 0.80%; 12b-1 Fees would be 0.25%; Other Expenses would be
.77%; and Total Fund Operating Expenses would be 1.82%. Management
Fees and 12b-1 Fees are each based on average daily net assets and are
calculated daily and paid monthly.
Example
An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Boston Partners Mid Cap Value Fund $12 $37 $63 $140
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" and "Distribution of Shares" below.) The Fee Table reflects
expense reimbursements and a voluntary waiver of Management Fees for the Fund,
which are expected to be in effect during the current fiscal year. However, the
Adviser and the Fund's service providers are under no obligation with respect to
such fee waivers and expense reimbursements and there can be no assurance that
any future expense reimbursements and waivers of Management Fees will not vary
from the figures reflected in the Fee Table.
FINANCIAL HIGHLIGHTS
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The "Financial Highlights" presented below set forth certain investment
results for shares of the Investor Class of the Fund for the period June 2, 1997
(date of inception) through August 31, 1997 and for the fiscal year ended August
31, 1998. The financial data included in
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this table should be read in conjunction with the financial statements and notes
thereto and the unqualified report of PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), RBB's independent accountants, which are
incorporated by reference into the Statement of Additional Information. Further
information about the performance of the Investor Class of the Fund is available
in the Annual Report to Shareholders. Both the Statement of Additional
Information and the Annual Report to Shareholders may be obtained from the Fund
free of charge by calling the telephone number on page 1 of the prospectus.
BOSTON PARTNERS MID CAP VALUE FUND
(For an Investor Share outstanding throughout each period)
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For the Period
For the Fiscal June 2, 1997*
Year Ended through
August 31, 1998 August 31, 1997
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Per Share Operating Performance** $ 11.01 $ 10.00
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Net asset value, beginning of period.............................
Net investment income (1)........................................ 0.01 .01
Net realized and unrealized gain/(loss) on
investments(2)................................................... (1.38) 1.00
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Net increase/(decrease) in net assets resulting
from operations.................................................. (1.37) 1.01
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DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income............................................ (0.01) --
Net realized capital gains....................................... (0.21) --
Net asset value, end of period................................... $ 9.42 $ 11.01
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Total investment return(3)....................................... (12.77%) 10.10%
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Ratios/Supplemental Data
Net assets, end of period (000).................................. $1,828 $598
Ratio of expenses to average net
assets(1)(4)................................................ 1.15% 1.10%
Ratio of net investment income to
average net assets(1)....................................... (0.02%) .61%
Portfolio turnover rate.......................................... 167.86% 21.80%
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* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
(1) Reflects waivers and reimbursements.
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(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating net asset value
during the respective periods.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Without the waiver of advisory 12b-1, administration and transfer agent
fees and without the reimbursement of certain operating expenses, the
ratio of expenses to average net assets annualized for the period ended
August 31, 1997 and the year ended August 31, 1998 would have been
12.62% and 1.82%, respectively, for the Investor Class.
(5) Annualized.
(6) Not annualzied.
INTRODUCTION
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RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
seventeen separate investment portfolios. The Shares offered by this Prospectus
represent interests in the Boston Partners Mid Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
INVESTMENT OBJECTIVES AND POLICIES
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The Fund's investment objectives are to provide long-term growth of capital
with current income as a secondary objective. The Fund seeks to achieve its
objectives by investing, under normal market conditions, at least 65% of its
total assets in a diversified portfolio consisting primarily of equity
securities such as common stocks of issuers with a market capitalization of
between $200 million and $4 billion, and identified by the Adviser as equity
securities that it believes possess value characteristics.
The Adviser examines various factors in determining the value
characteristics of such issuers, including but not limited to price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a continuous study of
trends in industries and companies, earnings power and growth and other
investment criteria. In general, the Fund's investments are broadly diversified
over a number of industries and, as a matter of policy, the Fund will not invest
25% or more of its total assets in any one industry.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers. Investing in securities of foreign issuers involves considerations not
typically associated with investing in securities of companies organized and
operating in the United States. Foreign securities generally are denominated and
pay dividends or interest in foreign currencies. The
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Fund may hold from time to time various foreign currencies pending their
investment in foreign securities or their conversion into U.S. dollars. The
value of the assets of the Fund as measured in U.S. dollars may therefore be
affected favorably or unfavorably by changes in exchange rates. There may be
less publicly available information concerning foreign issuers than is available
with respect to U.S. issuers. Foreign securities may not be registered with the
U.S. Securities and Exchange Commission, and generally, foreign companies are
not subject to uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers. See "Investment Objectives and
Policies--Foreign Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in equity securities
of issuers with lower or higher capitalizations; derivative securities; debt
securities issued by U.S. banks, corporations and other business organizations
that are investment grade securities; and debt securities issued by the U.S.
Government or government agencies.
In accordance with the above-mentioned policies, the Fund may also invest
in indexed securities, repurchase agreements, reverse repurchase agreements,
dollar rolls, financial futures contracts, options on futures contracts and may
lend portfolio securities. See "Investment Objectives and Policies" in the
Statement of Additional Information.
The Fund may invest in registered investment companies and investment funds
in foreign countries subject to the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and as discussed in "Investment Objectives and
Policies" in the Statement of Additional Information. If the Fund invests in
such investment companies, the Fund will bear its proportionate share of the
costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all times in
accordance with the above-mentioned policies, the Fund reserves the right to
hold up to 100% of its assets, as a temporary defensive measure, in cash and
eligible U.S. dollar-denominated money market instruments. The Adviser would
determine when market conditions warrant temporary defensive measures.
The Fund's investment objectives and the policies described above may be
changed by RBB's Board of Directors without the affirmative vote of the holders
of a majority of the outstanding Shares representing interests in the Fund.
INVESTMENT LIMITATIONS
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The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment limitations that cannot
be changed without such a vote of the shareholders is contained in the Statement
of Additional Information under "Investment Objectives and Policies.")
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The Fund may not:
1. Purchase the securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the value of the Fund's total assets would be invested in
the securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Fund, except that up to 25%
of the value of the Fund's total assets may be invested without regard to
such limitations.
2. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of the Fund to be invested in
the obligations of issuers in any single industry, provided that there is
no limitation with respect to investments in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements and dollar
rolls for temporary purposes in amounts up to one-third of the value of its
total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets, except in connection with any such borrowing and
then in amounts not in excess of one-third of the value of the Fund's total
assets at the time of such borrowing. The Fund will not purchase securities
while its aggregate borrowings (including reverse repurchase agreements,
dollar rolls and borrowings from banks) are in excess of 5% of its total
assets. Securities held in escrow or separate accounts in connection with
the Fund's investment practices are not considered to be borrowings or
deemed to be pledged for purposes of this limitation.
If a percentage restriction under one of the Fund's investment policies or
restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation (except with respect to any restrictions that may apply
to borrowings or senior securities issued by the Fund).
RISK FACTORS
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As with other mutual funds, there can be no assurance that the Fund will
achieve its objective. The net asset value per share of Shares representing
interests in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. Other risk
factors are discussed above under "Investment Objectives and Policies" and in
the Statement of Additional Information under "Investment Objectives and
Polices."
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European Currency Unification
Many European countries are about to adopt a single European currency, the
euro. On January 1, 1999, the euro will become legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European Central
Bank will be created to manage the monetary policy of the new unified region. On
the same date, the exchange rates will be irrevocably fixed between the EMU
member countries. National currencies will continue to circulate until they are
replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the Fund may invest and may result in the Fund facing additional risks
in pursuing its investment objective. These risks, which include, but are not
limited to, uncertainty as to the proper tax treatment of the currency
conversion, volatility of currency exchange rates as a result of the conversion,
uncertainty as to capital market reaction, conversion costs that may affect
issuer profitability and creditworthiness, and lack of participation by some
European countries, may increase the volatility of the Fund's net asset value
per share.
YEAR 2000
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Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved. The Year
2000 Problem could also hurt companies whose securities the Fund holds or
securities markets generally.
General
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
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MANAGEMENT
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Board of Directors
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
Investment Adviser
Boston Partners Asset Management, L.P., located at 28 State Street, 21st
Floor, Boston, Massachusetts 02109, serves as the Fund's investment adviser. The
Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of October 31, 1998, in excess of $16.0 billion. The
adviser is organized as a Delaware limited partnership whose sole general
partner is Boston Partners, Inc., a Delaware corporation.
Subject to the supervision and direction of RBB's Board of Directors, the
Adviser manages the Fund's portfolio in accordance with the Fund's investment
objectives and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities, and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For its services
to the Fund, the Adviser is paid a monthly advisory fee computed at an annual
rate of 0.80% of the Fund's average daily net assets. The Adviser has notified
RBB, however, that it intends to limit total Fund operating expenses to 1.00%
of the Fund's average daily net assets during the current fiscal year.
Portfolio Management
The day-to-day portfolio management of the Fund is the responsibility of
Wayne J. Archambo who is a senior portfolio manager of the Adviser and a member
of the Adviser's Equity Strategy Committee. Mr. Archambo oversees the investment
activities of the Adviser's $1.5 billion mid capitalization activites as well as
$1.0 billion in small capitalization activites. Prior to joining the Adviser in
April 1995, Mr. Archambro was employed by The Boston Company Asset Management
from 1989 through April 1995 where he was a senior portfolio manager and a
member of the Firm's Equity Policy Committee. Mr. Archambro has over 16 years of
investment experience and is a Chartered Financial Analyst.
Administrator
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC receives a fee calculated at an annual rate of .125% of the
Fund's average daily net assets with a minimum annual fee of $75,000 payable
monthly on a pro rata basis.
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Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank, National Association ("PNC Bank") serves as the Fund's custodian
and PFPC serves as the Fund's transfer agent and dividend disbursing agent. The
principal offices of PFPC, an indirect, wholly-owned subsidiary of PNC Bank, are
located at 400 Bellevue Parkway, Wilmington, Delaware 19809. PFPC may enter into
shareholder servicing agreements with registered broker-dealers who have entered
into dealer agreements with the Distributor ("Authorized Dealers") for the
provision of certain shareholder support services to customers of such
Authorized Dealers who are shareholders of the Fund. The services provided and
the fees payable by the Fund for these services are described in the Statement
of Additional Information under "Investment Advisory, Distribution and Servicing
Arrangements."
Distributor
Provident Distributors, Inc. (the "Distributor"), with a principal business
address at Four Falls Corporate Center, West Conshohocken, Pennsylvania 19428,
acts as distributor for the Shares pursuant to a distribution agreement (the
"Distribution Agreement") with RBB on behalf of the Shares.
Expenses
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Investor Class of the Fund pays its own
distribution fees, and may pay a different share than the Institutional Class of
other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the Investor Class or if it receives
different services.
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expense of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
increasing its yield to investors.
DISTRIBUTION OF SHARES
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The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive
from the Fund a distribution fee with respect to the shares, which is accrued
daily and paid monthly, of up to 0.25% on an annualized basis of the average
daily net assets of the Shares. The actual amount of such compensation under the
Plan is agreed upon by RBB's Board of Directors and by the Distributor in the
Distribution Agreement. The Distributor may, in its discretion, from time to
time waive voluntarily all or any portion of its distribution fee.
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Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to Service Agents. See
"How to Purchase Shares -- Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Shares the fee agreed to under the
Distribution Agreement. Payments under the Plan are not tied exclusively to
expenses actually incurred by the Distributor and the payments may exceed
distribution expenses actually incurred.
Purchases Through Intermediaries
Shares of the Fund may be available through certain brokerage firms,
financial institutions and other industry professionals (collectively, "Service
Organizations"). Certain features of the Shares, such as the initial and
subsequent investment minimums and certain trading restrictions, may be modified
or waived by Service Organizations. Service Organizations may impose transaction
or administrative charges or other direct fees, which charges and fees would not
be imposed if Shares are purchased directly from the Fund. Therefore, a client
or customer should contact the Service Organization acting on his behalf
concerning the fees (if any) charged in connection with a purchase or redemption
of Shares and should read this Prospectus in light of the terms governing his
accounts with the Service Organization. Service Organizations will be
responsible for promptly transmitting client or customer purchase and redemption
orders to the Fund in accordance with their agreements with the Fund and with
clients or customers. Service Organizations or, if applicable, their designees
that have entered into agreements with the Fund or its agent may enter confirmed
purchase orders on behalf of clients and customers, with payment to follow no
later than the Fund's pricing on the following Business Day. If payment is not
received by such time, the Service Organization could be held liable for
resulting fees or losses. The Fund will be deemed to have received a purchase or
redemption order when a Service Organization, or, if applicable, its authorized
designee, accepts a purchase or redemption order in good order. Orders received
by the Fund in good order will be priced at the Fund's net asset value next
computed after they are accepted by the Service Organization or its authorized
designee.
For administration, subaccounting, transfer agency and/or other services,
Boston Partners, the Distributor or their affiliates may pay Service
Organizations and certain recordkeeping organizations a fee of up to .35% (the
"Service Fee") of the average annual value of accounts with the Fund maintained
by such Service Organizations or recordkeepers. The Service Fee payable to any
one Service Organization is determined based upon a number of factors, including
the nature and quality of services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Service Organization or recordkeeper.
The Adviser, the Distributor or either of their affiliates may, at their
own expense, provide promotional incentives for qualified recipients who support
the sale of Shares, consisting
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of securities dealers who have sold Shares or others, including banks and other
financial institutions, under special arrangements. Incentives may include
opportunities to attend business meetings, conferences, sales or training
programs for recipients, employees or clients and other programs or events and
may also include opportunities to participate in advertising or sales campaigns
and/or shareholder services and programs regarding one or more Boston Partners
Funds. Travel, meals and lodging may also be paid in connection with these
promotional activities. In some instances, these incentives may be offered only
to certain institutions whose representatives provide services in connection
with the sale or expected sale of significant amounts of Shares.
HOW TO PURCHASE SHARES
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General
Shares representing interests in the Fund are offered continuously for sale
by the Distributor and may be purchased without imposition of a sales charge.
Shares may be purchased initially by completing the application included in this
Prospectus and forwarding the application to the Fund's transfer agent, PFPC.
Purchases of Shares may be effected by wire to an account to be specified by
PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston Partners Mid Cap Value Fund," c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. The name of the Fund, Boston Partners Mid Cap
Value Fund, must also appear on the check or Federal Reserve Draft. Shareholders
may not purchase shares of the Boston Partners Mid Cap Value Fund with a check
issued by a third party and endorsed over to the fund. Federal Reserve Drafts
are available at national banks or any state bank which is a member of the
Federal Reserve System. Initial investments in the Fund must be at least $2,500
and subsequent investments must be at least $100. The Fund reserves the right to
suspend the offering of Shares for a period of time or to reject any purchase
order.
Shares may be purchased on any Business Day. A "Business Day" is any day
that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased is based on the net asset value next
computed after a purchase order is received in good order by the Fund or its
agents. Orders received by the Fund or its agents prior to the close of the NYSE
(generally 4:00 p.m. Eastern Time) are priced at that Business Day's net asset
value. Orders received by the Fund or its agents after the close of the NYSE are
priced at the net asset value next determined on the following Business Day. In
those cases where an investor pays for Shares by check, the purchase will be
effected at the net asset value next determined after the Fund or its agents
receives the order and the completed application.
-11-
<PAGE>
Provided that the investment is at least $2,500, an investor may also
purchase Shares by having his bank or his broker wire Federal Funds to PFPC. The
Fund does not currently impose a service charge for effecting wire transfers,
but reserves the right to do so in the future. An investor's bank or broker may
impose a charge for this service. In order to ensure prompt receipt of an
investor's Federal Funds wire for an initial investment, it is important that an
investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888)
261-4073, and provide PFPC with your name, address, telephone number,
Social Security or Tax Identification Number, the Fund selected, the amount
being wired, and by which bank. PFPC will then provide an investor with a
Fund account number. Investors with existing accounts should also notify
PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together
with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the Fund)
FOR PURCHASE OF: Boston Partners Mid Cap Value Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the address
shown thereon. PFPC will not process purchases until it receives a fully
completed and signed application.
For subsequent investments, an investor should follow steps A and B above.
Automatic Investing
Additional investments in Shares may be made automatically by authorizing
the Fund's transfer agent to withdraw funds from your bank account. Investors
desiring to participate in the Automatic Investment Plan should call the Fund's
transfer agent, PFPC, at (888)261-4073 to obtain the appropriate forms.
Retirement Plans
Shares may be purchased in conjunction with individual retirement accounts
("IRAs") and rollover IRAs where PNC Bank acts as custodian. For further
information as to applications and annual fees, contact the Fund's transfer
agent, PFPC, at (888) 261-4073. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
-12-
<PAGE>
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
Redemption By Mail
Shareholders may redeem for cash some or all of their Shares of the Fund at
any time. To do so, a written request in proper form must be sent directly to
Boston Partners Mid Cap Value Fund, c/o PFPC Inc., P.O. Box 8852, Wilmington,
Delaware 19899-8852. There is no charge for a redemption.
A request for redemption must be signed by all persons in whose names the
Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "Exchange
Privilege."
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding share
certificates, the certificates for the shares being redeemed must accompany the
redemption request. Additional documentary evidence of authority is also
required by the Fund's transfer agent in the event redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
Systematic Withdrawal Plan
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan and receive regular periodic payments. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to PFPC at
P.O. Box 8852, Wilmington, Delaware 19899-8852. Each withdrawal redemption will
be processed on or about the 25th of the month and mailed as soon as possible
thereafter. There are no service charges for maintenance; the minimum amount
that you may withdraw each period is $100. (This is merely the minimum amount
allowed and should not be mistaken for a recommended amount.) The holder of a
Systematic Withdrawal Plan will have any income dividends and any capital gains
distributions reinvested in full and fractional shares at net asset value. To
provide funds for payment, Shares will be redeemed in such amount as is
necessary at the redemption price, which is net asset value next determined
after the Fund's receipt of a redemption request. Redemption of Shares may
reduce or possibly exhaust the Shares in your account, particularly in the event
of a market decline. As with other redemptions, a redemption to make a
withdrawal payment is a sale for federal income tax purposes. Payments made
pursuant to a Systematic Withdrawal Plan cannot be considered as actual yield or
income since part of such payments may be a return of capital.
You will ordinarily not be allowed to make additional investments of less
than the aggregate annual withdrawals under the Systematic Withdrawal Plan
during the time you have the plan in effect and, while a Systematic Withdrawal
Plan is in effect, you may not make periodic investments under the Automatic
Investment Plan. You will receive a confirmation of each transaction showing the
sources of the payment and the Share and cash balance remaining
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<PAGE>
in your plan. The plan may be terminated on written notice by the shareholder or
by the Fund and will terminate automatically if all Shares are liquidated or
withdrawn from the account or upon the death or incapacity of the shareholder.
You may change the amount and schedule of withdrawal payments or suspend such
payments by giving written notice to the Fund's transfer agent at least seven
Business Days prior to the end of the month preceding a scheduled payment.
Involuntary Redemption
The Fund reserves the right to redeem a shareholder's account at any time
the net asset value of the account falls below $500 as the result of a
redemption or an exchange request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.
Payment of Redemption Proceeds
In all cases, the redemption price is the net asset value per share next
determined after the request for redemption is received in proper form by the
Fund or its agents. Payment for Shares redeemed is made by check mailed within
seven days after acceptance by the Fund or its agents of the request and any
other necessary documents in proper order. Such payment may be postponed or the
right of redemption suspended as permitted by the 1940 Act. If the Shares to be
redeemed have been recently purchased by check, the Fund's transfer agent may
delay mailing a redemption check, which may be a period of up to 15 days,
pending a determination that the check has cleared. The Fund has elected to be
governed by Rule 18f-1 under the 1940 Act so that it is obligated to redeem its
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder of a portfolio.
Exchange Privilege
The exchange privilege is available to shareholders residing in any state
in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Investor Shares of any other Boston Partners
Fund RBB subject to the restrictions described under "Exchange Privilege
Limitations." Such exchange will be effected at the net asset value of the
exchanged Fund and the net asset value of the Fund being acquired next
determined after receipt of a request for an exchange by the Fund or its agents.
An exchange of Shares will be treated as a sale for federal income tax purposes.
See "Taxes." A shareholder wishing to make an exchange may do so by sending a
written request to PFPC.
If the exchanging shareholder does not currently own Investor Shares of the
Fund into which he would like to exchange, a new account will be established
with the same registration, dividend and capital gain options as the account
from which shares are exchanged, unless otherwise specified in writing by the
shareholder with all signatures guaranteed. A signature guarantee may be
obtained from a domestic bank or trust company, broker, dealer, clearing agency
or savings association who are participants in a medallion program recognized by
the Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(MSP). Signature guarantees
-14-
<PAGE>
that are not part of these programs will not be accepted. The exchange privilege
may be modified or terminated at any time, or from time to time, by RBB, upon 60
days' written notice to shareholders.
If an exchange is to a new account in the acquired Fund, the dollar value
of Investor Shares acquired must equal or exceed the Fund's minimum for a new
account; if to an existing account, the dollar value must equal or exceed that
Fund's minimum for subsequent investments. If any amount remains in the Fund
from which the exchange is being made, such amount must not drop below the
minimum account value required by the Fund.
Exchange Privilege Limitations
The Fund's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transactions costs, the Fund has
established a policy of limiting excessive exchange activity.
Shareholders are entitled to six (6) exchange redemptions (at least 30 days
apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
Telephone Transactions
In order to request an exchange or redemption by telephone, a shareholder
must have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone Authorization Form
must be filed with PFPC. This form is available from PFPC. Once this election
has been made, the shareholder may simply contact PFPC by telephone to request
an exchange or redemption by calling (888) 261-4073. Neither RBB, the Fund, the
Distributor, the Administrator nor any other Fund agent will be liable for any
loss, liability, cost or expense for following RBB's telephone transaction
procedures described below or for following instructions communicated by
telephone that they reasonably believe to be genuine.
RBB's telephone transaction procedures include the following measures: (1)
requiring the appropriate telephone transaction privilege forms; (2) requiring
the caller to provide the names of the account owners, the account's social
security number and name of the Fund, all of which must match RBB's records; (3)
requiring RBB's service representative to complete a telephone transaction form,
listing all of the above caller identification information; (4) permitting
exchanges only if the two account registrations are identical; (5) requiring
that redemption proceeds be sent only by check to the account owners of record
at the address of record, or by wire only to the owners of record at the bank
account of record; (6) sending a written confirmation for each telephone
transaction to the owners of record at the address of record within five (5)
Business Days of the call; and (7) maintaining tapes of telephone transactions
for six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by broker-dealers (other than the Distributor),
financial institutions, securities dealers,
-15-
<PAGE>
financial planners and other industry professionals, additional documentation or
information regarding the scope of a caller's authority is required. Finally,
for telephone transactions in accounts held jointly, additional information
regarding other account holders is required. Telephone transactions will not be
permitted in connection with IRA or other retirement plan accounts or by an
attorney-in-fact under a power of attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each class of a fund is calculated by adding the
value of the proportionate interest of the class in a fund's cash, securities
and other assets, deducting actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class is calculated independently of each other class. The
net asset values are calculated as of the close of regular trading on the NYSE,
generally 4:00 p.m. Eastern time on each Business Day.
Valuation of securities held by the Fund is as follows: securities traded
on a national securities exchange or on the NASDAQ National Market System are
valued at the last reported sale price that day; securities traded on a national
securities exchange or on the NASDAQ National Market System for which there were
no sales on that day and securities traded on other over-the-counter markets for
which market quotations are readily available are valued at the mean of the bid
and asked prices; and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of RBB's Board of Directors. The amortized cost method of
valuation may also be used with respect to debt obligations with sixty days or
less remaining to maturity.
With the approval of RBB's Board of Directors, the Fund may use a pricing
service, bank or broker-dealer experienced in such matters to value the Fund's
securities. A more detailed discussion of net asset value and security valuation
is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Fund to the Fund's shareholders. All
distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income
annually, and pays them in the calendar year in which they are declared,
generally in December. Net realized capital gains (including net short-term
capital gains), if any, will be distributed at least annually.
-16-
<PAGE>
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation.
The Fund will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. So long as the
Fund qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on amounts so distributed (except
distributions that are treated as a return of capital) regardless of whether
such distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Fund will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to bonds bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the tax
status of distributions made by the Fund. Dividends declared in December of any
year payable to shareholders of record on a specified date in such a month will
be deemed to have been received by the shareholders on December 31, provided
such dividends are paid during January of the following year. The Fund intends
to make sufficient actual or deemed distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize capital
gain or loss for federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Institutional Shares, which is
offered directly to institutional investors pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance
-17-
<PAGE>
quotations in the same manner. The Fund will quote performance of Institutional
Shares separately from Investor Shares. Because of different expenses paid by
the Investor Shares, the total return on such shares can be expected, at any
time, to be different than the total return on Institutional Shares. Information
concerning Institutional Shares may be obtained by calling the Fund at (888)
261-4073.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB 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.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE BOSTON PARTNERS MID CAP VALUE FUND AND DESCRIBE
ONLY THE INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS AND OTHER
MATTERS RELATING TO THE BOSTON PARTNERS MID CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in that portfolio.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares will be fully paid and
non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund will vote in the aggregate and not by class
on all matters, except where otherwise required by law. Further, shareholders of
all investment portfolios of RBB will vote in the aggregate and not by portfolio
except as otherwise required by law or when RBB's Board of Directors determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular investment portfolio. (See the Statement of Additional
Information under "Additional Information Concerning Fund Shares" for examples
when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of RBB.
-18-
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC Inc.,
the Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (888) 261-4073.
Share Certificates
In the interest of economy and convenience, physical certificates
representing shares in the Fund are not normally issued.
Historical Performance Information
For the period from commencement of operations (June 2, 1997) through
August 31, 1998, the total return (not annualized) for the Investor Class of
Shares of the Fund was as follows:
Unannualized investment returns for the period ended August 31, 1998
Since
Inception
Boston Partners Mid Cap Value Fund
(Investor Shares)...................................... (3.96)%
The total return assumes the reinvestment of all dividends and capital
gains and reflects investment advisory fee waivers and expense reimbursements in
effect. Without these waivers and expense reimbursements, the Fund's performance
would have been lower. Of course, past performance is no guarantee of future
results. Investment return and principal value will fluctuate, so that Shares,
when redeemed, may be worth more or less than the original cost. For more
information on performance, see "Performance Information" in the Statement of
Additional Information.
The table below presents the Composite performance history of certain of
the Adviser's managed accounts on an annualized basis for the period ended
August 31, 1998. The Composite is comprised of the Adviser's institutional
accounts and other privately managed accounts with investment objectives,
policies and strategies substantially similar to those of the Fund, although the
accounts have longer operating histories than the Fund which commenced
operations on June 2, 1997. The Composite performance information includes the
reinvestment of dividends received in the underlying securities and reflects
investment advisory fees. The privately managed accounts in the Composite are
only available to the Adviser's institutional advisory clients. The past
performance of the funds and accounts that comprise the Composite is
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<PAGE>
not indicative of or a substitute for the future performance of the Fund. These
accounts have lower investment advisory fees than the Fund and the Composite
performance figures would have been lower if subject to the higher fees and
expenses incurred by the Fund. These private accounts are not subject to the
same investment limitations, diversification requirements and other restrictions
which are imposed upon mutual funds under the 1940 Act and the Internal Revenue
Code, which, if imposed, may have adversely affected the performance results of
the Composite. Listed below the performance history for the Composite is the
performance history for a comparative index comprised of securities similar to
those in which accounts contained in the Composite are invested.
Annualized investment returns for the period ended August 31, 1998
Since Since
One Year Inception*
-------- ----------
Composite Performance.............. (12.77)% (3.19)%*
Russell 2500 Index................. (16.84)% (5.74)%
* The Adviser commenced managing these accounts on June 2, 1997.
The Russell 2500 Index represents the largest 3000 companies domiciled in
the United States minus the largest 500 companies as determined by the market
value of such companies.
Future Performance Information
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding the compounded average
annual total return for each time period that would equate the assumed initial
investment of $1,000 to the ending redeemable value, net of fees, according to a
required standardized calculation. The standard calculation is required by the
SEC to provide consistency and comparability in investment company advertising.
The Fund may also from time to time include in such advertising an aggregate
total return figure or a total return figure that is not calculated according to
the standardized formula in order to compare more accurately the Fund's
performance with other measures of investment return. For example, the Fund's
total return may be compared with data published by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. or Weisenberger Investment Company
Service, or with the performance of the Russell 2500 Index. Performance
information may also include evaluation of the Fund by nationally recognized
ranking services and information as reported in financial publications such as
Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal, The New York Times, or other national,
regional or local publications. All advertisements containing performance data
will include a legend disclosing that such performance data represents past
-20-
<PAGE>
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's Shares, when redeemed, may be worth more or
less than their original cost.
-21-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN
RBB'S STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY RBB OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-------------------------
TABLE OF CONTENTS
Page
----
FINANCIAL HIGHLIGHTS................................ 2
INTRODUCTION........................................ 4
INVESTMENT OBJECTIVES AND POLICIES.................. 4
INVESTMENT LIMITATIONS.............................. 5
RISK FACTORS........................................ 6
MANAGEMENT.......................................... 7
DISTRIBUTION OF SHARES.............................. 9
HOW TO PURCHASE SHARES............................. 11
HOW TO REDEEM AND EXCHANGE SHARES.................. 12
NET ASSET VALUE.................................... 16
DIVIDENDS AND DISTRIBUTIONS........................ 16
TAXES.............................................. 16
MULTI-CLASS STRUCTURE.............................. 17
DESCRIPTION OF SHARES.............................. 18
OTHER INFORMATION.................................. 18
Investment Adviser
Boston Partners Asset Management, L.P.
Boston, Massachusetts
Custodian
PNC Bank, N.A.
Philadelphia, Pennsylvania
Transfer Agent and Administrator PROSPECTUS
PFPC Inc.
Wilmington, Delaware DECEMBER 29, 1998
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
Counsel BOSTON PARTNERS
Drinker Biddle & Reath LLP MID CAP VALUE FUND
Philadelphia, Pennsylvania (Investor Shares)
Independent Accountants
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
Bp
Boston Partners Asset Management, L.P.
--------------------------------------
<PAGE>
Boston Partners Mid Cap Value Fund bp
(Investor Class) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
ACCOUNT APPLICATION
Please Note: Do not use this form to open a retirement plan account. For an IRA
application or help with this Application, please call 1-888-261-4073
(Please check the appropriate box(es) below.)
1. / / Individual / / Joint Tenant / / Other
Account _____________________________________________________
Registration: Name SOCIAL SECURITY NUMBER OR TAX ID# OF PRIMARY OWNER
________________________________________________________________
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR
TAX ID#
For joint accounts, the account registrants will be joint tenants with right of
survivorship and not tenants in common unless tenants in common or community
property registrations are requested.
GIFT TO MINOR: / / Uniform Gifts/Transfer to Minor's Act
________________________________________________________________
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
________________________________________________________________
NAME OF MINOR (ONLY ONE PERMITTED)
________________________________________________________________
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
CORPORATION,
PARTNERSHIP,
TRUST OR
OTHER ENTITY:
________________________________________________________________
NAME OF CORPORATION, PARTNERSHIP, NAME(S) OF TRUSTEE(S)
OR OTHER
________________________________________________________________
TAXPAYER IDENTIFICATION NUMBER
2. ________________________________________________________________
Mailing STREET OR P.O. BOX AND/OR APARTMENT NUMBER
Address:
________________________________________________________________
CITY STATE ZIP CODE
________________________________________________________________
DAY PHONE NUMBER EVENING PHONE NUMBER
3. Minimum initial investment Amount of investment $___________
Investment of $100,000
Information:
Make the check payable to Boston Partners Mid Cap Value Fund.
Shareholders may not purchase shares of this Fund with a check
issued by a third party and endorsed over to the Fund.
DISTRIBUTION Note: Dividends and capital gains may be reinvested or paid by
OPTIONS: check. If not options are selected below, both dividends and
capital gains will be reinvested in additional Fund shares.
Dividends / / Pay by check / / Reinvest / / Capital Gains / /
Pay by check / / Reinvest / /
<PAGE>
4. To use this option, you must initial the appropriate line below.
Telephone I authorize the Transfer Agent to accept instructions from any
Redemption: persons to redeem or exchange shares in my account(s) by
telephone in accordance with the procedures and conditions set
forth in the Prospectus.
______________________ _________________ Redeem shares, and
individual initial joint initial send the proceeds to
the address of record.
______________________ _________________ Exchange shares for
individual initial joint initial shares of The Boston
Partners Large Cap
Value Fund, Market
Neutral Fund or Long-
Short Equity Fund.
5.
Automatic The Account Investment Plan which is available to shareholders of
Investment the Fund, makes possible regularly scheduled purchases of Fund
Plan: shares to allow dollar-cost averaging. The Fund's Transfer Agent
can arrange for an amount of money selected by you to be deducted
from your checking account and used to purchase shares of the
Fund.
Please debit $________ from my checking account (named below) on
or about the 20th of the month. Please attach an unsigned, voided
check.
/ / Monthly / / Every Alternate Month / / Quarterly / / Other
BANK OF _________________________________________________________________
RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
_________________________________________________________________
CITY STATE ZIP CODE
_________________________________________________________________
BANK ABA NUMBER BANK ACCOUNT NUMBER
6.
Signatures The undersigned warrants that I (we) have fully authority and, if
a natural person, I (we) am (are) of legal age to purchase shares
pursuant to this Account Application, and I (we) have received a
current prospectus for the Fund in which I (we) am (are)
investing. Under the Interest and Dividend Tax Compliance Act of
1983, the Fund is required to have the following certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be issued
to), and (2) I am not subject to backup withholding because (a) I
am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service that I am subject to 31%
backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
Note: You must cross out item (2) above if you have been notified
by the IRS that you are currently subject to backup withholding
because you have failed to report all interest and dividends on
your tax return. The Internal Revenue Service does not require
your consent to any provision of this document other than the
certification required to audit backup withholding.
_________________________________________________________________
SIGNATURE OF APPLICANT DATE
_________________________________________________________________
PRINT NAME TITLE (IF APPLICABLE)
_________________________________________________________________
SIGNATURE OF JOINT OWNER DATE
_________________________________________________________________
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate
corporate office or title. If you wish additional signatories on
the account, please include a corporate resolution. If signing as
a fiduciary, you must indicate capacity.)
For information on additional options, such as IRA Applications,
rollover requests for qualified retirement plans, or for wire
instructions, please call us at 1-888-261-4073.
Mail completed Account Application and check to:
The Boston Partners Mid Cap Value Fund
c/o PFPC Inc.
P.O. Box 8852
Wilmington, DE 19899-8852
<PAGE>
BOSTON PARTNERS BOND FUND
(Institutional Class)
of
The RBB Fund, Inc.
Boston Partners Bond Fund (the "Fund") is an investment portfolio of The
RBB Fund, Inc. ("RBB"), an open-end management investment company. The shares of
the Institutional Class ("Shares") offered by this Prospectus represent
interests in the Fund. The investment objectives of the Fund are to maximize
total return by investing principally in investment grade fixed income
securities, and secondarily to seek current income.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling
(888) 261-4073. The Prospectus and the Statement of Additional
Information are available for reference, along with other related material, on
the SEC Internet Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS December 29, 1998
<PAGE>
EXPENSE TABLE
- --------------------------------------------------------------------------------
The following table illustrates annual operating expenses incurred by
Institutional shares of the Fund (after fee waivers and expense reimbursements)
for the fiscal period ended August 31, 1998 as a percentage of average daily net
assets. An example based on the summary is also shown.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers)*.................................... 0.00%
12b-1 Fees.......................................................... 0.00%
Other Expenses (after waivers)*..................................... 0.60%
Total Fund Operating Expenses (after waivers)*...................... 0.60%
====
* In the absence of fee waivers, Management Fees would be .40%, Other
Expenses would be 2.07% and Total Fund Operating Expenses would be 2.47%.
Example
An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Boston Partners Bond Fund.......................... $6 $19 $33 $75
</TABLE>
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" below.) The Fee Table reflects a voluntary waiver of
"Management Fees" and administrative services fees for the Fund, which are
expected to be in effect during the current fiscal period. However, the Adviser
and Administrative Services Agent are under no obligation with respect to such
waivers and there can be no assurance that any future waivers of Management fees
or administrative services fees will not vary from the figures reflected in the
Fee Table.
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating
Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
-2-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The "Financial Highlights" presented below set forth certain investment
results for shares of the Institutional Class of the Fund for the period
indicated. Shares of the Institutional Class were first issued on December 30,
1997. The financial data included in this table should be read in conjunction
with the financial statements and notes thereto and the unqualified report of
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), RBB's independent
accountant, which are incorporated by reference into the Statement of Additional
Information. Further information about the performance of the Institutional
Class of the Fund is available in the Annual Report to Shareholders. Both the
Statement of Additional Information and the Annual Report to Shareholders may be
obtained from the Fund free of charge by calling the telephone number on page 1
of the prospectus.
BOSTON PARTNERS BOND FUND
(For an Institutional Share outstanding throughout each period)
For the Period
December 30, 1997*
through August 31, 1998
-----------------------
Per Share Operating Performance**
Net asset value, beginning of period.................. $10.00
Net investment income (1)............................. 0.78
Net realized and unrealized gain/(loss) on
investments(2)........................................ (0.31)
------
Net increase in net assets resulting
from operations....................................... 0.47
------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income................................. (0.39)
Net realized capital gains............................ --
------
Net asset value, end of period........................ $10.08
Total investment return(3)............................ 4.79%
======
Ratios/Supplemental Data
Net assets, end of period (000)....................... $15,509
Ratio of expenses to average net
assets***(1)(4)..................................... 0.60%
Ratio of net investment income to
average net assets***(1)............................ 6.06%
Portfolio turnover rate****........................... 45.27%
-4-
<PAGE>
- ---------------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating net asset value
during the period.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Until May 29, 1998, the Institutional Class of the Fund paid .03% of
its average daily net assets to the Fund's previous Distributor in
12b-1 fees. From May 29, 1998 through August 31, 1998, the
Institutional Class of the Fund paid .03% of its average daily net
assets to the Administrative Services Agent pursuant to the
Administrative Services Plan for Institutional shares, in lieu of 12b-1
fees. Without the waiver of advisory, administrative services, 12b-1,
administration and transfer agent fees and without the reimbursement of
certain operating expenses, the ratio of expenses to average net assets
annualized for the period ended August 31, 1998 would have been 2.47%
for the Institutional Class.
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
seventeen separate investment portfolios. The Shares offered by this Prospectus
represent interests in the Boston Partners Bond Fund. RBB was incorporated in
Maryland on February 29, 1988.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The investment objectives of the Fund are to maximize total return by
investing principally in investment grade fixed income securities, and
secondarily to seek current income.
The Fund will invest during normal market conditions at least 75% of its
total assets in
-5-
<PAGE>
bonds, including corporate debt obligations and mortgage-backed and asset-backed
securities (collectively, "Debt Securities") rated investment-grade or better at
the time of purchase by Standard & Poor's ("S&P") or Moody's Investors Service,
Inc. ("Moody's") or which are similarly rated by another nationally recognized
statistical rating organization ("Rating Organization") (including Fitch IBCA,
Duff & Phelps, and Thomson BankWatch), or are unrated but deemed by Boston
Partners Asset Management L.P. (the "Adviser") to be comparable in quality to
instruments so rated. The Fund may invest up to 25% of its total assets in Debt
Securities rated "BB" and "B" by Moody's or "Ba" and "B" by S&P or which are
similarly rated by another Rating Organization or are unrated but are deemed by
the Adviser to be comparable in quality to instruments that are so rated.
Investment-grade Debt Securities are those rated at the time of purchase
"AAA," "AA," "A" or "BBB" by S&P, "Aaa," "Aa," "A" or "Baa" by Moody's or which
are similarly rated by another Rating Organization or are unrated but deemed by
the Adviser to be comparable in quality to instruments that are so rated. Debt
Securities rated "BBB" by S&P, "Baa" by Moody's or the equivalent rating of
another Rating Organization, while still deemed investment-grade, are considered
to have speculative characteristics and are more sensitive to economic change
than higher rated bonds. Debt Securities rated below the four highest ratings of
S&P or Moody's are often referred to as "junk bonds." Such Debt Securities are
rated below investment-grade and carry a higher degree of risk and are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. See
"Risk Factors -- Lower Rated Securities."
The Adviser will select certain mortgage-backed and asset-backed securities
which it believes have superior risk/return characteristics versus other fixed
income instruments. Mortgage-backed securities represent pools of mortgage loans
assembled for sale to investors by various governmental agencies as well as by
private issuers. Asset-backed securities represent pools of other assets (such
as automobile installment purchase obligations and credit card receivables)
similarly assembled for sale by private issuers. See "Risk Factors --
Mortgage-Backed and Asset-Backed Securities" in this prospectus and "Investment
Objective and Policies" in the Statement of Additional Information.
The Fund may also invest up to 15% of its total assets in each of the
following: collateralized mortgage obligations ("CMOs"), Yankee Bonds
(dollar-denominated debt securities of foreign issuers), non-dollar denominated
bonds of foreign or domestic issuers, securities that can be purchased and sold
privately to institutional investors pursuant to Rule 144A, and convertible Debt
Securities of U.S. and foreign issuers (including convertible preferred stock
and notes). See "Risk Factors" in this Prospectus and "Investment Objective and
Policies" in the Statement of Additional Information.
The Fund may invest in debt securities issued by the U.S. Government or
government
-6-
<PAGE>
agencies, repurchase agreements and reverse repurchase agreements,
foreign currency exchange transactions, dollar rolls, futures, option contracts
(including options on futures) and stripped securities. The Fund may make
when-issued purchases and forward commitments. See "Risk Factors" in this
Prospectus and "Investment Objective and Policies" in the Statement of
Additional Information.
The Fund may invest in registered investment companies and investment funds
in foreign countries subject to the provisions of the Investment Company Act of
1940, as amended (the "1940 Act"), and as discussed in "Investment Objective and
Policies" in the Statement of Additional Information. If the Fund invests in
such investment companies, the Fund will bear its proportionate share of the
costs incurred by such companies, including investment advisory fees.
Although the Fund has no restriction as to the maximum or minimum duration
of any individual security held by it, during normal market conditions the
Fund's average effective duration will generally be within 5% of the duration of
the Lehman Brothers Aggregate Bond Index. "Duration" is a term used by
investment managers to express the average time to receipt of expected cash
flows (discounted to their present value) on a particular fixed income
instrument or a portfolio of instruments. Duration takes into account the
pattern of a security's cash flow over time, including how cash flow is affected
by prepayments and changes in interest rates. For example, the duration of a
five-year zero coupon bond that pays no interest or principal until the maturity
of the bond is five years. This is because a zero coupon bond produces no cash
flow until the maturity date. On the other hand, a coupon bond that pays
interest semi-annually and matures in five years will have a duration of less
than five years, which reflects the semi-annual cash flows resulting from coupon
payments. Duration also generally defines the effect of interest rate changes on
bond prices. Generally, if interest rates increase by one percent, the value of
a security having an effective duration of five years would decrease in value by
five percent.
The Fund's investment objectives and policies described above may be
changed by RBB's Board of Directors without the approval of the Fund's
shareholders.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment limitations that cannot
be changed without such a vote of the shareholders is contained in the Statement
of Additional Information under "Investment Objective and Policies.")
-7-
<PAGE>
The Fund may not:
1. Purchase the securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase, more than 5% of the value of the Fund's total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of
purchase, 25% or more of the value of the total assets of the Fund to
be invested in the obligations of issuers in any single industry,
provided that there is no limitation with respect to investments in
U.S. Government obligations.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks and enter into reverse repurchase agreements
and dollar rolls for temporary purposes in amounts up to one-third of
the value of its total assets at the time of such borrowing; or
mortgage, pledge or hypothecate any assets, except in connection with
any such borrowing and then in amounts not in excess of one-third of
the value of the Fund's total assets at the time of such borrowing. The
Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings
from banks) are in excess of 5% of its total assets. Securities held in
escrow or separate accounts in connection with the Fund's investment
practices are not considered to be borrowings or deemed to be pledged
for purposes of this limitation.
If a percentage restriction under one of the Funds' investment policies
or restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation (except with respect to any restrictions that may apply
to borrowings or senior securities issued by the Fund).
Portfolio Turnover
The Fund retains the right to sell securities irrespective of how long
they have been held. The Adviser estimates that the annual turnover in the Fund
will be approximately 100%. High portfolio turnover (100% or more) will
generally result in higher transaction costs to a portfolio and may result in
the realization of short-term capital gains that are taxable to shareholders as
ordinary income.
-8-
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
Interest Rate Risk
Generally, the market value of fixed income securities is subject to
interest rate fluctuation and can be expected to vary inversely to changes in
the prevailing interest rates. Thus, the value of portfolio investments held by
the Fund is likely to decline if prevailing interest rates rise, and vice versa.
Lower Rated Securities
Investors should carefully consider the relative risks of investing in the
higher yielding (and, therefore, higher risk) debt securities rated below
investment-grade by S&P or Moody's, or which are similarly rated by another
Rating Organization or are unrated but deemed by the Adviser to be comparable to
instruments so rated.
The Fund's investments in obligations rated below the four highest ratings
of S&P and Moody's have different risks than investments in securities that are
rated "investment-grade." Risk of loss upon default by the borrower is
significantly greater because lower-rated securities are generally unsecured and
are often subordinated to other creditors of the issuer, and because the issuers
frequently have high levels of indebtedness and are more sensitive to adverse
economic conditions, such as recessions, individual corporate developments and
increasing interest rates than are investment-grade issuers. As a result, the
market price of such securities, and the net asset value of the Fund's Shares,
may be particularly volatile.
Additional risks associated with lower-rated fixed income securities are
(a) the relatively low trading market liquidity for the securities and (b) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly-leveraged issuers may
experience financial stress that would adversely affect their ability to service
their principal and interest payment obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower-rated bonds generally and adversely affect the
value of outstanding bonds and the ability of the issuers to repay principal and
interest. If the issuer of a lower-rated security held by the Fund defaulted,
the Fund could incur additional expenses to seek recovery. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower-rated securities held by the Fund,
especially in a thinly traded market. Finally, the Fund's trading in fixed
income securities entails risks that capital losses rather than gains will
result. As a result, investment in the Fund should not be considered a complete
investment program.
-9-
<PAGE>
The Adviser will continually evaluate lower-rated securities and the
ability of their issuers to pay interest and principal. The Fund's ability to
achieve its investment objectives may be more dependent on the Adviser's credit
analysis than might be the case for a fund that invested in higher rated
securities. See the "Appendix" in the Statement of Additional Information for a
general description of securities ratings.
Mortgage-Backed and Asset-Backed Securities
Mortgage-backed securities, like other fixed income instruments, may be
subject to risks including price fluctuations due to interest rate changes. The
returns on mortgage-backed securities may also be negatively affected by changes
in principal pre-payment rates due to interest rate volatility.
Mortgage-related securities acquired by the Fund may include collateralized
mortgage obligations ("CMOs"), a type of derivative, issued by the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation,
Government National Mortgage Association or other U.S. Government agencies or
instrumentalities, as well as by private issuers. CMOs may involve additional
risks other than those found in other types of mortgage-related obligations in
that they may exhibit more price volatility and interest rate risk than such
obligations. During periods of rising interest rates, CMOs may lose their
liquidity as CMO market makers may choose not to repurchase, or may offer prices
based on current market conditions, which are unacceptable to a fund based on
the fund's analysis of the market value of the security. See "Investment
Objectives and Policies" in the Statement of Additional Information.
Asset-backed securities are also subject to declines in market value during
periods of rising interest rates. Due to the possibility of prepayment of the
underlying obligations, asset-backed securities have less potential for capital
appreciation than other debt securities of comparable maturities during periods
of declining interest rates. As a result, asset-backed securities may be less
effective than other fixed income securities as a means of locking in attractive
interest rates for the long term.
-10-
<PAGE>
Reverse Repurchase Agreements and Dollar Rolls.
The Fund may enter into reverse repurchase agreements with respect to
portfolio securities for temporary purposes (such as to obtain cash to meet
redemption requests) when the liquidation of portfolio securities is deemed
disadvantageous or inconvenient by the Adviser. Reverse repurchase agreements
involve the sale of securities held by the Fund pursuant to the Fund's agreement
to repurchase the securities at an agreed-upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940 (the "1940 Act"), and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, the
Fund will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement and will monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the price of the securities the
Fund is obligated to repurchase. The Fund may also enter into "dollar rolls," in
which it sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Fund would forgo principal and interest paid on such securities. The Fund would
be compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale.
Foreign Securities Risk
The Fund may invest in foreign securities, as described above. Investing in
securities of foreign issuers involves considerations not typically associated
with investing in securities of companies organized and operating in the United
States. Foreign securities generally are denominated and pay dividends or
interest in foreign currencies. The Fund may hold from time to time various
foreign currencies pending their investment in foreign securities or their
conversion into U.S. dollars. The value of the assets of the Fund as measured in
U.S. dollars may therefore be affected favorably or unfavorably by changes in
exchange rates. There may be less publicly available information concerning
foreign issuers than is available with respect to U.S. issuers. Foreign
securities may not be registered with the U.S. Securities and Exchange
Commission, and generally, foreign companies are not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to U.S. issuers. See "Investment Objectives and Policies -- Foreign
Securities" in the Statement of Additional Information.
-11-
<PAGE>
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and may receive interest and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. Forward foreign currency
exchange contracts are agreements to exchange one currency for another -- for
example, to exchange a certain amount of U.S. dollars for a certain amount of
Japanese yen -- at a future date and at a specified price. Typically, the other
party to a currency exchange contract will be a commercial bank or other
financial institution. A fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies.
Forward foreign currency exchange contracts also allow the Fund to hedge
the currency risk of portfolio securities denominated in a foreign currency.
This technique permits the assessment of the merits of a security to be
considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. There is a risk of
loss to the Fund if the other party does not complete the transaction.
European Currency Unification
Many European countries are about to adopt a single European currency, the
euro. On January 1, 1999, the euro will become legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European Central
Bank will be created to manage the monetary policy of the new unified region. On
the same date, the exchange rates will be irrevocably fixed between the EMU
member countries. National currencies will continue to circulate until they are
replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the Fund may invest and may result in the Fund facing additional risks
in pursuing its investment objective. These risks, which include, but are not
limited to, uncertainty as to the proper tax treatment of the currency
conversion, volatility of currency exchange rates as a result of the conversion,
uncertainty as to capital market reaction, conversion costs that may affect
issuer profitability and creditworthiness, and lack of participation by some
European countries, may increase the volatility of the Fund's net asset value
per share.
-12-
<PAGE>
When-Issued Purchases and Forward Commitments
The Fund may purchase securities on a when-issued basis or enter into
forward commitment transactions. When the Fund agrees to purchase securities on
a when-issued basis or enters into a forward commitment to purchase securities,
the Custodian will set aside cash, U.S. Government securities or other liquid
assets equal to the amount of the purchase or the commitment in a separate
account. As a result, the Fund's liquidity and ability to manage its portfolio
might be affected in the event its when-issued purchases or forward commitments
ever exceeded 25% of the value of its assets. In the case of a forward
commitment to sell portfolio securities, the Custodian will hold the portfolio
securities in a segregated account while the commitment is outstanding. When the
Fund engages in when-issued and forward commitment transactions, it relies on
the other party to consummate the trade. Failure of such party to do so may
result in the Fund incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
YEAR 2000
- --------------------------------------------------------------------------------
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved. The Year
2000 Problem could also hurt companies whose securities the Fund holds or
securities markets generally.
ASSET ALLOCATION
From time to time, the Fund may experience relatively large purchases
or redemptions due to asset allocation decisions made by the Advisor for clients
receiving Asset Allocation account management services involving investments in
the Fund. These transactions may have a material effect on the Fund, since
redemptions caused by reallocations may result in the Fund selling portfolio
securities, and purchases caused by reallocations may result in the Fund
receiving additional cash that it will have to invest. While it is impossible to
predict the overall impact of these transactions over time, there could be
adverse effects on portfolio management to the extent that the Fund may be
required to sell securities at times when it would not otherwise do so, or
receive cash that cannot be invested in an expeditious manner. These
transactions could also have tax consequences if the sale of securities results
in gains and could also increase transaction costs. The Advisor is committed to
minimizing the impact of such transactions on the Fund to the extent it is
consistent with pursuing the investment objectives of clients for which the
Advisor provides Asset Allocation account management services involving
investments in the Fund and monitors the impact of asset allocation decisions on
the Fund.
-13-
<PAGE>
General
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
MANAGEMENT
- --------------------------------------------------------------------------------
Board of Directors
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
Investment Adviser
Boston Partners Asset Management, L.P., located at 28 State Street, 21st
Floor, Boston, Massachusetts 02109, serves as the Fund's investment adviser. The
Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of October 31, 1998 in excess of $16.0 billion. The
adviser is organized as a Delaware limited partnership whose sole general
partner is Boston Partners, Inc., a Delaware corporation.
Subject to the supervision and direction of RBB's Board of Directors, the
Adviser manages the Fund's portfolio in accordance with the Fund's investment
objectives and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For its services
to the Fund, the Adviser is paid an advisory fee computed at an annual rate of
0.40% of the Fund's average daily net assets, which is calculated daily and paid
monthly. The Adviser has notified RBB, however, that it intends to limit total
fund operating expenses to .60% during the Fund's current fiscal year.
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<PAGE>
Portfolio Management
The day-to-day portfolio management of the Fund is the responsibility of
William R. Leach who is a senior portfolio manager of the Adviser and Chairman
of the Fixed Income Strategy Committee. Prior to joining the Adviser in April
1995, Mr. Leach was employed by The Boston Company Asset Management, Inc. ("The
Boston Company") from 1988 through April 1995 where he was a senior portfolio
manager and Director of the Fixed Income Strategy Committee. Mr. Leach has over
16 years of investment experience and is a Chartered Financial Analyst ("CFA").
Mr. Leach will be assisted by Glenn S. Davis, Joseph F. Feeney, Jr. and Michael
A. Mullaney. Mr. Davis is a Fixed Income Portfolio Manager with the Adviser and
is also a CFA. Prior to joining the Adviser in April 1995, he was Vice President
and Portfolio Manager at The Boston Company, specializing in short and
intermediate term corporate bonds. Prior to that position, he was responsible
for the Short-term Fixed Income Group at State Street Global Advisors. He has a
total of 17 years of investment experience. Mr. Feeney is a Fixed Income
Portfolio Manager with the Adviser and also a CFA. Prior to joining the Adviser
in April 1995, he was Assistant Vice President and Mortgage-backed Securities
Portfolio Manager for Putnam Investments. Mr. Mullaney is a Fixed Income
Portfolio Manager who joined the Adviser in June 1997. From 1984 to 1997, he was
employed at Putnam Investments, most recently as Managing Director and Senior
Investment Strategist, specializing in portfolio strategy and management. His
prior experience included a position as a senior Consultant from 1981 to 1983
with Chase Econometrics/Interactive Data Corporation, where he focused on
quantitative methodologies in fixed income and equity management. He has over 16
years of investment experience.
Administrator
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. PFPC's
principal offices are located at 400 Bellevue Parkway, Wilmington, Delaware
19809. For its services, PFPC receives a fee calculated at an annual rate of
.125% of the Fund's average daily net assets, with a minimum annual fee of
$75,000 payable monthly on a pro rata basis.
Transfer Agent, Dividend Disbursing Agent and Custodian
PNC Bank, National Association ("PNC Bank") serves as the Fund's custodian
and PFPC serves as the Fund's transfer agent and dividend disbursing agent.
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<PAGE>
Administrative Services Agent
Provident Distributors, Inc. ("PDI") provides certain administrative
services to the Fund's Institutional Shares not otherwise provided by PFPC.
PDI's principal business address is Four Falls Corporate Center, West
Conshohocken, Pennsylvania 19428. PDI furnishes certain internal quasi-legal,
executive and administrative services to the Fund, acts as a liaison between the
Fund and its various service providers and coordinates and assists in the
preparation of reports prepared on behalf of the Fund. For its services, PDI is
entitled to a monthly fee calculated at the annual rate of .15% of the
respective average daily net assets of the Fund's Institutional Class. PDI is
currently waiving fees in excess of .03% of the average daily net assets of the
Fund's Institutional Class.
Distributor
PDI acts as distributor for the Shares pursuant to a distribution agreement
(the "Distribution Agreement") with RBB on behalf of the Shares.
Expenses
The expenses of the Fund are deducted from its total income before
dividends are paid. These expenses include, but are not limited to: fees paid to
the Adviser and PFPC; administrative services fees; fees and expenses of
officers and directors who are not affiliated with any of RBB's investment
advisers, sub-advisers or the Distributor; taxes; interest; legal fees;
custodian fees; auditing fees; brokerage fees and commissions; certain of the
fees and expenses of registering and qualifying the Fund and the Shares for
distribution under federal and state securities laws; expenses of preparing
prospectuses and statements of additional information and of printing and
distributing them annually to existing shareholders that are not attributable to
a particular class of shares of RBB; the expense of reports to shareholders,
shareholders' meetings and proxy solicitations that are not attributable to a
particular class of shares of RBB; fidelity bond and directors and officers'
liability insurance premiums; the expense of using independent pricing services;
and other expenses that are not expressly assumed by the Adviser under its
investment advisory agreement with respect to the Fund. Any general expenses of
RBB that are not readily identifiable as belonging to a particular investment
portfolio of RBB will be allocated among all investment portfolios of RBB based
upon the relative net assets of the investment portfolios. Distribution
expenses, transfer agency expenses, expenses of preparation, printing and
distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders and registration fees, identified as
belonging to a particular class, are allocated to such class.
The Adviser may assume expenses of the Fund from time to time. To the
extent any
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<PAGE>
service providers assume expenses of the Fund, such assumption of expenses will
have the effect of lowering the Fund's overall expense ratio and increasing its
yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled
to receive from the Fund a distribution fee with respect to the Shares,
which is accrued daily and paid monthly, of up to 0.25% on an annualized basis
of the average daily net assets of the Shares. The actual amount of such
compensation under the Plan is agreed upon by RBB's Board of Directors and by
the Distributor in the Distribution Agreement. The Distributor may, in its
discretion, from time to time waive voluntarily all or any Portion of its
distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub- transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to Service Agents. See
"How to Purchase Shares-Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Shares the fee agreed to under the
Distribution Plan. Payments under the Plan are not tied exclusively to expenses
actually incurred by the Distributor, and payments may exceed distribution
expenses actually incurred.
Purchases Through Intermediaries.
Shares of the Fund may be available through certain brokerage firms,
financial institutions and programs sponsored by other industry professionals
(collectively, "Service Organizations"). Certain features of the Shares, such as
the initial and subsequent investment minimums and certain trading restrictions,
may be modified or waived by Service Organizations. Service Organizations may
impose transaction or administrative charges or other direct fees, which charges
or fees would not be imposed if Shares are purchased directly from the Fund.
Therefore, a client or customer should contact the Service Organization acting
on his behalf concerning the fees (if any) charged in connection with a purchase
or redemption of Shares and should read this Prospectus in light of the terms
governing his accounts with the Service Organization. Service Organizations will
be responsible for promptly transmitting client or customer purchase and
redemption orders to the Fund in accordance with their agreements with clients
or customers. Service Organizations or, if applicable, their designees that have
entered into agreements with the Fund or its agent may enter confirmed purchase
orders on behalf of clients and customers, with payment to follow no later than
the Fund's pricing on the following Business Day. If payment is not received by
such time, the Service Organization could be held liable for resulting fees or
losses. The Fund will be deemed to have received a purchase or redemption order
when a Service Organization, or, if applicable, its authorized designee, accepts
a purchase or redemption order in good order. Orders received by the Fund in
good order will be priced at the Fund's net asset value next computed after they
are accepted by the Service Organization or its authorized designee.
For administration, subaccounting, transfer agency and/or other
services, the Adviser or the Distributor or their affiliates may pay Service
Organizations and certain recordkeeping organizations with whom they have
entered into agreements a fee of up to .35% (the "Service Fee') of the average
annual value of accounts with the Fund maintained by such Service Organizations
or recordkeepers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization
or recordkeeper.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares consisting of securities dealers who have sold
Shares, or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
<PAGE>
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
General
Shares representing interests in the Fund are offered continuously for sale
by the Distributor and may be purchased without imposition of a sales charge.
Shares may be purchased initially by completing the application included in this
Prospectus and forwarding the application to the Fund's transfer agent, PFPC.
Purchases of Shares may be effected by wire to an account to be specified by
PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston Partners Bond Fund" c/o PFPC Inc., P.O. Box 8852, Wilmington,
Delaware 19899-8852. The name of the Fund, Boston Partners Bond Fund, must also
appear on the check or Federal Reserve Draft. Shareholders may not purchase
shares of the Boston Partners Bond Fund with a check issued by a third party and
endorsed over to the Fund. Federal Reserve Drafts are available at national
banks or any state bank which is a member of the Federal Reserve System. Initial
investments in the Fund must be at least $100,000 and subsequent investments
must be at least $5,000. For purposes of meeting the minimum initial purchase,
clients which are part of endowments, foundations or other related groups may be
aggregated. The Fund reserves the right to suspend the offering of Shares for a
period of time or to reject any purchase order.
Shares may be purchased by principals and employees of the Adviser and by
their spouses and children either directly or through any trust that has the
principal, employee, spouse or child as the primary beneficiaries, their
individual retirement accounts, or any pension and profit-sharing plan of the
Adviser without being subject to the minimum investment limitations.
Shares may be purchased on any Business Day. A "Business Day" is any day
that the New York Stock Exchange (the "NYSE") is open for business. Currently,
the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased initially or acquired through the
exercise of an exchange privilege is based on the net asset value next computed
after a purchase order is received in good order by the Fund or its agents.
Orders received by the Fund or its agents
-17-
<PAGE>
after the close of regular trading on the New York Stock Exchange, Inc.
(currently 4 p.m., Eastern time) are priced at the net asset value next
determined on the following business day. In those cases where an investor pays
for Shares by check, the purchase will be effected at the net asset value next
determined after the Fund or its agents receives the order and the completed
application.
An investor may also purchase Shares by having his bank or his broker wire
Federal Funds to PFPC. An investor's bank or broker may impose a charge for this
service. The Fund does not currently impose a service charge for effecting wire
transfers but reserves the right to do so in the future. In order to ensure
prompt receipt of an investor's Federal Funds wire, for an initial investment it
is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888) 261-4073, and
provide PFPC with your name, address, telephone number, Social Security or Tax
Identification Number, the Fund selected, the amount being wired, and by which
bank. PFPC will then provide an investor with a Fund account number. Investors
with existing accounts should also notify PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together with
your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the
Fund)
FOR PURCHASE OF: Boston Partners Bond Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the address shown
thereon. PFPC will not process purchases until it receives a fully completed and
signed application.
For subsequent investments, an investor should follow steps A and B above.
Additional investments in Shares may be made automatically by authorizing
the Fund's transfer agent to withdraw funds from your bank account on a regular
basis. Investors desiring to participate in the automatic investing program
should call the Fund's transfer agent, PFPC, at (888) 261-4073 to obtain the
appropriate forms.
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<PAGE>
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
Redemption By Mail
Shareholders may redeem for cash some or all of their Shares of the Fund at
any time. To do so, a written request in proper form must be sent directly to
Boston Partners Bond Fund c/o PFPC Inc., P.O. Box 8852, Wilmington, Delaware
19899-8852. There is no charge for a redemption.
A request for redemption must be signed by all persons in whose names the
Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "Exchange
Privilege."
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding share
certificates, the certificates for the shares being redeemed must accompany the
redemption request. Additional documentary evidence of authority is also
required by the Fund's transfer agent in the event redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
Involuntary Redemption
RBB reserves the right to redeem a shareholder's account at any time the
net asset value of the account falls below $500 as the result of a redemption or
an exchange request. Shareholders will be notified in writing that the value of
their account is less than $500 and will be allowed 30 days to make additional
investments before the redemption is processed.
-19-
<PAGE>
Payment of Redemption Proceeds
In all cases, the redemption price is the net asset value per share next
determined after the request for redemption is received in proper form by the
Fund or its agents. Payment for Shares redeemed is made by check mailed within
seven days after acceptance by the Fund or its agents of the request and any
other necessary documents in proper order. Such payment may be postponed or the
right of redemption suspended as provided by law. If the Shares to be redeemed
have been recently purchased by check, PFPC may delay mailing a redemption check
for up to 15 days, pending a determination that the check has cleared. The Fund
has elected to be governed by Rule 18f-1 under the 1940 Act so that it is
obligated to redeem its Shares solely in cash up to the lesser of $250,000 or 1%
of its net asset value during any 90-day period for any one shareholder of a
portfolio.
Exchange Privilege
The exchange privilege is available to shareholders residing in any state
in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Institutional Shares of any other Boston
Partners Fund of RBB subject to restrictions described under "Exchange Privilege
Limitations" below. Such exchange will be effected at the net asset value of the
exchanged Fund and the net asset value of the Fund being acquired next
determined after receipt of a request for an exchange by the Fund or its agents.
An exchange of Shares will be treated as a sale for federal income tax purposes.
See "Taxes." A shareholder wishing to make an exchange may do so by sending a
written request to PFPC.
If the exchanging shareholder does not currently own Institutional Shares
of the Boston Partners Fund into which he/she would like to exchange, a new
account will be established with the same registration, dividend and capital
gain options as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted. The exchange privilege may be modified
or terminated at any time, or from time to time, by RBB, upon 60 days' written
notice to shareholders.
If an exchange is to a new account in the Fund, the dollar value of
Shares acquired must equal or exceed that Fund's minimum for a new account; if
to an existing account,
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<PAGE>
the dollar value must equal or exceed that Fund's minimum for subsequent
investments. If any amount remains in the Fund from which the exchange is being
made, such amount must not drop below the minimum account value required by the
Fund.
Exchange Privilege Limitations
The Fund's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transactions costs, the Fund has
established a policy of limiting excessive exchange activity.
Shareholders are entitled to six (6) exchange redemptions (at least 30 days
apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
Telephone Transactions
In order to request an exchange or redemption by telephone, a shareholder
must have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone Exchange
Authorization Form must be filed with PFPC. These forms are available from PFPC.
Once this election has been made, the shareholder may simply contact PFPC by
telephone to request the exchange or redemption by calling (888) 261-4073.
Neither RBB, the Fund, the Distributor, the Administrator nor any Fund agent
will be liable for any loss, liability, cost or expense for following RBB's
telephone transaction procedures described below or for following instructions
communicated by telephone that they reasonably believe to be genuine.
RBB's telephone transaction procedures include the following measures: (1)
requiring the appropriate telephone transaction privilege forms; (2) requiring
the caller to provide the names of the account owners, the account social
security number and name of the Fund, all of which must match RBB's records; (3)
requiring RBB's service representative to complete a telephone transaction form,
listing all of the above caller identification information; (4) permitting
exchanges only if the two account registrations are identical; (5) requiring
that redemption proceeds be sent only by check to the account owners of record
at the address of record, or by wire only to the owners of record at the bank
account of record; (6) sending a written confirmation for each telephone
transaction to the owners of record at the address of record within five (5)
business days of the call; and (7) maintaining tapes of telephone transactions
for six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by broker-dealers (other than the Distributor),
financial
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<PAGE>
institutions, securities dealers, financial planners and other industry
professionals, additional documentation or information regarding the scope of a
caller's authority is required. Finally, for telephone transactions in accounts
held jointly, additional information regarding other account holders is
required. Telephone transactions will not be permitted in connection with IRA or
other retirement plan accounts or by an attorney-in-fact under a power of
attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each class of the Fund is calculated by adding the
value of the proportionate interest of each class in the Fund's securities, cash
and other assets, deducting the actual and accrued liabilities of each class and
dividing by the total number of outstanding shares of the class. The net asset
value is calculated as of the close of regular trading on the NYSE on each
Business Day.
Valuation of securities held by the Fund is as follows: securities traded
on a national securities exchange or on the NASDAQ National Market System are
valued at the last reported sale price that day; securities traded on a national
securities exchange or on the NASDAQ National Market System for which there were
no sales on that day and securities traded on other over-the-counter markets for
which market quotations are readily available are valued at the mean of the bid
and asked prices; and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of RBB's Board of Directors. The amortized cost method of
valuation may also be used with respect to debt obligations with sixty days or
less remaining to maturity.
With the approval of the Board of Directors, the Fund may use a pricing
service, bank or broker-dealer experienced in such matters to value the Fund's
securities. A more detailed discussion of net asset value and security valuation
is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Fund to the Fund's shareholders. All
distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income monthly.
Net realized capital gains (including net short-term capital gains), if any,
will be distributed at least annually.
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<PAGE>
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation.
The Fund will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. So long as the
Fund qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on amounts so distributed (except
distributions that are treated as a return of capital) regardless of whether
such distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Fund will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his shares, whether such gain was reflected in the price
paid for the shares, or whether such gain was attributable to bonds bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the tax
status of distributions made by the Fund. Dividends declared in December of any
year payable to shareholders of record on a specified date in such a month will
be deemed to have been received by the shareholders on December 31, provided
such dividends are paid during January of the following year. The Fund intends
to make sufficient actual or deemed distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize capital
gain or loss for federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax
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<PAGE>
treatment.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Investor Shares, which are
offered directly to individual investors pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance quotations in the same
manner. The Fund will quote performance of the Investor Shares separately from
Institutional Shares. Because of different fees paid by the Institutional
Shares, the total return on such shares can be expected, at any time, to be
different than the total return on Investor Shares. Information concerning the
other class may be obtained by calling the Fund at (888) 261-4073.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB 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."
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE BOSTON PARTNERS BOND FUND AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO BOSTON PARTNERS BOND FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares will be fully paid and
non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, RBB will assist in shareholder communications in such matters.
Holders of Shares of the Fund will vote in the aggregate and not by class
on all matters, except where otherwise required by law. Further, shareholders of
all investment portfolios of RBB will vote in the aggregate and not by portfolio
except as otherwise required by law or
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<PAGE>
when the Board of Directors determines that the matter to be voted upon affects
only the interests of the shareholders of a particular investment portfolio.
(See the Statement of Additional Information under "Additional Information
Concerning Fund Shares" for examples of when the 1940 Act requires voting by
investment portfolio or by class.) Shareholders of the Fund are entitled to one
vote for each full share held (irrespective of class or portfolio) and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% of the aggregate shares of Common
Stock of the Fund may elect all of the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of RBB.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to the Fund's
transfer agent, PFPC Inc., at Bellevue Park Corporate Center, 400 Bellevue
Parkway, Wilmington, Delaware 19809, toll-free (888) 261-4073.
Share Certificates
In the interest of economy and convenience, physical certificates
representing Shares in the Fund are not normally issued.
Historical Performance Information
For the period from commencement of operations (December 30, 1997) through
August 31, 1998, the total return since inception (not annualized) for the
Institutional Class of Shares of the Fund was as follows:
Unannualized investment returns for the period ended August 31, 1998
Since Inception
---------------
Boston Partners Bond Fund.............. 4.79%
(Institutional Shares)
The total return assumes reinvestment of all dividends and capital gains
and
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<PAGE>
reflects expense reimbursements and investment advisory fee waivers in effect.
Without these expense reimbursements waivers, the Fund's performance would have
been lower. Of course, past performance is no guarantee of future results.
Investment return and principal value will fluctuate, so that Shares, when
redeemed, may be worth more or less than the original cost. For more information
on performance, see "Performance Information" in the Statement of Additional
Information.
The table below presents the Composite performance history of certain of
the Adviser's managed accounts on an annualized basis since inception for the
period ended August 31, 1998. The Composite is comprised of all of the
Adviser's institutional accounts and other privately managed accounts with
investment objectives, policies and strategies substantially similar to those of
the Fund, although the accounts have operating histories, whereas the Fund had
not commenced operations until December 30, 1997. The Composite performance
information includes the reinvestment of interest received by the underlying
securities, realized and unrealized gains and losses, and reflects the payment
of investment advisory fees. The Composite performance does not reflect custody
fees or administrative fees that may be charged by banks, fiduciaries or other
third parties in connection with these institutional and privately managed
accounts. The privately managed accounts in the Composite are only available to
the Adviser's institutional advisory clients. The past performance of the
accounts which comprise the Composite is not indicative of the future
performance of the Fund. These accounts have lower investment advisory fees than
the Fund and the Composite performance figures would have been lower if subject
to the higher fees and expenses to be incurred by the Fund. These private
accounts are also not subject to the same investment limitations,
diversification requirements and other restrictions which are imposed upon
mutual funds under the 1940 Act and the Internal Revenue Code, which, if
imposed, may have adversely affected the performance results of the Composite.
Listed below the performance history for the Composite is a comparative index
comprised of securities similar to those in which accounts contained in the
Composite are invested.
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<PAGE>
Average annualized investment returns for the period ended September 30, 1998
One Since
Year Inception*
---- ----------
Composite Performance........................... 8.70% 9.20%
Lehman Brothers Aggregate Bond Index ........... 11.50% 8.60%
The Lehman Brothers Aggregate Bond Index is a broad market-weighted index, which
encompasses three major classes of investment-grade, fixed-income securities
with maturities greater than one year, including U.S. Treasury securities,
corporate bonds and mortgage-backed securities.
* The Adviser commenced managing these accounts on June 1, 1995
Future Performance Information
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding the compounded average
annual total return for each time period that would equate the assumed initial
investment of $1,000 to the ending redeemable value, net of fees, according to a
required standardized calculation. The standard calculation is required by the
SEC to provide consistency and comparability in investment company advertising.
The Fund may also from time to time include in such advertising an aggregate
total return figure or a total return figure that is not calculated according to
the standardized formula in order to compare more accurately the Fund's
performance with other measures of investment return. For example, the Fund's
total return may be compared with data published by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. or Weisenberger Investment Company
Service, or with the performance of the Lehman Brothers Aggregate Bond Index.
Performance information may also include evaluation of the Fund by nationally
recognized ranking services and information as reported in financial
publications such as Business Week, Fortune, Institutional Investor, Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, or
other national, regional or local publications. All advertisements containing
performance data will include a legend disclosing that such performance data
represents past performance and that the investment return and principal value
of an investment will fluctuate so that an investor's Shares, when redeemed, may
be worth more or less than their original cost.
-27-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-28-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN RBB'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
Page
----
FINANCIAL HIGHLIGHTS.............................. 3
INTRODUCTION...................................... 4
INVESTMENT OBJECTIVES AND POLICIES................ 4
INVESTMENT LIMITATIONS............................ 6
RISK FACTORS...................................... 7
MANAGEMENT........................................ 11
DISTRIBUTION OF SHARES............................ 11
HOW TO PURCHASE SHARES............................ 14
HOW TO REDEEM AND EXCHANGE SHARES................. 16
NET ASSET VALUE................................... 18
DIVIDENDS AND DISTRIBUTIONS....................... 19
TAXES............................................. 19
MULTI-CLASS STRUCTURE............................. 20
DESCRIPTION OF SHARES............................. 20
OTHER INFORMATION................................. 21
Investment Adviser
Boston Partners Asset Management, L.P.
Boston, Massachusetts
Custodian
PNC Bank, N.A.
Philadelphia, Pennsylvania
Transfer Agent PROSPECTUS
PFPC Inc.
Wilmington, Delaware DECEMBER 29, 1998
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
Counsel BOSTON PARTNERS
Drinker Biddle & Reath LLP BOND FUND
Philadelphia, Pennsylvania
(Institutional Shares)
Independent Accountants bp
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania BOSTON PARTNERS ASSET MANAGEMENT, L.P.
--------------------------------------
<PAGE>
Boston Partners Bond Fund bp
(Institutional Class) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
ACCOUNT APPLICATION
Please Note: Do not use this form to open a retirement plan account. For an IRA
application or help with this Application, please call 1-888-261-4073
1 (Please check the appropriate box(es) below.)
Account
Registration: 1 Individual 2 Joint Tenant 3 Other
_________________________________________________________________
NAME SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY
_________________________________________________________________
NAME OF JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
JOINT OWNER
For joint accounts, the account registrants will be joint tenants
with right of survivorship and not tenants in common unless
tenants in common or community property registrations are
requested.
4 Uniform Gifts/Transfer to Minor's Act
GIFT TO
MINOR: _________________________________________
NAME OF ADULT CUSTODIAN (ONLY ONE)
_________________________________________
NAME OF MINOR (ONLY ONE PERMITTED)
_________________________________________
MINOR'S SOCIAL SECURITY NUMBER AND
DATE OF BIRTH
CORPORATION,
PARTNERSHIP,
TRUST OR
OTHER ENTITY: _________________________________________________________________
NAME OF CORPORATION, PARTNERSHIP, NAME(S) OF TRUSTEE(S)
OR OTHER
_________________________________________________________________
TAXPAYER IDENTIFICATION NUMBER
2 _________________________________________________________________
Mailing STREET OR P.O. BOX AND/OR APARTMENT NUMBER
Address:
_________________________________________________________________
CITY STATE ZIP CODE
_________________________________________________________________
DAY PHONE NUMBER EVENING PHONE NUMBER
<PAGE>
3 Minimum initial investment Amount of investment $__________
Investment of $100,000.
Information:
Make the check payable to Boston Partners Bond Fund.
Shareholders may not purchase shares of this Fund with a check
issued by a third party and endorsed over to the Fund.
NOTE: Dividends and capital gains may be reinvested or paid by
check. If no options are selected below, both dividends and
capital gains will be reinvested in additional Fund shares.
DISTRIBUTION Interest 5 Pay by check 6 Reinvest 7
OPTIONS: Capital Gains 8 Pay by check 9 Reinvest 10
4
Telephone To use this option, you must initial the appropriate line below.
Exchange and
Redemption: I authorize the Transfer Agent to accept instructions from any
persons to redeem or exchange shares in my account(s) by
telephone in accordance with the procedures and conditions set
forth in the Fund's current prospectus.
______________________ _________________ Redeem shares, and
individual initial joint initial send the proceeds to
the address of record.
______________________ _________________ Exchange shares for
individual initial joint initial shares of the Boston
Partners Large Cap
Value Fund, Mid Cap
Value Fund, Micro Cap
Value Fund, Market
Neutral Fund or Long-
Short Equity Fund.
5
Automatic The Automatic Investment Plan which is available to shareholders
Investment of the Fund, makes possible regularly scheduled purchases of Fund
Plan: shares to allow dollar-cost averaging. The Fund's Transfer Agent
can arrange for an amount of money selected by you to be deducted
from your checking account and used to purchase shares of the
Fund.
Please debit $________ from my checking account (named below) on
or about the 20th of the month. Please attach an unsigned, voided
check.
11 Monthly 12 Every Alternate Month 13 Quarterly 14 Other
BANK OF _________________________________________________________________
RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
_________________________________________________________________
CITY STATE ZIP CODE
_________________________________________________________________
BANK ABA NUMBER BANK ACCOUNT NUMBER
<PAGE>
6
Signatures: The undersigned warrants that I (we) have full authority and, if
a natural person, I (we) am (are) of legal age to purchase shares
pursuant to this Account Application, and I (we) have received a
current prospectus for the Fund in which I (we) am (are)
investing.
Under the Interest and Dividend Tax Compliance Act of 1983, the
Fund is required to have the following certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to
be issued to), and
(2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service that I am
subject to 31% backup withholding as a result of a
failure to report all interest or dividends, or (c) the
IRS has notified me that I am no longer subject to
backup withholding.
Note: You must cross out item (2) above if you have been notified
by the IRS that you are currently subject to backup withholding
because you have failed to report all interest and dividends on
your tax return. The Internal Revenue Service does not require
your consent to any provision of this document other than the
certification required to audit backup withholding.
_________________________________________________________________
SIGNATURE OF APPLICANT DATE
_________________________________________________________________
PRINT NAME TITLE (IF APPLICABLE)
_________________________________________________________________
SIGNATURE OF JOINT OWNER DATE
_________________________________________________________________
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate
corporate office or title. If you wish additional signatories on
the account, please include a corporate resolution. If signing as
a fiduciary, you must indicate capacity.)
For information on additional options, such as IRA Applications,
rollover requests for qualified retirement plans, or for wire
instructions, please call us at 1-888-261-4073.
Mail completed Account Application and check to:
The Boston Partners Bond Fund
c/o PFPC Inc.
P.O. Box 8852
Wilmington, DE 19899-8852
<PAGE>
BOSTON PARTNERS BOND FUND
(Investor Class)
of
The RBB Fund, Inc.
Boston Partners Bond Fund (the "Fund") is an investment portfolio of The
RBB Fund, Inc. ("RBB"), an open-end management investment company. The shares of
the Investor Class ("Shares") offered by this Prospectus represent interests in
the Fund. The investment objectives of the Fund are to maximize total return by
investing principally in investment grade fixed income securities, and
secondarily to seek current income.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling (888)
261-4073. The Prospectus and the Statement of Additional Information are
available for reference, along with other related material on the SEC Internet
Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS December 29, 1998
<PAGE>
EXPENSE TABLE
- --------------------------------------------------------------------------------
The following table illustrates annual operating expenses incurred by the
Investor shares of the Fund (after fee waivers and expense reimbursements) for
the fiscal period ended August 31, 1998 as a percentage of average daily net
assets. An example based on the summary is also shown.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers)*.................. 0.00%
12b-1 Fees........................................ 0.25%
Other Expenses (after waivers)*................... 0.60%
Total Fund Operating Expenses (after waivers)*.... 0.85%
=====
* In the absence of fee waivers, Management Fees would be 0.40%,
Other Expenses would be 2.07% and Total Fund Operating Expenses
would be 2.72%.
Example
An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Boston Partners Bond Fund...... $9 $27 $47 $105
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" and "Distribution of Shares" below.) The Fee Table reflects a
voluntary waiver of "Management fees" for the Fund which is expected to be in
effect during the current fiscal year. However, the Adviser is under no
obligation with respect to such waiver and there can be no assurance that any
future waivers of Management fees will not vary from the figure reflected in the
Fee Table.
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating
Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
-2-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The "Financial Highlights" presented below set forth certain investment
results for shares of the Investor Class of the Fund for the period indicated.
Shares of the Investor Class were first issued on December 30, 1998. The
financial data included in this table should be read in conjunction with the
financial statements and notes thereto and the unqualified report of
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), RBB's independent
accountant, which are incorporated by reference into the Statement of Additional
Information. Further information about the performance of the Investor Class of
the Fund is available in the Annual Report to Shareholders. Both the Statement
of Additional Information and the Annual Report to Shareholders may be obtained
from the Fund free of charge by calling the telephone number on page 1 of the
prospectus.
BOSTON PARTNERS BOND FUND
(For an Investor Share outstanding throughout each period)
For the Period
December 30, 1997*
through August 31, 1998
-----------------------
Per Share Operating Performance**
Net asset value, beginning of period.............. $10.00
Net investment income (1)......................... 0.62
Net realized and unrealized gain/(loss) on
investments(2).................................... (0.16)
------
Net increase in net assets resulting
from operations................................... 0.46
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income............................. (0.36)
Net realized capital gains........................ --
------
Net asset value, end of period.................... $10.10
======
Total investment return(3)........................ 4.63%
======
Ratios/Supplemental Data
Net assets, end of period (000)................... $198.00
Ratio of expenses to average net
assets***(1)(4)................................. 0.85%
Ratio of net investment income to
average net assets***(1)........................ 5.83%
Portfolio turnover rate****....................... 45.27%
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
-3-
<PAGE>
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating net asset value
during the period.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Without the waiver of advisory, 12b-1, administration and transfer
agent fees and without the reimbursement of certain operating expenses,
the ratio of expenses to average net assets annualized for the period
ended August 31, 1998 would have been 2.72% for the Investor Class.
INTRODUCTION
- --------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
seventeen separate investment portfolios. The Shares offered by this Prospectus
represent interests in the Boston Partners Bond Fund. RBB was incorporated in
Maryland on February 29, 1988.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The investment objectives of the Fund are to maximize total return by
investing principally in investment grade fixed income securities, and
secondarily to seek current income.
The Fund will invest during normal market conditions at least 75% of its total
assets in bonds, including corporate debt obligations and mortgage-backed and
asset-backed securities (collectively, "Debt Securities") rated investment-grade
or better at the time of purchase by Standard & Poor's ("S&P") or Moody's
Investors Service, Inc. ("Moody's") or which are similarly rated by another
nationally recognized statistical rating organization ("Rating Organization")
(including Fitch IBCA, Duff & Phelps and Thomson BankWatch), or are unrated but
deemed by Boston Partners Asset Management L.P. (the "Adviser") to be comparable
in quality to instruments so rated. The Fund may invest up to 25% of its total
assets in Debt Securities rated "BB" and "B" by Moody's or "Ba" and "B" by S&P
or which are similarly rated by another Rating Organization or are unrated but
are deemed by the Adviser to be comparable in quality to instruments that are so
rated.
Investment-grade Debt Securities are those rated at the time of purchase
"AAA," "AA," "A" or "BBB" by S&P, "Aaa," "Aa," "A" or "Baa" by Moody's or which
are similarly rated by another Rating Organization or are unrated but deemed by
the Adviser to be comparable in quality to instruments that are so rated. Debt
Securities rated "BBB" by S&P, "Baa" by Moody's or the equivalent rating of
another Rating Organization, while still deemed investment-grade, are considered
to have speculative characteristics and are more sensitive to economic change
than higher rated bonds. Debt Securities rated below the four highest ratings of
S&P or Moody's are often referred to as "junk bonds." Such Debt Securities are
rated below investment-grade and carry a higher degree of risk and are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. See
"Risk Factors -- Lower Rated Securities."
The Adviser will select certain mortgage-backed and asset-backed
securities which it
-4-
<PAGE>
believes have superior risk/return characteristics versus other fixed income
instruments. Mortgage-backed securities represent pools of mortgage loans
assembled for sale to investors by various governmental agencies as well as by
private issuers. Asset-backed securities represent pools of other assets (such
as automobile installment purchase obligations and credit card receivables)
similarly assembled for sale by private issuers. See "Risk Factors --
Mortgage-Backed and Asset-Backed Securities" in this prospectus and "Investment
Objectives and Policies" in the Statement of Additional Information.
The Fund may also invest up to 15% of its total assets in each of the
following: collateralized mortgage obligations ("CMOs"), Yankee Bonds
(dollar-denominated debt securities of foreign issuers), non-dollar denominated
bonds of foreign or domestic issuers, securities that can be purchased and sold
privately to institutional investors pursuant to Rule 144A, and convertible Debt
Securities of U.S. and foreign issuers (including convertible preferred stock
and notes). See "Risk Factors" in this Prospectus and "Investment Objectives and
Policies" in the Statement of Additional Information.
The Fund may invest in debt securities issued by the U.S. Government or
government agencies, repurchase agreements and reverse repurchase agreements,
foreign currency exchange transactions, dollar rolls, futures, option contracts
(including options on futures) and stripped securities. The Fund may make
when-issued purchases and forward commitments. See "Risk Factors" in this
Prospectus and "Investment Objectives and Policies" in the Statement of
Additional Information.
The Fund may invest in registered investment companies and investment funds
in foreign countries subject to the provisions of the Investment Company Act of
1940, as amended (the "1940 Act"), and as discussed in "Investment Objectives
and Policies" in the Statement of Additional Information. If the Fund invests in
such investment companies, the Fund will bear its proportionate share of the
costs incurred by such companies, including investment advisory fees.
Although the Fund has no restriction as to the maximum or minimum duration
of any individual security held by it, during normal market conditions the
Fund's average effective duration will generally be within 5% of the duration of
the Lehman Brothers Aggregate Bond Index. "Duration" is a term used by
investment managers to express the average time to receipt of expected cash
flows (discounted to their present value) on a particular fixed income
instrument or a portfolio of instruments. Duration takes into account the
pattern of a security's cash flow over time, including how cash flow is affected
by prepayments and changes in interest rates. For example, the duration of a
five-year zero coupon bond that pays no interest or principal until the maturity
of the bond is five years. This is because a zero coupon bond produces no cash
flow until the maturity date. On the other hand, a coupon bond that pays
interest semi-annually and matures in five years will have a duration of less
than five years, which reflects the semi-annual cash flows resulting from coupon
payments. Duration also generally defines the effect of interest rate changes on
bond prices. Generally, if interest rates increase by one percent, the value of
a security having an effective duration of five years would decrease in value by
five percent.
The Fund's investment objectives and policies described above may be
changed by RBB's Board of Directors without the approval of the Fund's
shareholders.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment limitations that cannot
be changed without such a
-5-
<PAGE>
vote of the shareholders is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Fund may not:
1. Purchase the securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase,
more than 5% of the value of the Fund's total assets would be invested in
the securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Fund, except that up to 25%
of the value of the Fund's total assets may be invested without regard to
such limitations.
2. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of the Fund to be invested in
the obligations of issuers in any single industry, provided that there is
no limitation with respect to investments in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements and dollar
rolls for temporary purposes in amounts up to one-third of the value of its
total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets, except in connection with any such borrowing and
then in amounts not in excess of one-third of the value of the Fund's total
assets at the time of such borrowing. The Fund will not purchase securities
while its aggregate borrowings (including reverse repurchase agreements,
dollar rolls and borrowings from banks) are in excess of 5% of its total
assets. Securities held in escrow or separate accounts in connection with
the Fund's investment practices are not considered to be borrowings or
deemed to be pledged for purposes of this limitation.
If a percentage restriction under one of the Fund's investment policies or
restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation (except with respect to any restrictions that may apply
to borrowings or senior securities issued by the Fund).
Portfolio Turnover
The Fund retains the right to sell securities irrespective of how long they
have been held. The Adviser estimates that the annual turnover in the Fund will
be approximately 100%. High portfolio turnover (100% or more) will generally
result in higher transaction costs to a portfolio and may result in the
realization of short-term capital gains that are taxable to shareholders as
ordinary income.
RISK FACTORS
- --------------------------------------------------------------------------------
Interest Rate Risk
Generally, the market value of fixed income securities is subject to
interest rate fluctuation and can be expected to vary inversely to changes in
the prevailing interest rates. Thus, the value of portfolio investments held by
the Fund is likely to decline if prevailing interest rates rise, and vice versa.
-6-
<PAGE>
Lower Rated Securities
Investors should carefully consider the relative risks of investing in the
higher yielding (and, therefore, higher risk) debt securities rated below
investment-grade by S&P or Moody's, or which are similarly rated by another
Rating Organization or are unrated but deemed by the Adviser to be comparable to
instruments so rated.
The Fund's investments in obligations rated below the four highest ratings
of S&P and Moody's have different risks than investments in securities that are
rated "investment-grade." Risk of loss upon default by the borrower is
significantly greater because lower-rated securities are generally unsecured and
are often subordinated to other creditors of the issuer, and because the issuers
frequently have high levels of indebtedness and are more sensitive to adverse
economic conditions, such as recessions, individual corporate developments and
increasing interest rates than are investment-grade issuers. As a result, the
market price of such securities, and the net asset value of the Fund's Shares,
may be particularly volatile.
Additional risks associated with lower-rated fixed income securities are
(a) the relatively low trading market liquidity for the securities and (b) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly-leveraged issuers may
experience financial stress that would adversely affect their ability to service
their principal and interest payment obligations, to meet projected business
goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower-rated bonds generally and adversely affect the
value of outstanding bonds and the ability of the issuers to repay principal and
interest. If the issuer of a lower-rated security held by the Fund defaulted,
the Fund could incur additional expenses to seek recovery. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower-rated securities held by the Fund,
especially in a thinly traded market. Finally, the Fund's trading in fixed
income securities entails risks that capital losses rather than gains will
result. As a result, investment in the Fund should not be considered a complete
investment program.
The Adviser will continually evaluate lower-rated securities and the
ability of their issuers to pay interest and principal. The Fund's ability to
achieve its investment objectives may be more dependent on the Adviser's credit
analysis than might be the case for a fund that invested in higher rated
securities. See the "Appendix" in the Statement of Additional Information for a
general description of securities ratings.
Mortgage-Backed and Asset-Backed Securities
Mortgage-backed securities, like other fixed income instruments, may be
subject to risks, including price fluctuations due to interest rate changes. The
returns on mortgage-backed securities may also be negatively affected by changes
in principal pre-payment rates due to interest rate volatility.
Mortgage-related securities acquired by the Fund may include collateralized
mortgage obligations ("CMOs"), a type of derivative, issued by the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation,
Government National Mortgage Association or other U.S. Government agencies or
instrumentalities, as well as by private issuers. CMOs may involve additional
risks other than those found in other types of mortgage-related obligations in
that they may exhibit more price volatility and interest rate risk than such
obligations. During periods of rising interest rates, CMOs may lose their
liquidity as CMO market makers may choose not to repurchase, or may offer prices
based on current market conditions, which are unacceptable to a fund based on
the fund's analysis of the market value of the security. See "Investment
Objectives and Policies" in the Statement of Additional Information.
-7-
<PAGE>
Asset-backed securities are also subject to declines in market value during
periods of rising interest rates. Due to the possibility of prepayment of the
underlying obligations, asset-backed securities have less potential for capital
appreciation than other debt securities of comparable maturities during periods
of declining interest rates. As a result, asset-backed securities may be less
effective than other fixed income securities as a means of locking in attractive
interest rates for the long term.
Reverse Repurchase Agreements and Dollar Rolls
The Fund may enter into reverse repurchase agreements with respect to
portfolio securities for temporary purposes (such as to obtain cash to meet
redemption requests) when the liquidation of portfolio securities is deemed
disadvantageous or inconvenient by the Adviser. Reverse repurchase agreements
involve the sale of securities held by the Fund pursuant to the Fund's agreement
to repurchase the securities at an agreed-upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940 (the "1940 Act"), and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, the
Fund will maintain in a segregated account with the Fund's Custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement and will monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the price of the securities the
Fund is obligated to repurchase. The Fund may also enter into "dollar rolls," in
which it sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Fund would forgo principal and interest paid on such securities. The Fund would
be compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale.
Foreign Securities Risk
The Fund may invest in foreign securities, as described above. Investing in
securities of foreign issuers involves considerations not typically associated
with investing in securities of companies organized and operating in the United
States. Foreign securities generally are denominated and pay dividends or
interest in foreign currencies. The Fund may hold from time to time various
foreign currencies pending their investment in foreign securities or their
conversion into U.S. dollars. The value of the assets of the Fund as measured in
U.S. dollars may therefore be affected favorably or unfavorably by changes in
exchange rates. There may be less publicly available information concerning
foreign issuers than is available with respect to U.S. issuers. Foreign
securities may not be registered with the U.S. Securities and Exchange
Commission, and generally, foreign companies are not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to U.S. issuers. See "Investment Objectives and Policies -- Foreign
Securities" in the Statement of Additional Information.
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and may receive interest and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. Forward foreign currency
exchange contracts are agreements to exchange one currency for another -- for
example, to exchange a certain amount of U.S. dollars for a certain amount of
Japanese yen -- at a future date and at a specified price.
-8-
<PAGE>
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution. A fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or uses forward contracts to purchase or sell
foreign currencies.
Forward foreign currency exchange contracts also allow the Fund to hedge
the currency risk of portfolio securities denominated in a foreign currency.
This technique permits the assessment of the merits of a security to be
considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, the forward foreign currency exchange contracts are rolled over in a
manner consistent with a more long-term currency decision. There is a risk of
loss to the Fund if the other party does not complete the transaction.
European Currency Unification
Many European countries are about to adopt a single European currency, the
euro. On January 1, 1999, the euro will become legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European Central
Bank will be created to manage the monetary policy of the new unified region. On
the same date, the exchange rates will be irrevocably fixed between the EMU
member countries. National currencies will continue to circulate until they are
replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the Fund may invest and may result in the Fund facing additional risks
in pursuing its investment objective. These risks, which include, but are not
limited to, uncertainty as to the proper tax treatment of the currency
conversion, volatility of currency exchange rates as a result of the conversion,
uncertainty as to capital market reaction, conversion costs that may affect
issuer profitability and creditworthiness, and lack of participation by some
European countries, may increase the volatility of the Fund's net asset value
per share.
When-Issued Purchases and Forward Commitments
The Fund may purchase securities on a when-issued basis or enter into
forward commitment transactions. When the Fund agrees to purchase securities on
a when-issued basis or enters into a forward commitment to purchase securities,
the Custodian will set aside cash, U.S. Government securities or other liquid
assets equal to the amount of the purchase or the commitment in a separate
account. As a result, the Fund's liquidity and ability to manage its portfolio
might be affected in the event its when-issued purchases or forward commitments
ever exceeded 25% of the value of its assets. In the case of a forward
commitment to sell portfolio securities, the Custodian will hold the portfolio
securities in a segregated account while the commitment is outstanding. When the
Fund engages in when-issued and forward commitment transactions, it relies on
the other party to consummate the trade. Failure of such party to do so may
result in the Fund incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
YEAR 2000
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Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved. The Year
2000 Problem could also hurt companies whose securities the Fund holds or
securities markets generally.
ASSET ALLOCATION
From time to time, the Fund may experience relatively large purchases
or redemptions due to asset allocation decisions made by the Advisor for clients
receiving Asset Allocation account management services involving investments in
the Fund. These transactions may have a material effect on the Fund, since
redemptions caused by reallocations may result in the Fund selling portfolio
securities, and purchases caused by reallocations may result in the Fund
receiving additional cash that it will have to invest. While it is impossible to
predict the overall impact of these transactions over time, there could be
adverse effects on portfolio management to the extent that the Fund may be
required to sell securities at times when it would not otherwise do so, or
receive cash that cannot be invested in an expeditious manner. These
transactions could also have tax consequences if the sale of securities results
in gains and could also increase transaction costs. The Advisor is committed to
minimizing the impact of such transactions on the Fund to the extent it is
consistent with pursuing the investment objectives of clients for which the
Advisor provides Asset Allocation account management services involving
investments in the Fund and monitors the impact of asset allocation decisions on
the Fund.
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<PAGE>
General
The Fund's use of certain investment techniques, including derivatives,
options and futures transactions, will subject the Fund to greater risk than
Funds that do not employ such techniques.
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
MANAGEMENT
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Board of Directors
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
Investment Adviser
Boston Partners Asset Management, L.P., located at 28 State Street, 21st
Floor, Boston, Massachusetts 02109, serves as the Fund's investment adviser. The
Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of October 31, 1998 in excess of $16.0 billion. The
adviser is organized as a Delaware limited partnership whose sole general
partner is Boston Partners, Inc., a Delaware corporation.
Subject to the supervision and direction of RBB's Board of Directors, the
Adviser manages the Fund's portfolio in accordance with the Fund's investment
objectives and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities, and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For its services
to the Fund, the Adviser is paid an advisory fee computed at an annual rate of
0.40% of the Fund's average daily net assets, which is calculated daily and paid
monthly. The Adviser has notified RBB, however, that it intends to limit total
Fund operating expenses to 0.85% during the Fund's current fiscal year.
Portfolio Management
The day-to-day portfolio management of the Fund is the responsibility of
William R.
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<PAGE>
Leach who is a senior portfolio manager of the Adviser and Chairman of the Fixed
Income Strategy Committee. Prior to joining the Adviser in April 1995, Mr. Leach
was employed by The Boston Company Asset Management, Inc. ("The Boston Company")
from 1988 through April 1995 where he was a senior portfolio manager and
Director of the Fixed Income Strategy Committee. Mr. Leach has over 16 years of
investment experience and is a Chartered Financial Analyst ("CFA"). Mr. Leach
will be assisted by Glenn S. Davis, Joseph F. Feeney, Jr. and Michael A.
Mullaney. Mr. Davis is a Fixed Income Portfolio Manager with the Adviser and is
also a CFA. Prior to joining the Adviser in April 1995, he was Vice President
and Portfolio Manager at The Boston Company, specializing in short and
intermediate term corporate bonds. Prior to that position, he was responsible
for the Short-term Fixed Income Group at State Street Global Advisors. He has a
total of 17 years of investment experience. Mr. Feeney is a Fixed Income
Portfolio Manager with the Adviser and also a CFA. Prior to joining the Adviser
in April 1995, he was Assistant Vice President and Mortgage-backed Securities
Portfolio Manager for Putnam Investments. Mr. Mullaney is a Fixed Income
Portfolio Manager who joined the Adviser in June 1997. From 1984 to 1997, he was
employed at Putnam Investments, most recently as Managing Director and Senior
Investment Strategist, specializing in portfolio strategy and management. His
prior experience included a position as a senior Consultant from 1981 to 1983
with Chase Econometrics/Interactive Data Corporation, where he focused on
quantitative methodologies in fixed income and equity management. He has over 16
years of investment experience.
Administrator
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. PFPC's
principal offices are located at 400 Bellevue Parkway, Wilmington, Delaware
19809. For its services, PFPC receives a fee calculated at an annual rate of
.125% of the Fund's average daily net assets with a minimum annual fee of
$75,000 payable monthly on a pro rata basis.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank, National Association ("PNC Bank") serves as the Fund's Custodian
and PFPC serves as the Fund's transfer agent and dividend disbursing agent. PFPC
may enter into shareholder servicing agreements with registered broker-dealers
who have entered into dealer agreements with the Distributor ("Authorized
Dealers") for the provision of certain shareholder support services to customers
of such Authorized Dealers who are shareholders of the Fund. The services
provided and the fees payable by the Fund for these services are described in
the Statement of Additional Information under "Investment Advisory, Distribution
and Servicing Arrangements."
Distributor
Provident Distributors, Inc. ("PDI"), whose principal business address is
Four Falls Corporate Center, West Conshohocken, Pennsylvania 19428, acts as
distributor for the Shares pursuant to a distribution agreement (the
"Distribution Agreement") with RBB on behalf of the Shares.
-11-
<PAGE>
Expenses
The expenses of the Fund are deducted from its total income before
dividends are paid. These expenses include, but are not limited to: fees paid to
the Adviser and PFPC; distribution fees; fees and expenses of officers and
directors who are not affiliated with any of RBB's investment advisers,
sub-advisers or the Distributor; taxes; interest; legal fees; custodian fees;
auditing fees; brokerage fees and commissions; certain of the fees and expenses
of registering and qualifying the Fund and the Shares for distribution under
federal and state securities laws; expenses of preparing prospectuses and
statements of additional information and of printing and distributing them
annually to existing shareholders that are not attributable to a particular
class of shares of RBB; the expense of reports to shareholders, shareholders'
meetings and proxy solicitations that are not attributable to a particular class
of shares of RBB; fidelity bond and directors and officers liability insurance
premiums; the expense of using independent pricing services; and other expenses
that are not expressly assumed by the Adviser under its investment advisory
agreement with respect to the Fund. Any general expenses of RBB that are not
readily identifiable as belonging to a particular investment portfolio of RBB
will be allocated among all investment portfolios of RBB based upon the relative
net assets of the investment portfolios. Distribution expenses, transfer agency
expenses, expenses of preparation, printing and distributing prospectuses,
statements of additional information, proxy statements and reports to
shareholders, and registration fees, identified as belonging to a particular
class, are allocated to such class.
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expenses of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
increasing its yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
The Board of Directors of RBB approved and adopted a Distribution Agreement
and Plan of Distribution for the Shares (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Distributor is entitled to receive from
the Fund a distribution fee, which is accrued daily and paid monthly, of up to
0.25% on an annualized basis of the average daily net assets of the Fund. The
actual amount of such compensation under the Plan is agreed upon by RBB's Board
of Directors and by the Distributor in the Distribution Agreement. The
Distributor may, in its discretion, from time to time waive voluntarily all or
any portion of its distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of Investor
Shares of the Fund, (ii) ongoing servicing and/or maintenance of the accounts of
shareholders of the Fund, and (iii) sub-transfer agency services, subaccounting
services or administrative services related to the sale of the Investor Shares
of the Fund, all as set forth in the Plan. The Distributor may delegate some or
all of these functions to Service Agents. See "How to Purchase Shares --
Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Fund the fee agreed to under the
Distribution Plan. Payments under the Plan are not tied exclusively to expenses
actually incurred by the Distributor, and the payments may exceed distribution
expenses actually incurred.
Purchases Through Intermediaries.
Shares of the Fund may be available through various brokerage firms,
financial institutions and programs sponsored by other industry professionals
(collectively, "Service Organizations"). Certain features of the Shares, such as
the initial and subsequent investment
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<PAGE>
minimums and certain trading restrictions, may be modified or waived by Service
Organizations. Service Organizations may impose transaction or administrative
charges or other direct fees, which charges or fees would not be imposed if Fund
Shares are purchased directly from the Fund. Therefore, a client or customer
should contact the Service Organization acting on his behalf concerning the fees
(if any) charged in connection with a purchase or redemption of Fund Shares and
should read this Prospectus in light of the terms governing his accounts with
the Service Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Fund in
accordance with their agreements with clients or customers. Service
Organizations that have entered into agreements with the Fund or its agent may
enter confirmed purchase orders on behalf of clients and customers, with payment
to follow no later than the Fund's pricing on the following Business Day. If
payment is not received by such time, the Service Organization could be held
liable for resulting fees or losses.
For administration, subaccounting, transfer agency and/or other services,
the Adviser or the Distributor or their affiliates may pay Service Organizations
and certain recordkeeping organizations with whom they have entered into
agreements a fee of up to .35% (the "Service Fee') of the average annual value
of accounts with the Fund maintained by such Service Organizations or
recordkeepers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization
or recordkeeper. The Adviser, the Distributor or either of their affiliates may,
at their own expense, provide promotional incentives for qualified recipients
who support the sale of Shares consisting of securities dealers who have sold
Fund Shares or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund Shares.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
General
Shares representing interests in the Fund are offered continuously for sale
by the Distributor and may be purchased without imposition of a sales charge.
Shares may be purchased initially by completing the application included in this
Prospectus and forwarding the application to the Fund's transfer agent, PFPC.
Purchases of Shares may be effected by wire to an account to be specified by
PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston Partners Bond Fund" c/o PFPC Inc., P.O. Box 8852, Wilmington,
Delaware 19899-8852. The name of the Fund, Boston Partners Bond Fund, must also
appear on the check or Federal Reserve Draft. Shareholders may not purchase
shares of the Boston Partners Bond Fund with a check issued by a third party and
endorsed over to the fund. Federal Reserve Drafts are available at national
banks or any state bank which is a member of the Federal Reserve System. Initial
investments in the Fund must be at least $2,500 and subsequent investments must
be at least $100. The Fund reserves the right to suspend the offering of Shares
for a period of time or to reject any purchase order.
Shares may be purchased on any Business Day. A "Business Day" is any day
that the New York Stock Exchange (the "NYSE") is open for business. Currently,
the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good
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<PAGE>
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday.
The price paid for Shares purchased initially or acquired through the
exercise of an exchange privilege is based on the net asset value next computed
after a purchase order is received in good order by the Fund or its agents.
Orders received by the Fund or its agents after the close of regular trading on
the New York Stock Exchange, Inc. (currently 4:00 p.m., Eastern time) are priced
at the net asset value next determined on the following business day. In those
cases where an investor pays for Shares by check, the purchase will be effected
at the net asset value next determined after the Fund or its agents receives the
order and the completed application.
Provided that the investment is at least $2,500, an investor may also
purchase Shares by having his bank or his broker wire Federal Funds to PFPC. An
investor's bank or broker may impose a charge for this service. The Fund does
not currently impose a service charge for effecting wire transfers but reserves
the right to do so in the future. In order to ensure prompt receipt of an
investor's Federal Funds wire, for an initial investment, it is important that
an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888)
261-4073, and provide PFPC with your name, address, telephone number,
Social Security or Tax Identification Number, the Fund selected, the amount
being wired, and by which bank. PFPC will then provide an investor with a
Fund account number. Investors with existing accounts should also notify
PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together
with your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the Fund)
FOR PURCHASE OF: Boston Partners Bond Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the address
shown thereon. PFPC will not process purchases until it receives a fully
completed and signed application.
For subsequent investments, an investor should follow steps A and B above.
Automatic Investing
Additional investments in Shares may be made automatically by authorizing
the Fund's transfer agent to withdraw funds from your bank account. Investors
desiring to participate in the Automatic Investment Plan should call the Fund's
transfer agent, PFPC, at (888)261-4073 to obtain the appropriate forms.
Retirement Plans
Shares may be purchased in conjunction with individual retirement accounts
("IRAs") and
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<PAGE>
rollover IRAs where PNC Bank acts as Custodian. For further information as to
applications and annual fees, contact PFPC at (888) 261-4073. To determine
whether the benefits of an IRA are available and/or appropriate, a shareholder
should consult with a tax adviser.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
Redemption By Mail
Shareholders may redeem for cash some or all of their Shares of the Fund at
any time. To do so, a written request in proper form must be sent directly to
Boston Partners Bond Fund c/o PFPC Inc., P.O. Box 8852, Wilmington, Delaware
19899-8852. There is no charge for a redemption.
A request for redemption must be signed by all persons in whose names the
Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "Exchange
Privilege."
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding share
certificates, the certificates for the shares being redeemed must accompany the
redemption request. Additional documentary evidence of authority is also
required by the Fund's transfer agent in the event redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
Systematic Withdrawal Plan
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan and receive regular periodic payments. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to PFPC at
P.O. Box 8852, Wilmington, Delaware 19899-8852. Each withdrawal redemption will
be processed on or about the 25th of the month and mailed as soon as possible
thereafter. There are no service charges for maintenance; the minimum amount
that you may withdraw each period is $100. (This is merely the minimum amount
allowed and should not be mistaken for a recommended amount.) The holder of a
Systematic Withdrawal Plan will have any income dividends and any capital gains
distributions reinvested in full and fractional shares at net asset value. To
provide funds for payment, Shares will be redeemed in such amount as is
necessary at the redemption price, which is net asset value next determined
after the Fund's receipt of a redemption request. Redemption of Shares may
reduce or possibly exhaust the Shares in your account, particularly in the event
of a market decline. As with other redemptions, a redemption to make a
withdrawal payment is a sale for federal income tax purposes. Payments made
pursuant to a Systematic Withdrawal Plan cannot be considered as actual yield or
income since part of such payments may be a return of capital.
You will ordinarily not be allowed to make additional investments of less
than the aggregate annual withdrawals under the Systematic Withdrawal Plan
during the time you have the plan in effect and, while a Systematic Withdrawal
Plan is in effect, you may not make periodic investments under the Automatic
Investment Plan. You will receive a confirmation of each transaction showing the
sources of the payment and the Share and cash balance remaining in your plan.
The plan may be terminated on written notice by the shareholder or by the Fund
and will terminate automatically if all Shares are liquidated or withdrawn from
the account or upon the death or incapacity of the shareholder. You may change
the amount and schedule of withdrawal payments or suspend such payments by
giving written notice to the Fund's transfer
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<PAGE>
agent at least seven Business Days prior to the end of the month preceding a
scheduled payment.
Involuntary Redemption
RBB reserves the right to redeem a shareholder's account at any time the
net asset value of the account falls below $500 as the result of a redemption or
an exchange request. Shareholders will be notified in writing that the value of
their account is less than $500 and will be allowed 30 days to make additional
investments before the redemption is processed.
Payment of Redemption Proceeds
In all cases, the redemption price is the net asset value per share next
determined after the request for redemption is received in proper form by the
Fund or its agents. Payment for Shares redeemed is made by check mailed within
seven days after acceptance by the Fund or its agents of the request and any
other necessary documents in proper order. Such payment may be postponed or the
right of redemption suspended as provided by law. If the Shares to be redeemed
have been recently purchased by check, PFPC may delay mailing a redemption
check, for up to 15 days, pending a determination that the check has cleared.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act so that it
is obligated to redeem its shares solely in cash up to the lesser of $250,000 or
1% of its net asset value during any 90-day period for any one shareholder of a
portfolio.
Exchange Privilege
The exchange privilege is available to shareholders residing in any state
in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Investor Shares of any other Boston Partners
Fund of RBB, subject to the restrictions described under "Exchange Privilege
Limitations" below. Such exchange will be effected at the net asset value of the
exchanged Fund and the net asset value of the Fund being acquired next
determined after receipt of a request for an exchange by the Fund or its agents.
An exchange of Shares will be treated as a sale for federal income tax purposes.
See "Taxes." A shareholder wishing to make an exchange may do so by sending a
written request to PFPC.
If the exchanging shareholder does not currently own Investor Shares of the
Boston Partners Fund into which he would like to exchange, a new account will be
established with the same registration, dividend and capital gain options as the
account from which shares are exchanged, unless otherwise specified in writing
by the shareholder with all signatures guaranteed. A signature guarantee may be
obtained from a domestic bank or trust company, broker, dealer, clearing agency
or savings association who are participants in a medallion program recognized by
the Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(MSP). Signature guarantees that are not part of these programs will not be
accepted. The exchange privilege may be modified or terminated at any time, or
from time to time, by RBB, upon 60 days' written notice to shareholders.
If an exchange is to a new account in the acquired Fund, the dollar value
of Investor Shares acquired must equal or exceed that Fund's minimum for a new
account; if to an existing account, the dollar value must equal or exceed that
Fund's minimum for subsequent investments. If any amount remains in the Fund
from which the exchange is being made, such amount must not drop below the
minimum account value required by the Fund.
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<PAGE>
Exchange Privilege Limitations
The Fund's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transactions costs, the Fund has
established a policy of limiting excessive exchange activity.
Shareholders are entitled to six (6) exchange redemptions (at least 30 days
apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
Telephone Transactions
In order to request an exchange or redemption by telephone, a shareholder
must have completed and returned an account application containing the
appropriate telephone election. To add a telephone option to an existing account
that previously did not provide for this option, a Telephone Exchange
Authorization Form must be filed with PFPC. These forms are available from PFPC.
Once this election has been made, the shareholder may simply contact PFPC by
telephone to request the exchange or redemption by calling (888) 261-4073.
Neither RBB, the Fund, the Distributor, the Administrator nor any other Fund
agent will be liable for any loss, liability, cost or expense for following
RBB's telephone transaction procedures described below or for following
instructions communicated by telephone that they reasonably believe to be
genuine.
RBB's telephone transaction procedures include the following measures: (1)
requiring the appropriate telephone transaction privilege forms; (2) requiring
the caller to provide the names of the account owners, the account social
security number and name of the Fund, all of which must match RBB's records; (3)
requiring RBB's service representative to complete a telephone transaction form,
listing all of the above caller identification information; (4) permitting
exchanges only if the two account registrations are identical; (5) requiring
that redemption proceeds be sent only by check to the account owners of record
at the address of record, or by wire only to the owners of record at the bank
account of record; (6) sending a written confirmation for each telephone
transaction to the owners of record at the address of record within five (5)
business days of the call; and (7) maintaining tapes of telephone transactions
for six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by broker-dealers (other than the Distributor),
financial institutions, securities dealers, financial planners and other
industry professionals, additional documentation or information regarding the
scope of a caller's authority is required. Finally, for telephone transactions
in accounts held jointly, additional information regarding other account holders
is required. Telephone transactions will not be permitted in connection with IRA
or other retirement plan accounts or by an attorney-in-fact under a power of
attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each class of the Fund is calculated by adding the
value of the proportionate interest of each class in the Fund's securities, cash
and other assets, deducting the actual and accrued liabilities of the class and
dividing by the total number of outstanding shares of the class. The net asset
value is calculated as of the close of regular trading on the NYSE on each
Business Day.
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<PAGE>
Valuation of securities held by the Fund is as follows: securities traded
on a national securities exchange or on the NASDAQ National Market System are
valued at the last reported sale price that day; securities traded on a national
securities exchange or on the NASDAQ National Market System for which there were
no sales on that day and securities traded on other over-the-counter markets for
which market quotations are readily available are valued at the mean of the bid
and asked prices; and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of RBB's Board of Directors. The amortized cost method of
valuation may also be used with respect to debt obligations with sixty days or
less remaining to maturity.
With the approval of the Board of Directors, the Fund may use a pricing
service, bank or broker-dealer experienced in such matters to value the Fund's
securities. A more detailed discussion of net asset value and security valuation
is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Fund to the Fund's shareholders. All
distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income monthly.
Net realized capital gains (including net short-term capital gains), if any,
will be distributed at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation.
The Fund will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. So long as the
Fund qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on amounts so distributed (except
distributions that are treated as a return of capital) regardless of whether
such distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Fund will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to bonds bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the tax
status of distributions made by the Fund. Dividends declared in December of any
year payable to shareholders of record on a specified date in such a month will
be deemed to have been received by the shareholders on December 31, provided
such dividends are paid during January of the following year. The Fund intends
to make sufficient actual or deemed distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
-18-
<PAGE>
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing shares immediately prior to a distribution will nevertheless be taxed
on the entire amount of the distribution received, although the distribution is,
in effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize capital
gain or loss for federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.
MULTI-CLASS STRUCTURE
- --------------------------------------------------------------------------------
The Fund offers one other class of shares, Institutional Shares, which is
offered directly to institutional investors pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance quotations in the same
manner. The Fund will quote performance of Institutional Shares separately from
Investor Shares. Because of different fees paid by the Investor Shares, the
total return on such shares can be expected, at any time, to be different than
the total return on Institutional Shares. Information concerning the other class
may be obtained by calling the Fund at (888) 261-4073.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
RBB 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."
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE BOSTON PARTNERS BOND FUND AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE BOSTON PARTNERS BOND FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares will be fully paid and
non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund will vote in the aggregate and not by class
on all matters, except where otherwise required by law. Further, shareholders of
all investment portfolios of RBB will vote in the aggregate and not by portfolio
except as otherwise required by law or when the Board of Directors determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular investment portfolio. (See the Statement of Additional
-19-
<PAGE>
Information under "Additional Information Concerning Fund Shares" for examples
of when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of RBB.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to the Fund's
transfer agent, PFPC Inc., at Bellevue Park Corporate Center, 400 Bellevue
Parkway, Wilmington, Delaware 19809, toll-free (888) 261-4073.
Share Certificates
In the interest of economy and convenience, physical certificates
representing shares in the Fund are not normally issued.
Historical Performance Information
For the period from commencement of operations (December 30, 1998) through
August 31, 1998, the total return since inception (not annualized) for the
Investor Class of Shares of the Fund was as follows:
Unannualized investment returns for the period ended August 31, 1998
Since Inception
---------------
Boston Partners Bond Fund..................... 4.63%
(Investor Shares)
The total return assumes reinvestment of all dividends and capital gains
and reflects expense reimbursements and investment advisory fee waivers in
effect. Without these expense reimbursements waivers, the Fund's performance
would have been lower. Of course, past performance is no guarantee of future
results. Investment return and principal value will fluctuate, so that Shares,
when redeemed, may be worth more or less than the original cost. For more
information on performance, see "Performance Information" in the Statement of
Additional Information.
-20-
<PAGE>
The table below presents the Composite performance history of certain of
the Adviser's managed accounts on an annualized basis since inception and for
the year ended September 30, 1998. The Composite is comprised of all of the
Adviser's institutional accounts and other privately managed accounts with
investment objectives, policies and strategies substantially similar to those of
the Fund, although the accounts have operating histories, whereas the Fund had
not commenced operations until December 30, 1997. The Composite performance
information includes the reinvestment of interest received by the underlying
securities, realized and unrealized gains and losses, and reflects the payment
of investment advisory fees and transaction expenses. The Composite performance
does not include custody fees or administrative fees that may be charged by
banks, fiduciaries, or other third parties in connection with these
institutional and privately managed accounts. The privately managed accounts in
the Composite are only available to the Adviser's institutional advisory
clients. The past performance of the accounts which comprise the Composite is
not indicative of the future performance of the Fund. These accounts have lower
investment advisory fees than the Fund and the Composite performance figures
would have been lower if subject to the higher fees and expenses to be incurred
by the Fund. These private accounts are also not subject to the same investment
limitations, diversification requirements and other restrictions which are
imposed upon mutual funds under the 1940 Act and the Internal Revenue Code,
which, if imposed, may have adversely affected the performance results of the
Composite. Listed below the performance history for the Composite is a
comparative index comprised of securities similar to those in which accounts
contained in the Composite are invested.
Average annualized investment returns for the period ended
September 30, 1998.
One Since
Year Inception*
---- ----------
Composite Performance................... 8.70% 9.20%
Lehman Brothers Aggregate Bond Index.... 11.50% 8.60%
The Lehman Brothers Aggregate Bond Index is a broad market-weighted index,
which encompasses three major classes of investment-grade, fixed income
securities with maturities greater than one-year, including U.S. Treasury
securities, corporate bonds and mortgage-backed securities.
*The Adviser commenced managing these accounts on June 1, 1995.
-21-
<PAGE>
Future Performance Information
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding the compounded average
annual total return for each time period that would equate the assumed initial
investment of $1,000 to the ending redeemable value, net of fees, according to a
required standardized calculation. The standard calculation is required by the
SEC to provide consistency and comparability in investment company advertising.
The Fund may also from time to time include in such advertising an aggregate
total return figure or a total return figure that is not calculated according to
the standardized formula in order to compare more accurately the Fund's
performance with other measures of investment return. For example, the Fund's
total return may be compared with data published by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. or Weisenberger Investment Company
Service, or with the performance of the Lehman Brothers Aggregate Bond Index.
Performance information may also include evaluation of the Fund by nationally
recognized ranking services and information as reported in financial
publications such as Business Week, Fortune, Institutional Investor, Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, or
other national, regional or local publications. All advertisements containing
performance data will include a legend disclosing that such performance data
represents past performance and that the investment return and principal value
of an investment will fluctuate so that an investor's Shares, when redeemed, may
be worth more or less than their original cost.
-22-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-23-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN RBB'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
Page
FINANCIAL HIGHLIGHTS.............................. 3
INTRODUCTION...................................... 4
INVESTMENT OBJECTIVES AND POLICIES................ 4
INVESTMENT LIMITATIONS............................ 6
RISK FACTORS...................................... 7
MANAGEMENT........................................ 10
DISTRIBUTION OF SHARES............................ 13
HOW TO PURCHASE SHARES............................ 14
HOW TO REDEEM AND EXCHANGE SHARES................. 15
NET ASSET VALUE................................... 18
DIVIDENDS AND DISTRIBUTIONS....................... 19
TAXES............................................. 19
MULTI-CLASS STRUCTURE............................. 20
DESCRIPTION OF SHARES............................. 20
OTHER INFORMATION................................. 21
Investment Adviser
Boston Partners Asset Management, L.P.
Boston, Massachusetts
Custodian
PNC Bank, N.A.
Philadelphia, Pennsylvania
Transfer Agent
PFPC Inc.
Wilmington, Delaware
Distributor PROSPECTUS
Provident Distributors, Inc.
Conshohocken, Pennsylvania DECEMBER 29, 1998
Counsel BOSTON PARTNERS
Drinker Biddle & Reath LLP BOND FUND
Philadelphia, Pennsylvania
(Investor Shares)
Independent Accountants bp
PricewaterhouseCoopers LLP BOSTON PARTNERS ASSET
Philadelphia, Pennsylvania MANAGEMENT, L.P.
----------------------
<PAGE>
Boston Partners Bond Fund bp
(Investor Class) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
ACCOUNT APPLICATION
Please Note: Do not use this form to open a retirement plan account. For an
IRA application or help with this Application, please call 1-888-261-4073
1 (Please check the appropriate box(es) below.)
Account
Registration: 1 Individual 2 Joint Tenant 3 Other
_________________________________________________________________
NAME SOCIAL SECURITY NUMBER OR TAX ID# OF PRIMARY OWNER
_________________________________________________________________
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR
TAX ID#
For joint accounts, the account registrants will be joint tenants
with right of survivorship and not tenants in common unless
tenants in common or community property registrations are
requested.
4 Uniform Gifts/Transfer to Minor's Act
GIFT TO MINOR:
_________________________________________________________________
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
_________________________________________________________________
NAME OF MINOR (ONLY ONE PERMITTED)
_________________________________________________________________
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
CORPORATION,
PARTNERSHIP,
TRUST OR
OTHER ENTITY: _________________________________________________________________
NAME OF CORPORATION, PARTNERSHIP, NAME(S) OF TRUSTEE(S)
OR OTHER
_________________________________________________________________
TAXPAYER IDENTIFICATION NUMBER
_________________________________________________________________
2 STREET OR P.O. BOX AND/OR APARTMENT NUMBER
Mailing
Address: _________________________________________________________________
CITY STATE ZIP CODE
_________________________________________________________________
DAY PHONE NUMBER EVENING PHONE NUMBER
3 Minimum initial investment Amount of investment $____________
Investment of $2,500.
Information:
Make the check payable to Boston Partners Bond Fund.
Shareholders may not purchase shares of this Fund with a check
issued by a third party and endorsed over to the Fund.
NOTE: Dividends and capital gains may be reinvested or paid by
check. If no options are selected below, both dividends and
capital gains will be reinvested in additional Fund shares.
DISTRIBUTION
OPTIONS:
Dividends 5 Pay by check 6 Reinvest 7 Capital Gains 8
Pay by check 9 Reinvest 10
To select this portion please fill out the information below:
Amount_______________ Startup Month__________________
SYSTEMATIC
WITHDRAWAL Frequency Options: Annually 11 Monthly 12 Quarterly 13
PLAN
- A minimum account value of $10,000 in a
single account is required to establish a
Systematic Withdrawal Plan.
- Payments will be made on or near the 25th of the month.
-26-
<PAGE>
Please check one of the following options:
_____ Please mail checks to Address of Record (Named in
Section 2)
_____ Please electronically credit my Bank of Record
(Named in Section 5)
4 To use this option, you must initial the appropriate line below.
Telephone
Exchange and I authorize the Transfer Agent to accept instructions from any
Redemption: persons to redeem or exchange shares in my account(s) by
telephone in accordance with the procedures and conditions set
forth in the Fund's current prospectus.
______________________ _________________ Redeem shares, and
individual initial joint initial send the proceeds to
the address of record.
______________________ _________________ Exchange shares for
individual initial joint initial shares of The Boston
Partners Large Cap
Value Fund, Mid Cap
Value Fund, Micro Cap
Value Fund, Market
Neutral Fund or Long-
Short Equity Fund.
5 The Automatic Investment Plan which is available to shareholders
Automatic of the Fund, makes possible regularly scheduled purchases of Fund
Investment shares to allow dollar-cost averaging. The Fund's Transfer Agent
Plan: can arrange for an amount of money selected by you to be deducted
from your checking account and used to purchase shares of the
Fund.
Please debit $________ from my checking account (named below) on
or about the 20th of the month. Please attach an unsigned, voided
check.
14 Monthly 15 Every Alternate Month 16 Quarterly
17 Other
BANK OF _________________________________________________________________
RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
_________________________________________________________________
CITY STATE ZIP CODE
_________________________________________________________________
BANK ABA NUMBER BANK ACCOUNT NUMBER
<PAGE>
6 The undersigned warrants that I (we) have full authority and, if
Signatures: a natural person, I (we) am (are) of legal age to purchase shares
pursuant to this Account Application, and I (we) have received a
current prospectus for the Fund in which I (we) am (are)
investing.
Under the Interest and Dividend Tax Compliance Act of 1983, the
Fund is required to have the following certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct
taxpayer identification number (or I am
waiting for a number to be issued to), and
(2) I am not subject to backup withholding
because (a) I am exempt from backup
withholding, or (b) I have not been notified
by the Internal Revenue Service that I am
subject to 31% backup withholding as a
result of a failure to report all Interest
or dividends, or (c) the IRS has notified me
that I am no longer subject to backup
withholding.
Note: You must cross out item (2) above if you have been notified
by the IRS that you are currently subject to backup withholding
because you have failed to report all interest and dividends on
your tax return. The Internal Revenue Service does not require
your consent to any provision of this document other than the
certification required to audit backup withholding.
_________________________________________________________________
SIGNATURE OF APPLICANT DATE
_________________________________________________________________
PRINT NAME TITLE (IF APPLICABLE)
_________________________________________________________________
SIGNATURE OF JOINT OWNER DATE
_________________________________________________________________
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate
corporate office or title. If you wish additional signatories on
the account, please include a corporate resolution. If signing as
a fiduciary, you must indicate capacity.)
For information on additional options, such as IRA Applications,
rollover requests for qualified retirement plans, or for wire
instructions, please call us at 1-888-261-4073.
Mail completed Account Application and check to:
The Boston Partners Bond Fund
c/o PFPC Inc.
P.O. Box 8852
Wilmington, DE 19899-8852
<PAGE>
BOSTON PARTNERS MICRO CAP VALUE FUND
(Institutional Shares)
of
The RBB Fund, Inc.
Boston Partners Micro Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Institutional Class ("Shares") offered by this
Prospectus represent interests in the Fund. The Fund is a diversified fund that
seeks long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks. It seeks to achieve
its objectives by investing at least 65% of its total assets in a diversified
portfolio consisting of equity securities of issuers with market capitalizations
that do not exceed $500 million when purchased by the Fund, and identified by
Boston Partners Asset Management, L.P. (the "Adviser") as equity securities that
it believes possess value characteristics. The Adviser examines various factors
in determining the value characteristics of such issuers, including, but not
limited to, price to book value ratios and price to earnings ratios. These value
characteristics are examined in the context of the issuer's operating and
financial fundamentals such as return on equity, earnings growth and cash flow.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling (888)
261-4073. The Prospectus and the Statement of Additional Information are
available for reference, along with other related materials, on the SEC Internet
Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS
December 29, 1998
<PAGE>
EXPENSE TABLE
The following table illustrates the shareholder transaction and annual
operating expenses incurred by Institutional Shares of the Fund (after fee
waivers and expense reimbursements) for the fiscal period ended August 31, 1998,
as a percentage of average daily net assets. An example based on the summary is
also shown.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases.............................None
Maximum Sales Charge Imposed on Reinvested Dividends..................None
Maximum Deferred Sales Charge.........................................None
Redemption Fee(1)....................................................1.00%
Exchange Fee..........................................................None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers)(2)...................................0.00%
12b-1 Fees ..........................................................0.00%
Other Expenses (after expense reimbursements)(2).....................1.55%
Total Fund Operating Expenses (after waivers and
expense reimbursements)(2)........................................1.55%
====
- ----------
(1) To prevent the Fund from being adversely affected by the transaction costs
associated with short-term shareholder transactions, the Fund will redeem
shares at a price equal to the net asset value of the shares, less an
additional transaction fee equal to 1.00% of the net asset value of all
such shares redeemed that have been held for less than one year. Such fees
are not sales charges or contingent deferred sales charges, but are
retained by the Fund for the benefit of all shareholders.
(2) In the absence of fee waivers and expense reimbursements, Management Fees
would be 1.25%, Other Expenses would be 16.44%, and Total Fund Operating
Expenses would be 17.69%. Management Fees are based on average daily net
assets and are calculated daily and paid monthly.
-2-
<PAGE>
Example
An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time
period (including the 1.00% transaction fee on redemptions made within a year of
purchase):
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Boston Partners Micro Cap Value Fund $16 $49 $84 $185
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" below.) The Fee Table reflects expense reimbursements and
voluntary waivers of Management Fees for the Fund, which are expected to be in
effect during the current fiscal year. However, the Adviser, and the Fund's
other service providers are under no obligation with respect to such expense
reimbursements and waivers and there can be no assurance that any future expense
reimbursements and waivers of Management Fees will not vary from the figures
reflected in the Fee Table.
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating
Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The "Financial Highlights" presented below set forth certain investment
results for shares of the Institutional Class of the Fund for the period July
1, 1998 (date of inception) through August 31, 1998. The financial data
included in this table should be read in conjunction with the financial
statements and notes thereto and the unqualified report of
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), RBB's independent
accountant, which are incorporated by reference into the Statement of
Additional Information. Further information about the performance of the
Institutional Class of the Fund is available in the Annual Report to
Shareholders. Both the Statement of Additional Information and the Annual
Report to Shareholders may be obtained from the Fund free of charge
by calling the telephone number on page 1 of the prospectus.
-3-
<PAGE>
BOSTON PARTNERS MICRO CAP VALUE FUND
(For an Institutional Share outstanding throughout each period)
For the Period
July 1, 1998*
through August 31,
1998
------------------
Per Share Operating Performance**
Net asset value, beginning of period........................ $10.00
------
Net investment income/(loss) (1)............................ (0.01)
Net realized and unrealized gain on investments(2).......... (2.37)
------
Net increase/(decrease) in net assets resulting
from operations............................................. (2.38)
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income....................................... --
Net realized capital gains.................................. --
------
Net asset value, end of period.............................. $ 7.62
Total investment return(3)(5)............................... (23.80%)
======
Ratios/Supplemental Data
Net assets, end of period (000)............................. $1,120
Ratio of expenses to average net
assets***(1)(4)........................................... 1.55%
Ratio of net investment income/(loss) to
average net assets***(1).................................. (0.34%)
Portfolio turnover rate****................................. 11.97%
- ----------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating net asset value
during the period.
-4-
<PAGE>
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
(4) Without the waiver of advisory, administrative services, administration
and transfer agent fees and without the reimbursement of certain
operating expenses, the ratio of expenses to average net assets
annualized for the period ended August 31, 1998 would have been 17.69%
for the Institutional Class.
(5) Redemption fee of 1.00% is not reflected in total return calculation.
INTRODUCTION
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
seventeen separate investment portfolios. The Shares offered by this Prospectus
represent interests in the Boston Partners Micro Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to provide long-term growth of capital,
with current income as a secondary objective, primarily through equity
investments, such as common stocks. The Fund seeks to achieve its objective by
investing, under normal market conditions, at least 65% of its total assets in a
diversified portfolio consisting primarily of equity securities of issuers with
market capitalizations that do not exceed $500 million when purchased by the
Fund, and identified by the Adviser as equity securities that it believes
possess value characteristics.
The Fund generally invests in the equity securities of small companies. The
Adviser will seek to invest in companies it considers to be well managed and to
have attractive fundamental financial characteristics. The Adviser believes
greater potential for price appreciation exists among small companies since they
tend to be less widely followed by other securities analysts and thus may be
more likely to be undervalued by the market. The Fund may invest from time to
time a portion of its assets, not to exceed 35% (under normal conditions) at the
time of purchase, in companies with considerably larger market capitalizations.
The Fund presents greater risks than funds that invest in equity securities
of larger companies for the following reasons: Companies in which the Fund
primarily invests will include those that have limited product lines, markets,
or financial resources, or are dependent upon a small management group. In
addition, because these stocks are not well known to the investing public, do
not have significant institutional ownership, and are followed by relatively few
securities analysts, there will normally be less publicly available information
concerning these securities compared to what is available for the securities of
larger companies. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, can decrease
-5-
<PAGE>
the value and liquidity of securities held by the Fund. Historically, small
capitalization stocks have been more volatile in price than larger
capitalization stocks. Among the reasons for the greater price volatility of
these small company stocks are the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such stocks, the greater
sensitivity of small companies to changing economic conditions, the fewer market
makers and the wider spreads between quoted bid and asked prices which exist in
the over-the-counter market for such stocks. Besides exhibiting greater
volatility, small company stocks may, to a degree, fluctuate independently of
larger company stocks. Small company stocks may decline in price as large
company stocks rise, or rise in price as large company stocks decline. Investors
should therefore expect that the Fund will be more volatile than, and may
fluctuate independently of, broad stock market indices such as the Standard &
Poor's 500 Composite Stock Price Index.
The securities in which the Fund invests will often be traded only in the
over-the-counter market or on a regional securities exchange, may be listed only
in the quotation service commonly known as the "pink sheets," and may not be
traded every day or in the volume typical of trading on a national securities
exchange. They may be subject to wide fluctuations in market value. The trading
market for any given security may be sufficiently thin as to make it difficult
for the Fund to dispose of a substantial block of such securities. The
disposition by the Fund of portfolio securities to meet redemptions or otherwise
may require the Fund to sell these securities at a discount from market prices
or during periods when, in the Adviser's judgment, such disposition is not
desirable or to make many small sales over a lengthy period of time.
The Adviser examines various factors in determining the value
characteristics of such issuers, including, but not limited to, price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a fundamental analysis
of industries and companies, earning power and growth and other investment
criteria. In general, the Fund's investments are broadly diversified over a
number of industries and, as a matter of policy, the Fund will not invest 25% or
more of its total assets in any one industry.
The Fund may invest up to 25% of its total assets in securities of foreign
issuers, including American Depository Receipts ("ADRs") and European Depository
Receipts ("EDRs"). Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operating in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold from time to time various foreign currencies pending their
investment in foreign securities or their conversion into U.S. dollars. The
value of the assets of the Fund as measured in U.S. dollars may therefore be
affected favorably or unfavorably by changes in exchange rates. There may be
less publicly available information concerning foreign issuers than is available
with respect to U.S. issuers. Foreign securities may not be registered with the
U.S. Securities and Exchange Commission, and generally, foreign companies are
not subject to
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uniform accounting, auditing and financial reporting requirements comparable to
those applicable to U.S. issuers. ADRs and EDRs are receipts issued by a U.S.
bank or trust company evidencing ownership of underlying securities issued by a
foreign issuer. ADRs and EDRs may be listed on a national securities exchange or
may trade in the over-the-counter market. ADR and EDR prices are denominated in
U.S. dollars, even though the underlying security may be denominated in a
foreign currency. The underlying security may be subject to foreign government
taxes which would reduce the yield on such securities. Investments in such
instruments involve risks similar to those of investing directly in foreign
securities. See "Investment Objectives and Policies--Foreign Securities" in the
Statement of Additional Information.
The Fund may invest the remainder of its total assets in derivative
securities; debt securities issued by U.S. banks, corporations and other
business organizations that are investment grade securities; and debt securities
issued by the U.S. government or government agencies.
In accordance with the above-mentioned policies, the Fund may also invest
in indexed securities, repurchase agreements, reverse repurchase agreements,
dollar rolls, financial futures contracts, options on futures contracts and may
lend portfolio securities. See "Investment Objectives and Policies" in the
Statement of Additional Information.
The Fund may invest in registered investment companies and investment funds
in foreign countries subject to the provisions of the Investment Company Act of
1940, as amended (the "1940 Act"), and as discussed in "Investment Objectives
and Policies" in the Statement of Additional Information. If the Fund invests in
such investment companies, the Fund will bear its proportionate share of the
costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all times in
accordance with the above-mentioned policies, the Fund reserves the right to
hold up to 100% of its assets, as a temporary defensive measure, in cash and
eligible U.S. dollar-denominated money market instruments. The Adviser would
determine when market conditions warrant temporary defensive measures.
The Fund's investment objective and the policies described above may be
changed by RBB's Board of Directors without the affirmative vote of the holders
of a majority of the outstanding Shares representing interests in the Fund.
INVESTMENT LIMITATIONS
The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment limitations that cannot
be changed without such a vote of the shareholders is contained in the Statement
of Additional Information under "Investment Objectives and Policies.")
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<PAGE>
The Fund may not:
1. Purchase the securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase more than 5% of the value of
the Fund's total assets would be invested in the securities of such issuer, or
more than 10% of the outstanding voting securities of such issuer would be owned
by the Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of purchase, 25%
or more of the value of the total assets of the Fund to be invested in the
obligations of issuers in any single industry, provided that there is no
limitation with respect to investments in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements and dollar rolls for
temporary purposes in amounts up to one-third of the value of its total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in excess
of one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation.
If a percentage restriction under one of the Fund's investment policies or
restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation (except with respect to any restrictions that may apply
to borrowings or senior securities issued by the Fund).
The Fund presently has no intention to participate as a purchaser in any
initial public offering of securities that may trade at a premium in the
secondary market when such a secondary market exists, although it reserves the
ability to participate in such offerings in the future.
Portfolio Turnover
The Fund retains the right to sell securities irrespective of how long they
have been held. The Adviser estimates that the annual turnover in the Fund will
not exceed 150% during the current fiscal year. Such a relatively high portfolio
turnover will be accompanied by relatively high transactional (i.e., brokerage)
costs. It may also result in increased capital gains realized by the Fund and
distributed to shareholders.
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<PAGE>
RISK FACTORS
As with other mutual funds, there can be no assurance that the Fund will
achieve its objective. The net asset value per share of Shares representing an
interest in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. As of the
date of this Prospectus, U.S. stock markets were trading at or close to record
high levels and there can be no guarantee that such levels will continue. Other
risk factors are discussed above under "Investment Objectives and Policies" and
in the Statement of Additional Information under "Investment Objectives and
Policies."
European Currency Unification. Many European countries are about to adopt a
single European currency, the euro. On January 1, 1999, the euro will become
legal tender for all countries participating in the Economic and Monetary Union
("EMU"). A new European Central Bank will be created to manage the monetary
policy of the new unified region. On the same date, the exchange rates will be
irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by euro coins and bank notes by
the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the Fund may invest and may result in the Fund facing additional risks
in pursuing its investment objective. These risks, which include, but are not
limited to, uncertainty as to the proper tax treatment of the currency
conversion, volatility of currency exchange rates as a result of the conversion,
uncertainty as to capital market reaction, conversion costs that may affect
issuer profitability and creditworthiness, and lack of participation by some
European countries, may increase the volatility of the Fund's net asset value
per share.
YEAR 2000
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved. The Year
2000 Problem could also hurt companies whose securities the Fund holds or
securities markets generally.
General. Investment methods described in this Prospectus are among those
which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be
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used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
MANAGEMENT
Board of Directors
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
Investment Adviser
Boston Partners Asset Management, L.P., located at 28 State Street, 21st
Floor, Boston, Massachusetts 02109, serves as the Fund's investment adviser. The
Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of October 31, 1998, in excess of $16.0 billion. The
adviser is organized as a Delaware limited partnership whose sole general
partner is Boston Partners, Inc., a Delaware corporation.
Subject to the supervision and direction of RBB's Board of Directors, the
Adviser manages the Fund's portfolio in accordance with the Fund's investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities, and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For its services
to the Fund, the Adviser is paid a monthly advisory fee computed at an annual
rate of 1.25% of the Fund's average daily net assets. The Adviser has notified
RBB, however, that it intends to limit total Fund operating expenses during the
current fiscal year.
Portfolio Management
The day-to-day portfolio management of the Fund is the responsibility of
David M. Dabora and Wayne J. Archambo who are portfolio managers of the Adviser.
Prior to taking on day to day responsibilities for the Micro Cap Value Fund, Mr.
Dabora was an assistant portfolio manager/analyst of the premium equity product
of the Adviser, an all-cap value institutional product. Before joining the
Adviser in April 1995, Mr. Dabora had been employed by The Boston Company Asset
Management, Inc. since 1991 as a senior equity analyst. Mr. Dabora has over 11
years of investment experience and is a Chartered Financial Analyst. Mr.
Archambo oversees the investment activities of the Adviser's $1.5 billion
mid-capitalization value equity product as well as the $120 million Mid Cap
Value Fund and small cap assets worth $1.0 billion. Prior to joining the Adviser
in April 1995, Mr. Archambo had been employed by The Boston Company Asset
Management, Inc. since 1989 as a senior portfolio manager and a member of that
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firm's Equity Policy Committee. Mr. Archambo has over 16 years of investment
experience and is a Chartered Financial Analyst.
Administrator
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC receives a fee calculated at an annual rate of .125% of the
Fund's average daily net assets, with a minimum annual fee of $75,000 payable
monthly on a pro rata basis.
Administrative Services Agent
Provident Distributors, Inc. ("PDI") provides certain administrative
services to the Fund's Institutional Shares not otherwise provided by PFPC.
PDI's principal business address is Four Falls Corporate Center, West
Conshohocken, Pennsylvania 19428. PDI furnishes certain internal quasi-legal,
executive and administrative services to the Fund, acts as a liaison between the
Fund and its various service providers and coordinates and assists in the
preparation of reports prepared on behalf of the Fund. For its services, PDI is
entitled to a monthly fee calculated at the annual rate of .15% of the
respective average daily net assets of the Fund's Institutional Class. PDI is
currently waiving fees in excess of .03% of the average daily net assets of the
Fund's Institutional Class.
Distributor
PDI acts as distributor for the Shares pursuant to a distribution agreement
(the "Distribution Agreement") with RBB on behalf of the Shares.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank, National Association ("PNC Bank") serves as the Fund's custodian
and PFPC serves as the Fund's transfer agent and dividend disbursing agent. The
principal offices of PFPC, an indirect, wholly-owned subsidiary of PNC Bank, are
located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
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<PAGE>
Expenses
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Institutional Class of the Fund pays
its own distribution fees, if any, and may pay a different share of other
expenses than other classes (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount by the Institutional Class
or if it receives different services.
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expenses of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
increasing its yield to investors.
DISTRIBUTION OF SHARES
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled
to receive from the Fund a distribution fee with respect to the Shares,
which is accrued daily and paid monthly, of up to 0.25% on an annualized basis
of the average daily net assets of the Shares. The actual amount of such
compensation under the Plan is agreed upon by RBB's Board of Directors and by
the Distributor in the Distribution Agreement. The Distributor may, in its
discretion, from time to time waive voluntarily all or any Portion of its
distribution fee.
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub- transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Plan. The
Distributor may delegate some or all of these functions to Service Agents. See
"How to Purchase Shares-Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Shares the fee agreed to under the
Distribution Plan. Payments under the Plan are not tied exclusively to expenses
actually incurred by the Distributor, and payments may exceed distribution
expenses actually incurred.
Purchases Through Intermediaries.
Shares of the Fund may be available through certain brokerage firms,
financial institutions and programs sponsored by other industry professionals
(collectively, "Service Organizations"). Certain features of the Shares, such as
the initial and subsequent investment minimums and certain trading restrictions,
may be modified or waived by Service Organizations. Service Organizations may
impose transaction or administrative charges or other direct fees, which charges
or fees would not be imposed if Shares are purchased directly from the Fund.
Therefore, a client or customer should contact the Service Organization acting
on his behalf concerning the fees (if any) charged in connection with a purchase
or redemption of Shares and should read this Prospectus in light of the terms
governing his accounts with the Service Organization. Service Organizations will
be responsible for promptly transmitting client or customer purchase and
redemption orders to the Fund in accordance with their agreements with clients
or customers. Service Organizations or, if applicable, their designees that have
entered into agreements with the Fund or its agent may enter confirmed purchase
orders on behalf of clients and customers, with payment to follow no later than
the Fund's pricing on the following Business Day. If payment is not received by
such time, the Service Organization could be held liable for resulting fees or
losses. The Fund will be deemed to have received a purchase or redemption order
when a Service Organization, or, if applicable, its authorized designee, accepts
a purchase or redemption order in good order. Orders received by the Fund in
good order will be priced at the Fund's net asset value next computed after they
are accepted by the Service Organization or its authorized designee.
For administration, subaccounting, transfer agency and/or other
services, the Adviser or the Distributor or their affiliates may pay Service
Organizations and certain recordkeeping organizations with whom they have
entered into agreements a fee of up to .35% (the "Service Fee') of the average
annual value of accounts with the Fund maintained by such Service Organizations
or recordkeepers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization
or recordkeeper.
The Adviser, the Distributor or either of their affiliates may, at
their own expense, provide promotional incentives for qualified recipients who
support the sale of Shares consisting of securities dealers who have sold
Shares, or others, including banks and other financial institutions, under
special arrangements. Incentives may include opportunities to attend business
meetings, conferences, sales or training programs for recipients, employees or
clients and other programs or events and may also include opportunities to
participate in advertising or sales campaigns and/or shareholder services and
programs regarding one or more Boston Partners Funds. Travel, meals and lodging
may also be paid in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
<PAGE>
HOW TO PURCHASE SHARES
General
Shares representing interests in the Fund are offered continuously for sale
by the Distributor. Shares may be purchased initially by completing the
application included in this Prospectus and forwarding the application to the
Fund's transfer agent, PFPC. Purchases of Shares may be effected by wire to an
account to be specified by PFPC or by mailing a check or Federal Reserve Draft,
payable to the order of "The Boston Partners Micro Cap Value Fund," c/o PFPC
Inc., P.O. Box 8852, Wilmington, Delaware 19899-8852. The name of the Fund,
Boston Partners Micro Cap Value Fund, must also appear on the check or Federal
Reserve Draft. Shareholders may not purchase shares of the Boston Partners Micro
Cap Value Fund with a check issued by a third party and endorsed over to the
Fund. Federal Reserve Drafts are available at national banks or any state bank
which is a member of the Federal Reserve System. Initial investments in the Fund
must be at least $100,000 and subsequent investments must be at least $5,000.
For purposes of meeting the minimum initial purchase, clients which are part of
endowments, foundation or other related groups may be aggregated. The Fund
reserves the right to suspend the offering of Shares for a period of time or to
reject any purchase order. As of the date of this Prospectus, the Fund intends
to suspend the offering of Shares upon the Fund's attaining $300 million in
total assets.
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<PAGE>
Shares may be purchased on any Business Day. A "Business Day" is any day
that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased initially or acquired through the
exercise of any exchange privilege is based on the net asset value next computed
after a purchase order is received by the Fund or its agents prior to the close
of the NYSE on such day (generally 4:00 p.m. Eastern Time). Orders received by
the Fund or its agents after the close of the NYSE are priced at the net asset
value next determined on the following Business Day. In those cases where an
investor pays for Shares by check, the purchase will be effected at the net
asset value next determined after the Fund or its agents receives the order and
the completed application.
Shares may be purchased and subsequent investments may be made by
principals and employees of the Adviser, and by their spouses and children,
either directly or through their individual retirement accounts, and by any
pension and profit-sharing plan of the Adviser, without being subject to the
minimum investment limitations.
An investor may also purchase Shares by having his bank or his broker wire
Federal Funds to PFPC. An investor's bank or broker may impose a charge for this
service. The Fund does not currently impose a service charge for effecting wire
transfers but reserves the right to do so in the future. In order to ensure
prompt receipt of an investor's Federal Funds wire for an initial investment, it
is important that an investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888) 261-4073, and
provide PFPC with your name, address, telephone number, Social Security or Tax
Identification Number, the Fund selected, the amount being wired, and by which
bank. PFPC will then provide an investor with a Fund account number. Investors
with existing accounts should also notify PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together with
your assigned account number, to PFPC's account with PNC:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the Fund)
FOR PURCHASE OF: (name of the Fund)
AMOUNT: (amount to be invested)
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<PAGE>
C. Fully complete and sign the application and mail it to the address shown
thereon. PFPC will not process purchases until it receives a fully completed and
signed application.
For subsequent investments, an investor should follow steps A and B above.
Automatic Investing
Additional investments in Shares may be made automatically by authorizing
the Fund's transfer agent to withdraw funds from your bank account. Investors
desiring to participate in the automatic investing program should call the
Fund's transfer agent, PFPC, at (888) 261-4073 to obtain the appropriate forms.
HOW TO REDEEM AND EXCHANGE SHARES
Redemption by Mail
Shareholders may redeem for cash some or all of their Shares of the Fund at
any time. To do so, a written request in proper form must be sent directly to
Boston Partners Micro Cap Value Fund, c/o PFPC Inc., P.O. Box 8852, Wilmington,
Delaware 19899-8852. There is no charge for a redemption, unless the Shareholder
has held his or her Shares for less than one year, upon which a fee equal to 1%
of the net asset value of the Shares redeemed at the time of redemption will be
imposed.
A request for redemption must be signed by all persons in whose names the
Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "Exchange
Privilege."
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding share
certificates, the certificates for the shares being redeemed must accompany the
redemption request. Additional documentary evidence of authority is also
required by the Fund's transfer agent in the event redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
Transaction Fee Imposed on Certain Redemptions
The Fund requires the payment of a transaction fee on redemptions of Shares
of the Fund held for less than one year equal to 1.00% of the net asset value of
such Shares redeemed at the time of redemption. This additional transaction fee
is paid to the Fund, not to the adviser,
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distributor or transfer agent. It is not a sales charge or a contingent deferred
sales charge. The purpose of the additional transaction fee is to indirectly
allocate transaction costs associated with redemptions to those investors making
redemptions after holding their shares for a short period, thus protecting
existing shareholders. These costs include: (1) brokerage costs; (2) market
impact costs -- i.e., the decrease in market prices which may result when the
Fund sells certain securities in order to raise cash to meet the redemption
request; (3) the realization of capital gains by the other shareholders in the
Fund; and (4) the effect of the "bid-ask" spread in the over-the-counter market.
The 1.00% amount represents the Fund's estimate of the brokerage and other
transaction costs which may be incurred by the Fund in disposing of stocks in
which the Fund may invest. Without the additional transaction fee, the Fund
would generally be selling its shares at a price less than the cost to the Fund
of acquiring the portfolio securities necessary to maintain its investment
characteristics, resulting in reduced investment performance for all
shareholders in the Fund. With the additional transaction fee, the transaction
costs of selling additional stocks are not borne by all existing shareholders,
but the source of funds for these costs is the transaction fee paid by those
investors making redemptions.
Involuntary Redemption
The Fund reserves the right to redeem a shareholder's account at any time
the net asset value of the account falls below $500 as the result of a
redemption or an exchange request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.
Payment of Redemption Proceeds
With the exception of redemptions to which the 1.00% transaction fee
applies, the redemption price is the net asset value per share next determined
after the request for redemption is received in proper form by the Fund or its
agents. For redemptions to which the additional transaction fee applies, the
redemption price is the net asset value per share next determined after the
request for redemption is received in proper form by the Fund or its agents,
less an amount equal to 1.00% of the net asset value of such Shares redeemed
that the shareholder has held for less than one year. Payment for Shares
redeemed is made by check mailed within seven days after acceptance by the Fund
or its agents of the request and any other necessary documents in proper order.
Such payment may be postponed or the right of redemption suspended as provided
by the 1940 Act. If the Shares to be redeemed have been recently purchased by
check, the Fund's transfer agent may delay mailing a redemption check, which may
be a period of up to 15 days from the purchase date, pending a determination
that the check has cleared. The Fund has elected to be governed by Rule 18f-1
under the 1940 Act so that a portfolio is obligated to redeem its shares solely
in cash up to the lesser of $250,000 or 1% of its net asset value during any
90-day period for any one shareholder of a portfolio.
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Exchange Privilege
The exchange privilege is available to shareholders residing in any state
in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Institutional Shares of any other Boston
Partners Fund of RBB, subject to the restrictions described under "Exchange
Privilege Limitations." Such exchange will be effected at the net asset value of
the exchanged Fund and the net asset value of the Fund being acquired next
determined after receipt of a request for an exchange by the Fund or its agents.
An exchange of Shares will be treated as a sale for federal income tax purposes.
See "Taxes." A shareholder wishing to make an exchange may do so by sending a
written request to PFPC.
If the exchanging shareholder does not currently own Institutional Shares
of the Boston Partners Fund into which he would like to exchange, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted. The exchange privilege may be modified
or terminated at any time, or from time to time, by RBB, upon 60 days' written
notice to shareholders.
If an exchange is to a new account in the acquired Fund, the dollar value
of Institutional Shares acquired must equal or exceed that Fund's minimum for a
new account; if to an existing account, the dollar value must equal or exceed
that Fund's minimum for subsequent investments. If any amount remains in the
Fund from which the exchange is being made, such amount must not drop below the
minimum account value required by the Fund.
Exchange Privilege Limitations
The Fund's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the Fund has established
a policy of limiting excessive exchange activity.
Shareholders are entitled to six (6) exchange redemptions (at least 30 days
apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
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Telephone Transactions
In order to request a telephone exchange or redemption, a shareholder must
have completed and returned an account application containing a telephone
election. To add a telephone option to an existing account that previously did
not provide for this option, a Telephone Authorization Form must be filed with
PFPC. This form is available from PFPC. Once this election has been made, the
shareholder may simply contact PFPC by telephone to request the exchange or
redemption by calling (888) 261-4073. Neither RBB, the Fund, the Distributor,
the Administrator nor any other Fund agent will be liable for any loss,
liability, cost or expense for following RBB's telephone transaction procedures
described below or for following instructions communicated by telephone that
they reasonably believe to be genuine.
RBB's telephone transaction procedures include the following measures: (1)
requiring the appropriate telephone transaction privilege forms; (2) requiring
the caller to provide the names of the account owners, the account social
security number and name of the Fund, all of which must match RBB's records; (3)
requiring RBB's service representative to complete a telephone transaction form,
listing all of the above caller identification information; (4) permitting
exchanges only if the two account registrations are identical; (5) requiring
that redemption proceeds be sent only by check to the account owners of record
at the address of record, or by wire only to the owners of record at the bank
account of record; (6) sending a written confirmation for each telephone
transaction to the owners of record at the address of record within five (5)
Business Days of the call; and (7) maintaining tapes of telephone transactions
for six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by broker-dealers (other than the Distributor),
financial institutions, securities dealers, financial planners and other
industry professionals, additional documentation or information regarding the
scope of a caller's authority is required. Finally, for telephone transactions
in accounts held jointly, additional information regarding other account holders
is required. Telephone transactions will not be permitted in connection with IRA
or other retirement plan accounts or by an attorney-in-fact under a power of
attorney.
NET ASSET VALUE
The net asset values for each class of a fund are calculated by adding the
value of the proportionate interest of the class in a fund's cash, securities
and other assets, deducting actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class are calculated independently of each other class. The
net asset values are calculated as of the close of regular trading on the NYSE,
generally 4:00 p.m. Eastern Time on each Business Day.
Valuation of securities held by the Fund is as follows: securities traded
on a national securities exchange or on the NASDAQ National Market System are
valued at the last reported
-17-
<PAGE>
sale price that day; securities traded on a national securities exchange or on
the NASDAQ National Market System for which there were no sales on that day and
securities traded on other over-the-counter markets for which market quotations
are readily available are valued at the mean of the bid and asked prices; and
securities for which market quotations are not readily available are valued at
fair market value as determined in good faith by or under the direction of the
RBB's Board of Directors. The amortized cost method of valuation may also be
used with respect to debt obligations with sixty days or less remaining to
maturity.
With the approval of RBB's Board of Directors, the Fund may use a pricing
service, bank or broker-dealer experienced in such matters to value the Fund's
securities. A more detailed discussion of net asset value and security valuation
is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Fund to the Fund's shareholders. All
distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income annually
and will pay them in the calendar year in which they are declared, generally in
December. Net realized capital gains (including net short-term capital gains),
if any, will be distributed at least annually.
TAXES
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation.
The Fund will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. So long as the
Fund qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on amounts so distributed (except
distributions that are treated as a return of capital) regardless of whether
such distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Fund will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to bonds bearing
-18-
<PAGE>
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the tax
status of distributions made by the Fund. Dividends declared in December of any
year payable to shareholders of record on a specified date in such a month will
be deemed to have been received by the shareholders on December 31, provided
such dividends are paid during January of the following year. The Fund intends
to make sufficient actual or deemed distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize capital
gain or loss for federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment and should consult their tax
advisers.
MULTI-CLASS STRUCTURE
The Fund offers one other class of shares, Investor Shares, which is
offered directly to individual investors pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance quotations in the same
manner. The Fund will quote performance of the Investor Shares separately from
Institutional Shares. Because of different expenses paid by the Institutional
Shares, the total return on such shares can be expected, at any time, to be
different than the total return on Investor Shares. Information concerning other
classes may be obtained by calling the Fund at (888) 261-4073.
DESCRIPTION OF SHARES
RBB 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."
-19-
<PAGE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO BOSTON PARTNERS MICRO CAP VALUE FUND AND DESCRIBE
ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER
MATTERS RELATING TO BOSTON PARTNERS MICRO CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares will be fully paid and
non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund will vote in the aggregate and not by class
on all matters, except where otherwise required by law. Further, shareholders of
all investment portfolios of RBB will vote in the aggregate and not by portfolio
except as otherwise required by law or when the Board of Directors determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular investment portfolio. (See the Statement of Additional
Information under "Additional Information Concerning Fund Shares" for examples
when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of RBB.
OTHER INFORMATION
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC Inc.,
the Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (888) 261-4073.
-20-
<PAGE>
Share Certificates
In the interest of economy and convenience, physical certificates
representing Shares in the Fund are not normally issued.
Future Performance Information
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding the compounded average
annual total return for each time period that would equate the assumed initial
investment of $1,000 to the ending redeemable value, net of fees, according to a
required standardized calculation. The standard calculation is required by the
SEC to provide consistency and comparability in investment company advertising.
The Fund may also from time to time include in such advertising an aggregate
total return figure or a total return figure that is not calculated according to
the standardized formula in order to compare more accurately the Fund's
performance with other measures of investment return. For example, the Fund's
total return may be compared with data published by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. or Weisenberger Investment Company
Service, or with the performance of the Russell 2000 Index. Performance
information may also include evaluation of the Fund by nationally recognized
ranking services and information as reported in financial publications such as
Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal, The New York Times, or other national,
regional or local publications. All advertisements containing performance data
will include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's Shares, when redeemed, may be worth more or
less than their original cost.
-21-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-22-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN RBB'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RBB OR ITS DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Table of Contents
Page
----
FINANCIAL HIGHLIGHTS.............................. 3
INTRODUCTION...................................... 5
INVESTMENT OBJECTIVES AND POLICIES................ 5
INVESTMENT LIMITATIONS............................ 6
RISK FACTORS...................................... 9
MANAGEMENT........................................ 10
DISTRIBUTION OF SHARES............................ 12
HOW TO PURCHASE SHARES............................ 12
HOW TO REDEEM AND EXCHANGE SHARES................. 14
NET ASSET VALUE................................... 17
DIVIDENDS AND DISTRIBUTIONS....................... 18
TAXES............................................. 18
MULTI-CLASS STRUCTURE............................. 19
DESCRIPTION OF SHARES............................. 19
OTHER INFORMATION................................. 20
Investment Adviser
Boston Partners Asset Management, L.P.
Boston, Massachusetts
Custodian
PNC Bank, N.A.
Philadelphia, Pennsylvania
Transfer Agent and Administrator PROSPECTUS
PFPC Inc.
Wilmington, Delaware DECECEMBER 29, 1998
Distributor
Provident Distributors, Inc.
Conshohocken, Pennsylvania
Counsel BOSTON PARTNERS
Drinker Biddle & Reath LLP MICRO CAP
Philadelphia, Pennsylvania VALUE FUND
Independent Accountants (Institutional Shares)
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
bp
BOSTON PARTNERS ASSET MANAGEMENT, L.P.
<PAGE>
<TABLE>
<S> <C> <C>
Boston Partners Micro Cap Value Fund bp
(Institutional Class) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
ACCOUNT APPLICATION
Please Note: Do not use this form to open a retirement plan account. For an IRA
application or help with this Application, please call 1-888-261-4073
+--------------+ (Please check the appropriate box(es) below.)
| 1 | |_| Individual |_| Joint Tenant |_| Other
| Account |
| Registration:| Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
+--------------+
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts, the account registrants will be joint tenants with right of
survivorship and not tenants in common unless tenants in common or community property
registrations are requested.
GIFT TO MINOR: |_| Uniform Gifts/Transfer to Minor's Act
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
NAME OF MINOR (ONLY ONE PERMITTED)
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
TAXPAYER IDENTIFICATION NUMBER
+--------------+
| 2 | STREET OR P.O. BOX AND/OR APARTMENT NUMBER
| Mailing |
| Address: |
+--------------+ CITY STATE ZIP CODE
DAY PHONE NUMBER EVENING PHONE NUMBER
+--------------+ Minimum initial investment of $100,000 Amount of investment $____________
| 3 |
| Investment | Make the check payable to Boston Partners Micro Cap Value Fund.
| Information: |
+--------------+ Shareholders may not purchase shares of this Fund with a check
issued by a third party and endorsed over to the Fund.
DISTRIBUTION Note: Dividends and capital gains may be reinvested or paid by check. If no options are selected
OPTIONS: below, both dividends and capital gains will be reinvested in additional Fund shares.
Dividends |_| Pay by check |_| Reinvest |_| Capital Gains |_| Pay by check |_| Reinvest |_|
+--------------+ To use this option, you must initial the appropriate line below.
| 4 | I authorize the Transfer Agent to accept instructions from any persons to redeem or exchange shares in
| Telephone | my account(s) by telephone in accordance with the procedures and conditions set forth in the Fund's
| Redemption: | current prospectus.
+--------------+
<PAGE>
Redeem shares, and send the proceeds
individual initial joint initial to the address of record.
Exchange shares for shares of The Boston
individual initial joint initial Partners Large Cap Value Fund, Mid Cap
Value Fund, Bond Fund, Market Neutral
Fund or Long-Short Equity Fund.
+--------------+ The Account Investment Plan which is available to shareholders of the Fund,
| 5 | makes possible regularly scheduled purchases of Fund shares to allow
| Automatic | dollar-cost averaging. The Fund's Transfer Agent can arrange for an amount
| Investment | of money selected by you to be deducted from your checking account and used
| Plan: | to purchase shares of the Fund.
+--------------+
Please debit $________ from my checking account (named below) on or about the
20th of the month. Please attach an unsigned, voided check.
|_| Monthly |_| Every Alternate Month |_| Quarterly |_| Other
BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
CITY STATE ZIP CODE
BANK ABA NUMBER BANK ACCOUNT NUMBER
+--------------+ The undersigned warrants that I (we) have full authority and, if a natural person, I (we) am (are) of
| 6 | legal age to purchase shares pursuant to this Account Application, and I (we) have received a current
| | prospectus for the Fund in which I (we) am (are) investing.
| Signatures: |
+--------------+ Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required
to have the following certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am
waiting for a number to be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service that I am subject to 31%
backup withholding as a result of a failure to report all interest or dividends, or (c) the
IRS has notified me that I am no longer subject to backup withholding.
Note: You must cross out item (2) above if you have been notified by the IRS that you are
currently subject to backup withholding because you have failed to report all interest and
dividends on your tax return. The Internal Revenue Service does not require your consent to
any provision of this document other than the certification required to audit backup
withholding.
SIGNATURE OF APPLICANT DATE
PRINT NAME TITLE (IF APPLICABLE)
SIGNATURE OF JOINT OWNER DATE
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or title. If you
wish additional signatories on the account, please include a corporate resolution. If signing
as a fiduciary, you must indicate capacity.)
For information on additional options, such as IRA Applications, rollover requests for
qualified retirement plans, or for wire instructions, please call us at 1-888-261-4073.
Mail completed Account Application and check to: The Boston Partners Micro Cap Value Fund
c/o PFPC Inc.
P.O. Box 8852
Wilmington, DE 19899-8852
</TABLE>
<PAGE>
BOSTON PARTNERS MICRO CAP VALUE FUND
(Investor Shares)
of
The RBB Fund, Inc.
Boston Partners Micro Cap Value Fund (the "Fund") is an investment
portfolio of The RBB Fund, Inc. ("RBB"), an open-end management investment
company. The shares of the Investor Class ("Shares") offered by this Prospectus
represent interests in the Fund. The Fund is a diversified fund that seeks
long-term growth of capital, with current income as a secondary objective,
primarily through equity investments, such as common stocks. It seeks to achieve
its objectives by investing at least 65% of its total assets in a diversified
portfolio consisting of equity securities of issuers with market capitalizations
that do not exceed $500 million when purchased by the Fund, and identified by
Boston Partners Asset Management, L.P. (the "Adviser") as equity securities that
it believes possess value characteristics. The Adviser examines various factors
in determining the value characteristics of such issuers, including, but not
limited to, price to book value ratios and price to earnings ratios. These value
characteristics are examined in the context of the issuer's operating and
financial fundamentals such as return on equity, earnings growth and cash flow.
This Prospectus contains information that a prospective investor needs to
know before investing. Please keep it for future reference. A Statement of
Additional Information, dated December 29, 1998, has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus. It may be obtained free of charge from the Fund by calling (888)
261-4073. The Prospectus and the Statement of Additional Information are
available for reference, along with other related materials, on the SEC Internet
Web Site (http://www.sec.gov).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
PROSPECTUS DECEMBER 29, 1998
<PAGE>
EXPENSE TABLE
The following table illustrates the shareholder transaction and annual
operating expenses incurred by Investor Shares of the Fund (after fee waivers
and expense reimbursements) for the fiscal period ended August 31, 1998, as a
percentage of average daily net assets. An example based on the summary is also
shown.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases.........................None
Maximum Sales Charge Imposed on Reinvested Dividends..............None
Maximum Deferred Sales Charge.....................................None
Redemption Fee1..................................................1.00%
Exchange Fee......................................................None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers)2.................................0.00%
12b-1 Fees (after waivers)2...................................... .25%
Other Expenses (after expense reimbursements)2...................1.55%
Total Fund Operating Expenses (after waivers and
expense reimbursements)2................................1.80%
=====
1 To prevent the Fund from being adversely affected by the transaction
costs associated with short-term shareholder transactions, the Fund
will redeem shares at a price equal to the net asset value of the
shares, less an additional transaction fee equal to 1.00% of the net
asset value of all such shares redeemed that have been held for less
than one year. Such fees are not sales charges or contingent deferred
sales charges, but are retained by the Fund for the benefit of all
shareholders.
2 In the absence of fee waivers and expense reimbursements, Management
Fees would be 1.25%, Other Expenses would be 16.44%, 12b-1 Fees would
be 0.25% and Total Fund Operating Expenses would be 17.94%.
Management Fees and 12b-1 Fees are each based on average daily net
assets and are calculated daily and paid monthly.
-2-
<PAGE>
Example
An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming (1) a 5% annual return and (2) redemption at the end of each time
period (including the 1.00% transaction fee on redemptions made within a year of
purchase):
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Boston Partners Micro Cap Value Fund $18 $57 $97 $212
</TABLE>
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management" and "Distribution of Shares" below.) The Fee Table reflects
expense reimbursements and voluntary waivers of Management Fees and 12b-1 fees
for the Fund, which are expected to be in effect during the current fiscal year.
However, the Adviser, the Distributor and the Fund's other service providers are
under no obligation with respect to such expense reimbursements and waivers and
there can be no assurance that any future expense reimbursements and waivers of
Management Fees or 12b-1 Fees will not vary from the figures reflected in the
Fee Table.
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating
Expenses" remain the same in the years shown. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The "Financial Highlights" presented below set forth certain investment
results for shares of the Investor Class of the Fund for the period July 1,
1998 (date of inception) through August 31, 1998. The financial data included in
this table should be read in conjunction with the financial statements and notes
thereto and the unqualified report of PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), RBB's independent accountant, which are incorporated
by reference into the Statement of Additional Information. Further information
about the performance of the Investor Class of the Fund is available in the
Annual Report to Shareholders. Both the Statement of Additional Information and
the Annual Report to Shareholders may be obtained from the Fund free of charge
by calling the telephone number on page 1 of the prospectus.
-3-
<PAGE>
BOSTON PARTNERS MICRO CAP VALUE FUND
(For an Investor Share outstanding throughout each period)
For the Period
July 1, 1998*
through August 31,
1998
------------------
Per Share Operating Performance**
Net asset value, beginning of period....................... $10.00
------
Net investment income/(loss) (1)........................... (0.01)
Net realized and unrealized gain/(loss) on investments(2).. (2.36)
------
Net increase/(decrease) in net assets resulting
from operations............................................ (2.37)
------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income...................................... --
Net realized capital gains................................. --
------
Net asset value, end of period............................. $ 7.63
======
Total investment return(3)(5).............................. (23.70%)
======
Ratios/Supplemental Data
Net assets, end of period (000)............................ $129.00
Ratio of expenses to average net
assets***(1)(4).......................................... 1.80%
Ratio of net investment income/(loss) to
average net assets***(1)................................. (0.66%)
Portfolio turnover rate****................................ 11.97%
- -------------
* Commencement of operations.
** Calculated based on shares outstanding on the first and last day of the
period, except for dividends and distributions, if any, which are based
on actual shares outstanding on the dates of distributions.
*** Annualized.
**** Not annualized.
(1) Reflects waivers and reimbursements.
(2) The amount shown for a share outstanding throughout the period is not
in accord with the change in the aggregate gains and losses in
investments during the period because of the timing of sales and
repurchases of Fund shares in relation to fluctuating net asset value
during the period.
(3) Total return is calculated assuming a purchase of shares on the first
day and a sale of shares on the last day of the period reported and
will include reinvestments of dividends and distributions, if any.
Total return is not annualized.
-4-
<PAGE>
(4) Without the waiver of advisory, 12b-1, administration and transfer
agent fees and without the reimbursement of certain operating expenses,
the ratio of expenses to average net assets annualized for the period
ended August 31, 1998 would have been 18.19% for the Investor Class.
(5) Redemption fee of 1.00% is not reflected in total return calculation.
-5-
<PAGE>
INTRODUCTION
- -------------------------------------------------------------------------------
RBB is an open-end management investment company incorporated under the
laws of the State of Maryland currently operating or proposing to operate
seventeen separate investment portfolios. The Shares offered by this Prospectus
represent interests in the Boston Partners Micro Cap Value Fund. RBB was
incorporated in Maryland on February 29, 1988.
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
The Fund's investment objective is to provide long-term growth of capital,
with current income as a secondary objective, primarily through equity
investments, such as common stocks. The Fund seeks to achieve its objective by
investing, under normal market conditions, at least 65% of its total assets in a
diversified portfolio consisting primarily of equity securities of issuers with
market capitalizations that do not exceed $500 million when purchased by the
Fund, and identified by the Adviser as equity securities that it believes
possess value characteristics.
The Fund generally invests in the equity securities of small companies. The
Adviser will seek to invest in companies it considers to be well managed and to
have attractive fundamental financial characteristics. The Adviser believes
greater potential for price appreciation exists among small companies since they
tend to be less widely followed by other securities analysts and thus may be
more likely to be undervalued by the market. The Fund may invest from time to
time a portion of its assets, not to exceed 35% (under normal conditions) at the
time of purchase, in companies with considerably larger market capitalizations.
The Fund presents greater risks than funds that invest in equity securities
of larger companies for the following reasons: Companies in which the Fund
primarily invests will include those that have limited product lines, markets,
or financial resources, or are dependent upon a small management group. In
addition, because these stocks are not well known to the investing public, do
not have significant institutional ownership, and are followed by relatively few
securities analysts, there will normally be less publicly available information
concerning these securities compared to what is available for the securities of
larger companies. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, can decrease the value and liquidity of
securities held by the Fund. Historically, small capitalization stocks have been
more volatile in price than larger capitalization stocks. Among the reasons for
the greater price volatility of these small company stocks are the less certain
growth prospects of smaller firms, the lower degree of liquidity in the markets
for such stocks, the greater sensitivity of small companies to changing economic
conditions, the fewer market makers and the wider spreads between quoted bid and
asked prices which exist in the over-the-counter market for such stocks. Besides
exhibiting greater volatility, small company stocks may, to a degree, fluctuate
independently of larger company stocks. Small company stocks may decline in
price as large company stocks rise, or rise in price as large company stocks
decline. Investors should therefore expect that the Fund will be more volatile
than, and may fluctuate independently of, broad stock market indices such as the
Standard & Poor's 500 Composite Stock Price Index.
-6-
<PAGE>
The securities in which the Fund invests will often be traded only in the
over-the-counter market or on a regional securities exchange, may be listed only
in the quotation service commonly known as the "pink sheets," and may not be
traded every day or in the volume typical of trading on a national securities
exchange. They may be subject to wide fluctuations in market value. The trading
market for any given security may be sufficiently thin as to make it difficult
for the Fund to dispose of a substantial block of such securities. The
disposition by the Fund of portfolio securities to meet redemptions or otherwise
may require the Fund to sell these securities at a discount from market prices
or during periods when, in the Adviser's judgment, such disposition is not
desirable or to make many small sales over a lengthy period of time.
The Adviser examines various factors in determining the value
characteristics of such issuers, including, but not limited to, price to book
value ratios and price to earnings ratios. These value characteristics are
examined in the context of the issuer's operating and financial fundamentals
such as return on equity, earnings growth and cash flow.
The Adviser selects securities for the Fund based on a fundamental analysis
of industries and companies, earning power and growth and other investment
criteria. In general, the Fund's investments are broadly diversified over a
number of industries and, as a matter of policy, the Fund will not invest 25% or
more of its total assets in any one industry.
The Fund may invest up to 25% of its total assets in securities of foreign
issuers, including American Depository Receipts ("ADRs") and European Depository
Receipts ("EDRs"). Investing in securities of foreign issuers involves
considerations not typically associated with investing in securities of
companies organized and operating in the United States. Foreign securities
generally are denominated and pay dividends or interest in foreign currencies.
The Fund may hold from time to time various foreign currencies pending their
investment in foreign securities or their conversion into U.S. dollars. The
value of the assets of the Fund as measured in U.S. dollars may therefore be
affected favorably or unfavorably by changes in exchange rates. There may be
less publicly available information concerning foreign issuers than is available
with respect to U.S. issuers. Foreign securities may not be registered with the
U.S. Securities and Exchange Commission, and generally, foreign companies are
not subject to uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers. ADRs and EDRs are receipts
issued by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. ADRs and EDRs may be listed on a national
securities exchange or may trade in the over-the-counter market. ADR and EDR
prices are denominated in U.S. dollars, even though the underlying security may
be denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which would reduce the yield on such securities.
Investments in such instruments involve risks similar to those of investing
directly in foreign securities. See "Investment Objectives and Policies--Foreign
Securities" in the Statement of Additional Information.
The Fund may invest the remainder of its total assets in derivative
securities; debt securities issued by U.S. banks, corporations and other
business organizations that are investment grade securities; and debt securities
issued by the U.S. government or government agencies.
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In accordance with the above-mentioned policies, the Fund may also invest
in indexed securities, repurchase agreements, reverse repurchase agreements,
dollar rolls, financial futures contracts, options on futures contracts and may
lend portfolio securities. See "Investment Objectives and Policies" in the
Statement of Additional Information.
The Fund may invest in registered investment companies and investment funds
in foreign countries subject to the provisions of the Investment Company Act of
1940, as amended (the "1940 Act"), and as discussed in "Investment Objectives
and Policies" in the Statement of Additional Information. If the Fund invests in
such investment companies, the Fund will bear its proportionate share of the
costs incurred by such companies, including investment advisory fees.
While the Adviser intends to fully invest the Fund's assets at all times in
accordance with the above-mentioned policies, the Fund reserves the right to
hold up to 100% of its assets, as a temporary defensive measure, in cash and
eligible U.S. dollar-denominated money market instruments. The Adviser would
determine when market conditions warrant temporary defensive measures.
The Fund's investment objective and the policies described above may be
changed by RBB's Board of Directors without the affirmative vote of the holders
of a majority of the outstanding Shares representing interests in the Fund.
INVESTMENT LIMITATIONS
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The Fund may not change the following investment limitations without
shareholder approval. (A complete list of the investment limitations that cannot
be changed without such a vote of the shareholders is contained in the Statement
of Additional Information under "Investment Objectives and Policies.")
The Fund may not:
1. Purchase the securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase more than 5% of the value of
the Fund's total assets would be invested in the securities of such issuer, or
more than 10% of the outstanding voting securities of such issuer would be owned
by the Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause, at the time of purchase, 25%
or more of the value of the total assets of the Fund to be invested in the
obligations of issuers in any single industry, provided that there is no
limitation with respect to investments in U.S. Government obligations.
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3. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements and dollar rolls for
temporary purposes in amounts up to one-third of the value of its total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in excess
of one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation.
If a percentage restriction under one of the Fund's investment policies or
restrictions or the use of assets is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation (except with respect to any restrictions that may apply
to borrowings or senior securities issued by the Fund).
The Fund presently has no intention to participate as a purchaser in any
initial public offering of securities that may trade at a premium in the
secondary market when such a secondary market exists, although it reserves the
ability to participate in such offerings in the future.
Portfolio Turnover
The Fund retains the right to sell securities irrespective of how long they
have been held. The Adviser estimates that the annual turnover in the Fund will
not exceed 150% during the current fiscal year. Such a relatively high portfolio
turnover will be accompanied by relatively high transactional (i.e., brokerage)
costs. It may also result in increased capital gains realized by the Fund and
distributed to shareholders.
RISK FACTORS
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As with other mutual funds, there can be no assurance that the Fund will
achieve its objective. The net asset value per share of Shares representing an
interest in the Fund will fluctuate as the values of its portfolio securities
change in response to changing conditions in the equity market. An investment in
the Fund is not intended to constitute a balanced investment program. As of the
date of this Prospectus, U.S. stock markets were trading at or close to record
high levels and there can be no guarantee that such levels will continue. Other
risk factors are discussed above under "Investment Objectives and Policies" and
in the Statement of Additional Information under "Investment Objectives and
Policies."
European Currency Unification. Many European countries are about to adopt a
single European currency, the euro. On January 1, 1999, the euro will become
legal tender for all countries participating in the Economic and Monetary Union
("EMU"). A new European Central Bank will be created to manage the monetary
policy of the new unified region. On the same date, the exchange rates will be
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irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by euro coins and bank notes by
the middle of 2002.
This change is likely to significantly impact the European capital markets
in which the Fund may invest and may result in the Fund facing additional risks
in pursuing its investment objective. These risks, which include, but are not
limited to, uncertainty as to the proper tax treatment of the currency
conversion, volatility of currency exchange rates as a result of the conversion,
uncertainty as to capital market reaction, conversion costs that may affect
issuer profitability and creditworthiness, and lack of participation by some
European countries, may increase the volatility of the Fund's net asset value
per share.
YEAR 2000 . Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers, or persons with whom they deal, do not properly process and
calculate date-related information and data from and after January 1, 2000. This
possibility is commonly known as the "Year 2000 Problem." The Fund has been
advised by the Adviser, the Administrators and the Custodian that they are
actively taking steps to address the Year 2000 Problem with respect to the
computer systems that they use and to obtain assurances that comparable steps
are being taken by the Fund's other major service providers. While there can be
no assurance that the Fund's service providers will be Year 2000 compliant, the
Fund's service providers expect that their plans to be compliant will be
achieved. The Year 2000 Problem could also hurt companies whose securities the
Fund holds or securities markets generally.
General. Investment methods described in this Prospectus are among those
which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
MANAGEMENT
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Board of Directors
The business and affairs of RBB and the Fund are managed under the
direction of RBB's Board of Directors.
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Investment Adviser
Boston Partners Asset Management, L.P., located at 28 State Street, 21st
Floor, Boston, Massachusetts 02109, serves as the Fund's investment adviser. The
Adviser provides investment management and investment advisory services to
investment companies and other institutional accounts that had aggregate total
assets under management as of October 31, 1998, in excess of $16.0 billion. The
adviser is organized as a Delaware limited partnership whose sole general
partner is Boston Partners, Inc., a Delaware corporation.
Subject to the supervision and direction of RBB's Board of Directors, the
Adviser manages the Fund's portfolio in accordance with the Fund's investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities, and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For its services
to the Fund, the Adviser is paid a monthly advisory fee computed at an annual
rate of 1.25% of the Fund's average daily net assets. The Adviser has notified
RBB, however, that it intends to limit total Fund operating expenses during
the current fiscal year.
Portfolio Management
The day-to-day portfolio management of the Fund is the responsibility of
David M. Dabora and Wayne J. Archambo who are portfolio managers of the Adviser.
Prior to taking on day to day responsibilities for the Micro Cap Value Fund, Mr.
Dabora was an assistant portfolio manager/analyst of the premium equity product
of the Adviser, an all-cap value institutional product. Before joining the
Adviser in April 1995, Mr. Dabora had been employed by The Boston Company Asset
Management, Inc. since 1991 as a senior equity analyst. Mr. Dabora has over 11
years of investment experience and is a Chartered Financial Analyst. Mr.
Archambo oversees the investment activities of the Adviser's $1.5 billion
mid-capitalization value equity product as well as the $120 million Mid Cap
Value Fund and small cap assets worth $1.0 billion. Prior to joining the Adviser
in April 1995, Mr. Archambo had been employed by The Boston Company Asset
Management, Inc. since 1989 as a senior portfolio manager and a member of that
firm's Equity Policy Committee. Mr. Archambo has over 16 years of investment
experience and is a Chartered Financial Analyst.
Administrator
PFPC Inc. ("PFPC") serves as administrator to the Fund and generally
assists the Fund in all aspects of its administration and operations, including
matters relating to the maintenance of financial records and accounting. For its
services, PFPC receives a fee calculated at an annual rate of .125% of the
Fund's average daily net assets, with a minimum annual fee of $75,000 payable
monthly on a pro rata basis.
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<PAGE>
Distributor
Provident Distributors, Inc. ("PDI"), with a principal business address at
Four Falls Corporate Center, West Conshohocken, Pennsylvania 19428, acts as
distributor for the Shares pursuant to a distribution agreement (the
"Distribution Agreement") with RBB on behalf of the Shares.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank, National Association ("PNC Bank") serves as the Fund's custodian
and PFPC serves as the Fund's transfer agent and dividend disbursing agent. The
principal offices of PFPC, an indirect, wholly-owned subsidiary of PNC Bank, are
located at 400 Bellevue Parkway, Wilmington, Delaware 19809. PFPC may enter into
shareholder servicing agreements with registered broker-dealers who have entered
into dealer agreements, with the Distributor ("Authorized Dealers") for the
provision of certain shareholder support services to customers of such
Authorized Dealers who are shareholders of the Fund. The services provided and
the fees payable by the Fund for these services are described in the Statement
of Additional Information under "Investment Advisory, Distribution and Servicing
Arrangements."
Expenses
The expenses of the Fund are deducted from its total income before
dividends are paid. Any general expenses of RBB that are not readily
identifiable as belonging to a particular investment portfolio of RBB will be
allocated among all investment portfolios of RBB based upon the relative net
assets of the investment portfolios. The Investor Class of the Fund pays its own
distribution fees, and may pay a different share than the Institutional Class of
other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the Investor Class or if it receives
different services.
The Adviser may assume expenses of the Fund from time to time. To the
extent any service providers assume expenses of the Fund, such assumption of
expenses will have the effect of lowering the Fund's overall expense ratio and
increasing its yield to investors.
DISTRIBUTION OF SHARES
- -------------------------------------------------------------------------------
The Board of Directors of RBB has approved and adopted a Distribution
Agreement and Plan of Distribution for the Shares (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive
from the Fund a distribution fee with respect to the Shares, which is accrued
daily and paid monthly, of up to 0.25% on an annualized basis of the average
daily net assets of the Shares. The actual amount of such compensation under the
Plan is agreed upon by RBB's Board of Directors and by the Distributor. The
Distributor may, in its discretion, from time to time waive voluntarily all or
any portion of its distribution fee. The Distributor intends to waive all fees
under the Plan during the current fiscal year.
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<PAGE>
Amounts paid to the Distributor under the Plan may be used by the
Distributor to cover expenses that are related to (i) the sale of the Shares,
(ii) ongoing servicing and/or maintenance of the accounts of Shareholders, and
(iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Shares, all as set forth in the Fund's 12b-1
Plan. The Distributor may delegate some or all of these functions to Service
Agents. See "How to Purchase Shares - Purchases Through Intermediaries."
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Shares the fee agreed to under the
Distribution Agreement. Payments under the Plan are not tied exclusively to
expenses actually incurred by the Distributor, and the payments may exceed
distribution expenses actually incurred.
Purchases Through Intermediaries
Shares of the Fund may be available through certain brokerage firms,
financial institutions and other industry professionals (collectively, "Service
Organizations"). Certain features of the Shares, such as the initial and
subsequent investment minimums and certain trading restrictions, may be modified
or waived by Service Organizations. Service Organizations may impose transaction
or administrative charges or other direct fees, which charges and fees would not
be imposed if Shares are purchased directly from the Fund. Therefore, a client
or customer should contact the Service Organization acting on his behalf
concerning the fees (if any) charged in connection with a purchase or redemption
of Shares and should read this Prospectus in light of the terms governing his
accounts with the Service Organization. Service Organizations will be
responsible for promptly transmitting client or customer purchase and redemption
orders to the Fund in accordance with their agreements with the Fund and with
clients or customers. Service Organizations or, if applicable, their designees
that have entered into agreements with the Fund or its agent may enter confirmed
purchase orders on behalf of clients and customers, with payment to follow no
later than the Fund's pricing on the following Business Day. If payment is not
received by such time, the Service Organization could be held liable for
resulting fees or losses. The Fund will be deemed to have received a purchase or
redemption order when a Service Organization, or, if applicable, its authorized
designee, accepts a purchase or redemption order in good order. Orders received
by the Fund in good order will be priced at the Fund's net asset value next
computed after they are accepted by the Service Organization or its authorized
designee.
For administration, subaccounting, transfer agency and/or other services,
Boston Partners, the Distributor or their affiliates may pay Service
Organizations and certain recordkeeping organizations a fee of up to .35% (the
"Service Fee") of the average annual value of accounts with the Fund maintained
by such Service Organizations or recordkeepers. The Service Fee payable to any
one Service Organization is determined based upon a number of factors, including
the nature and quality of services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Service Organization or recordkeeper.
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<PAGE>
The Adviser, the Distributor or either of their affiliates may, at their
own expense, provide promotional incentives for qualified recipients who support
the sale of Shares, consisting of securities dealers who have sold Shares or
others, including banks and other financial institutions, under special
arrangements. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients, employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Boston Partners Funds. Travel, meals and lodging may also
be paid in connection with these promotional activities. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Shares.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
General
Shares representing interests in the Fund are offered continuously for sale
by the Distributor and may be purchased without imposition of a sales charge.
Shares may be purchased initially by completing the application included in this
Prospectus and forwarding the application to the Fund's transfer agent, PFPC.
Purchases of Shares may be effected by wire to an account to be specified by
PFPC or by mailing a check or Federal Reserve Draft, payable to the order of
"The Boston Partners Micro Cap Value Fund," c/o PFPC Inc., P.O. Box 8852,
Wilmington, Delaware 19899-8852. The name of the Fund, Boston Partners Micro Cap
Value Fund, must also appear on the check or Federal Reserve Draft. Shareholders
may not purchase shares of the Boston Partners Micro Cap Value Fund with a check
issued by a third party and endorsed over to the Fund. Federal Reserve Drafts
are available at national banks or any state bank which is a member of the
Federal Reserve System. Initial investments in the Fund must be at least $2,500
and subsequent investments must be at least $100. The Fund reserves the right to
suspend the offering of Shares for a period of time or to reject any purchase
order. As of the date of this Prospectus, the Fund intends to suspend the
offering of Shares upon the Fund's attaining $300 million in total assets.
Shares may be purchased on any Business Day. A "Business Day" is any day
that the New York Stock Exchange, Inc. (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The price paid for Shares purchased initially or acquired through the
exercise of an exchange privilege is based on the net asset value next computed
after a purchase order is received by the Fund or its agents prior to the close
of the NYSE on such day (generally 4:00 p.m. Eastern Time). Orders received by
the Fund or its agents after the close of the NYSE are priced at the net asset
value next determined on the following Business Day. In those cases where an
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<PAGE>
investor pays for Shares by check, the purchase will be effected at the net
asset value next determined after the Fund or its agents receives the order and
the completed application.
Provided that the investment is at least $2,500, An investor may also
purchase Shares by having his bank or his broker wire Federal Funds to PFPC. An
investor's bank or broker may impose a charge for this service. The Fund does
not currently impose a service charge for effecting wire transfers but reserves
the right to do so in the future. In order to ensure prompt receipt of an
investor's Federal Funds wire for an initial investment, it is important that an
investor follows these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (888) 261-4073, and
provide PFPC with your name, address, telephone number, Social Security or Tax
Identification Number, the Fund selected, the amount being wired, and by which
bank. PFPC will then provide an investor with a Fund account number. Investors
with existing accounts should also notify PFPC prior to wiring funds.
B. Instruct your bank or broker to wire the specified amount, together with
your assigned account number, to PFPC's account with PNC Bank, National
Association:
PNC Bank, N.A.
Philadelphia, PA 19103
ABA NUMBER: 0310-0005-3
CREDITING ACCOUNT NUMBER: 86-1108-2507
FROM: (name of investor)
ACCOUNT NUMBER: (Investor's account number with the Fund)
FOR PURCHASE OF: Boston Partners Micro Cap Value
Fund
AMOUNT: (amount to be invested)
C. Fully complete and sign the application and mail it to the address shown
thereon. PFPC will not process purchases until it receives a fully completed and
signed application.
For subsequent investments, an investor should follow steps A and B above.
Automatic Investing
Additional investments in Shares may be made automatically by authorizing
the Fund's transfer agent to withdraw funds from your bank account. Investors
desiring to participate in the automatic Investing Program should call the
Fund's transfer agent, PFPC, at (888) 261-4073 to obtain the appropriate forms.
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Retirement Plans
Shares may be purchased in conjunction with individual retirement accounts
("IRAs") and rollover IRAs where PNC Bank acts as custodian. For further
information as to applications and annual fees, contact the Fund's transfer
agent, PFPC, at (888) 261-4073. To determine whether the benefits of an IRA are
available and/or appropriate, a shareholder should consult with a tax adviser.
HOW TO REDEEM AND EXCHANGE SHARES
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Redemption by Mail
Shareholders may redeem for cash some or all of their Shares of the Fund at
any time. To do so, a written request in proper form must be sent directly to
Boston Partners Micro Cap Value Fund, c/o PFPC Inc., P.O. Box 8852, Wilmington,
Delaware 19899-8852. There is no charge for a redemption, unless the Shareholder
has held his or her Shares for less than one year, upon which a fee equal to 1%
of the net asset value of the Shares redeemed at the time of redemption will be
imposed.
A request for redemption must be signed by all persons in whose names the
Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed according to the procedures described below under "Exchange
Privilege."
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding share
certificates, the certificates for the shares being redeemed must accompany the
redemption request. Additional documentary evidence of authority is also
required by the Fund's transfer agent in the event redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator.
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Systematic Withdrawal Plan
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan and receive regular periodic payments. A request to
establish a Systematic Withdrawal Plan must be submitted in writing to PFPC at
P.O. Box 8852, Wilmington, Delaware 19899-8852. Each withdrawal redemption will
be processed on or about the 25th of the month and mailed as soon as possible
thereafter. There are no service charges for maintenance; the minimum amount
that you may withdraw each period is $100. (This is merely the minimum amount
allowed and should not be mistaken for a recommended amount.) The holder of a
Systematic Withdrawal Plan will have any income dividends and any capital gains
distributions reinvested in full and fractional shares at net asset value. To
provide funds for payment, Shares will be redeemed in such amount as is
necessary at the redemption price, which is net asset value next determined
after the Fund's receipt of a redemption request. Redemption of Shares may
reduce or possibly exhaust the Shares in your account, particularly in the event
of a market decline. As with other redemptions, a redemption to make a
withdrawal payment is a sale for federal income tax purposes. Payments made
pursuant to a Systematic Withdrawal Plan cannot be considered as actual yield or
income since part of such payments may be a return of capital.
You will ordinarily not be allowed to make additional investments of less
than the aggregate annual withdrawals under the Systematic Withdrawal Plan
during the time you have the plan in effect and, while a Systematic Withdrawal
Plan is in effect, you may not make periodic investments under the Automatic
Investment Plan. You will receive a confirmation of each transaction showing the
sources of the payment and the Share and cash balance remaining in your plan.
The plan may be terminated on written notice by the shareholder or by the Fund
and will terminate automatically if all Shares are liquidated or withdrawn from
the account or upon the death or incapacity of the shareholder. You may change
the amount and schedule of withdrawal payments or suspend such payments by
giving written notice to the Fund's transfer agent at least seven Business Days
prior to the end of the month preceding a scheduled payment.
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Transaction Fee Imposed on Certain Redemptions
The Fund requires the payment of a transaction fee on redemptions of Shares
of the Fund held for less than one year equal to 1.00% of the net asset value of
such Shares redeemed at the time of redemption. This additional transaction fee
is paid to the Fund, not to the adviser, distributor or transfer agent. It is
not a sales charge or a contingent deferred sales charge. The purpose of the
additional transaction fee is to indirectly allocate transaction costs
associated with redemptions to those investors making redemptions after holding
their shares for a short period, thus protecting existing shareholders. These
costs include: (1) brokerage costs; (2) market impact costs -- i.e., the
decrease in market prices which may result when the Fund sells certain
securities in order to raise cash to meet the redemption request; (3) the
realization of capital gains by the other shareholders in the Fund; and (4) the
effect of the "bid-ask" spread in the over-the-counter market. The 1.00% amount
represents the Fund's estimate of the brokerage and other transaction costs
which may be incurred by the Fund in disposing of stocks in which the Fund may
invest. Without the additional transaction fee, the Fund would generally be
selling its shares at a price less than the cost to the Fund of acquiring the
portfolio securities necessary to maintain its investment characteristics,
resulting in reduced investment performance for all shareholders in the Fund.
With the additional transaction fee, the transaction costs of selling additional
stocks are not borne by all existing shareholders, but the source of funds for
these costs is the transaction fee paid by those investors making redemptions.
Involuntary Redemption
The Fund reserves the right to redeem a shareholder's account at any time
the net asset value of the account falls below $500 as the result of a
redemption or an exchange request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.
Payment of Redemption Proceeds
With the exception of redemptions to which the 1.00% transaction fee
applies, the redemption price is the net asset value per share next determined
after the request for redemption is received in proper form by the Fund or its
agents. For redemptions to which the additional transaction fee applies, the
redemption price is the net asset value per share next determined after the
request for redemption is received in proper form by the Fund or its agents,
less an amount equal to 1.00% of the net asset value of such shares redeemed
that the shareholder has held for less than one year. Payment for Shares
redeemed is made by check mailed within seven days after acceptance by the Fund
or its agents of the request and any other necessary documents in proper order.
Such payment may be postponed or the right of redemption suspended as permitted
by the 1940 Act. If the Shares to be redeemed have been recently purchased by
check, the Fund's transfer agent may delay mailing a redemption check, which may
be a period of up to 15 days from the purchase date, pending a determination
that the check has cleared. The Fund has elected to be governed by Rule 18f-1
under the 1940 Act so that a portfolio is obligated to redeem its shares solely
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in cash up to the lesser of $250,000 or 1% of its net asset value during any
90-day period for any one shareholder of a portfolio.
Exchange Privilege
The exchange privilege is available to shareholders residing in any state
in which the Shares being acquired may be legally sold. A shareholder may
exchange Shares of the Fund for Investor Shares of any other Boston Partners
Fund of RBB, subject to the restrictions described under "Exchange Privilege
Limitations." Such exchange will be effected at the net asset value of the
exchanged Fund and the net asset value of the Fund being acquired next
determined after receipt of a request for an exchange by the Fund or its agents.
An exchange of Shares will be treated as a sale for federal income tax purposes.
See "Taxes." A shareholder wishing to make an exchange may do so by sending a
written request to PFPC.
If the exchanging shareholder does not currently own Investor Shares of the
Boston Partners Fund into which he would like to exchange, a new account will be
established with the same registration, dividend and capital gain options as the
account from which shares are exchanged, unless otherwise specified in writing
by the shareholder with all signatures guaranteed. A signature guarantee may be
obtained from a domestic bank or trust company, broker, dealer, clearing agency
or savings association who are participants in a medallion program recognized by
the Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program
(MSP). Signature guarantees that are not part of these programs will not be
accepted. The exchange privilege may be modified or terminated at any time, or
from time to time, by RBB, upon 60 days' written notice to shareholders.
If an exchange is to a new account in the acquired Fund, the dollar value
of Investor Shares acquired must equal or exceed that Fund's minimum for a new
account; if to an existing account, the dollar value must equal or exceed that
Fund's minimum for subsequent investments. If any amount remains in the Fund
from which the exchange is being made, such amount must not drop below the
minimum account value required by the Fund.
Exchange Privilege Limitations
The Fund's exchange privilege is not intended to afford shareholders a way
to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the Fund has established
a policy of limiting excessive exchange activity.
Shareholders are entitled to six (6) exchange redemptions (at least 30 days
apart) from the Fund during any twelve-month period. Notwithstanding these
limitations, the Fund reserves the right to reject any purchase request
(including purchases by exchange) that is deemed to be disruptive to efficient
portfolio management.
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<PAGE>
Telephone Transactions
In order to request a telephone exchange or redemption, a shareholder must
have completed and returned an account application containing a telephone
election. To add a telephone option to an existing account that previously did
not provide for this option, a Telephone Authorization Form must be filed with
PFPC. This form is available from PFPC. Once this election has been made, the
shareholder may simply contact PFPC by telephone to request the exchange or
redemption by calling (888) 261-4073. Neither RBB, the Fund, the Distributor,
the Administrator nor any other Fund agent will be liable for any loss,
liability, cost or expense for following RBB's telephone transaction procedures
described below or for following instructions communicated by telephone that
they reasonably believe to be genuine.
RBB's telephone transaction procedures include the following measures: (1)
requiring the appropriate telephone transaction privilege forms; (2) requiring
the caller to provide the names of the account owners, the account social
security number and name of the Fund, all of which must match RBB's records; (3)
requiring RBB's service representative to complete a telephone transaction form,
listing all of the above caller identification information; (4) permitting
exchanges only if the two account registrations are identical; (5) requiring
that redemption proceeds be sent only by check to the account owners of record
at the address of record, or by wire only to the owners of record at the bank
account of record; (6) sending a written confirmation for each telephone
transaction to the owners of record at the address of record within five (5)
Business Days of the call; and (7) maintaining tapes of telephone transactions
for six months, if the Fund elects to record shareholder telephone transactions.
For accounts held of record by broker-dealers (other than the Distributor),
financial institutions, securities dealers, financial planners and other
industry professionals, additional documentation or information regarding the
scope of a caller's authority is required. Finally, for telephone transactions
in accounts held jointly, additional information regarding other account holders
is required. Telephone transactions will not be permitted in connection with IRA
or other retirement plan accounts or by an attorney-in-fact under a power of
attorney.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset values for each class of a fund are calculated by adding the
value of the proportionate interest of the class in a fund's cash, securities
and other assets, deducting actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class is calculated independently of each other class. The
net asset values are calculated as of the close of regular trading on the NYSE,
generally 4:00 p.m. Eastern Time on each Business Day.
Valuation of securities held by the Fund is as follows: securities traded
on a national securities exchange or on the NASDAQ National Market System are
valued at the last reported sale price that day; securities traded on a national
securities exchange or on the NASDAQ National Market System for which there were
no sales on that day and securities traded on other over-the-counter markets for
-20-
<PAGE>
which market quotations are readily available are valued at the mean of the bid
and asked prices; and securities for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the RBB's Board of Directors. The amortized cost method
of valuation may also be used with respect to debt obligations with sixty days
or less remaining to maturity.
With the approval of RBB's Board of Directors, the Fund may use a pricing
service, bank or broker-dealer experienced in such matters to value the Fund's
securities. A more detailed discussion of net asset value and security valuation
is contained in the Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Fund to the Fund's shareholders. All
distributions are reinvested in the form of additional full and fractional
Shares unless a shareholder elects otherwise.
The Fund will declare and pay dividends from net investment income annually
and will pay them in the calendar year in which they are declared, generally in
December. Net realized capital gains (including net short-term capital gains),
if any, will be distributed at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Fund and its shareholders and is not
intended as a substitute for careful tax planning. Accordingly, investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation.
The Fund will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. So long as the
Fund qualifies for this tax treatment, it will be relieved of federal income tax
on amounts distributed to shareholders, but shareholders, unless otherwise
exempt, will pay income or capital gains taxes on amounts so distributed (except
distributions that are treated as a return of capital) regardless of whether
such distributions are paid in cash or reinvested in additional shares.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Fund, will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to bonds bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income.
RBB will send written notices to shareholders annually regarding the tax
status of distributions made by the Fund. Dividends declared in December of any
year payable to shareholders of record on a specified date in such a month will
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<PAGE>
be deemed to have been received by the shareholders on December 31, provided
such dividends are paid during January of the following year. The Fund intends
to make sufficient actual or deemed distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing shares just prior to a distribution will nevertheless be taxed on the
entire amount of the distribution received, although the distribution is, in
effect, a return of capital.
Shareholders who exchange shares representing interests in one Fund for
shares representing interests in another Fund will generally recognize capital
gain or loss for federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment and should consult their tax
advisers.
MULTI-CLASS STRUCTURE
- -------------------------------------------------------------------------------
The Fund offers one other class of shares, Institutional Shares, which is
offered directly to institutional investors pursuant to a separate prospectus.
Shares of each class represent equal pro rata interests in the Fund and accrue
dividends and calculate net asset value and performance quotations in the same
manner. The Fund will quote performance of the Institutional Shares separately
from Investor Shares. Because of different expenses paid by the Investor Shares,
the total return on such shares can be expected, at any time, to be different
than the total return on Institutional Shares. Information concerning other
classes may be obtained by calling the Fund at (888) 261-4073.
DESCRIPTION OF SHARES
- -------------------------------------------------------------------------------
RBB 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."
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO BOSTON PARTNERS MICRO CAP VALUE FUND AND DESCRIBE
ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER
MATTERS RELATING TO BOSTON PARTNERS MICRO CAP VALUE FUND.
Each share that represents an interest in the Fund has an equal
proportionate interest in the assets belonging to the Fund with each other share
-22-
<PAGE>
that represents an interest in the Fund, even where a share has a different
class designation than another share representing an interest in the Fund.
Shares of the Fund do not have preemptive or conversion rights. When issued for
payment as described in this Prospectus, Shares will be fully paid and
non-assessable.
RBB currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, RBB will assist in shareholder communication in such matters.
Holders of Shares of the Fund will vote in the aggregate and not by class
on all matters, except where otherwise required by law. Further, shareholders of
all investment portfolios of RBB will vote in the aggregate and not by portfolio
except as otherwise required by law or when the Board of Directors determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular investment portfolio. (See the Statement of Additional
Information under "Additional Information Concerning Fund Shares" for examples
when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 16, 1998, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all classes of RBB.
OTHER INFORMATION
- -------------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to PFPC Inc.,
the Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (888) 261-4073.
Share Certificates
In the interest of economy and convenience, physical certificates
representing Shares in the Fund are not normally issued.
Future Performance Information
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
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<PAGE>
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding the compounded average
annual total return for each time period that would equate the assumed initial
investment of $1,000 to the ending redeemable value, net of fees, according to a
required standardized calculation. The standard calculation is required by the
SEC to provide consistency and comparability in investment company advertising.
The Fund may also from time to time include in such advertising an aggregate
total return figure or a total return figure that is not calculated according to
the standardized formula in order to compare more accurately the Fund's
performance with other measures of investment return. For example, the Fund's
total return may be compared with data published by Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc. or Weisenberger Investment Company
Service, or with the performance of the Russell 2000 Index. Performance
information may also include evaluation of the Fund by nationally recognized
ranking services and information as reported in financial publications such as
Business Week, Fortune, Institutional Investor, Money Magazine, Forbes,
Barron's, The Wall Street Journal, The New York Times, or other national,
regional or local publications. All advertisements containing performance data
will include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's Shares, when redeemed, may be worth more or
less than their original cost.
-24-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-25-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS OR IN RBB'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY RBB OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
Table of Contents
Page
----
FINANCIAL HIGHLIGHTS.............................. 3
INTRODUCTION...................................... 6
INVESTMENT OBJECTIVES AND POLICIES................ 6
INVESTMENT LIMITATIONS............................ 8
RISK FACTORS...................................... 9
MANAGEMENT........................................ 10
DISTRIBUTION OF SHARES............................ 12
HOW TO PURCHASE SHARES............................ 14
HOW TO REDEEM AND EXCHANGE SHARES................. 16
NET ASSET VALUE................................... 19
DIVIDENDS AND DISTRIBUTIONS....................... 20
TAXES..............................................20
MULTI-CLASS STRUCTURE............................. 21
DESCRIPTION OF SHARES............................. 21
OTHER INFORMATION................................. 22
Investment Adviser
Boston Partners Asset Management, L.P. BOSTON PARTNERS
Boston, Massachusetts MICRO CAP
VALUE FUND
Custodian
PNC Bank, N.A. (Investor Shares)
Philadelphia, Pennsylvania
Transfer Agent and Administrator PROSPECTUS
PFPC Inc.
Wilmington, Delaware December 29, 1998
Distributor
Provident Distributors, Inc. bp
Conshohocken, Pennsylvania
BOSTON PARTNERS ASSET MANAGEMENT L.P.
Counsel -------------------------------------
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Independent Accountants
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
<PAGE>
<TABLE>
<S> <C> <C>
Boston Partners Micro Cap Value Fund bp
(Investor Class) BOSTON PARTNERS ASSET MANAGEMENT, L.P.
--------------------------------------
ACCOUNT APPLICATION
Please Note: Do not use this form to open a retirement plan account. For an IRA application or help with this Application,
please call 1-888-261-4073
+--------------+ (Please check the appropriate box(es) below.)
| 1 | |_| Individual |_| Joint Tenant |_| Other
| Account | ________________________________________________________________________________________________________
| Registration:| Name SOCIAL SECURITY NUMBER OR TAX ID # OF PRIMARY OWNER
+--------------+
________________________________________________________________________________________________________
NAME OF JOINT OWNER JOINT OWNER SOCIAL SECURITY NUMBER OR TAX ID #
For joint accounts, the account registrants will be joint tenants with right of survivorship and not
tenants in common unless tenants in common or community property registrations are requested.
- --------------
GIFT TO MINOR: |_| Uniform Gifts/Transfer to Minor's Act
- --------------
________________________________________________________________________________________________________
NAME OF ADULT CUSTODIAN (ONLY ONE PERMITTED)
________________________________________________________________________________________________________
NAME OF MINOR (ONLY ONE PERMITTED)
________________________________________________________________________________________________________
MINOR'S SOCIAL SECURITY NUMBER AND DATE OF BIRTH
- ------------------
CORPORATION,
PARTNERSHIP, TRUST
OR OTHER ENTITY:
- ------------------
________________________________________________________________________________________________________
NAME OF CORPORATION, PARTNERSHIP, OR OTHER NAME(S) OF TRUSTEE(S)
________________________________________________________________________________________________________
TAXPAYER IDENTIFICATION NUMBER
+--------------+ ________________________________________________________________________________________________________
| 2 | STREET OR P.O. BOX AND/OR APARTMENT NUMBER
| Mailing |
| Address: | ________________________________________________________________________________________________________
+--------------+ CITY STATE ZIP CODE
________________________________________________________________________________________________________
DAY PHONE NUMBER EVENING PHONE NUMBER
+--------------+ Minimum initial investment of $2,500 Amount of investment $____________
| 3 |
| Investment | Make the check payable to Boston Partners Micro Cap Value Fund.
| Information: |
+--------------+ Shareholders may not purchase shares of this Fund with a check issued by a third party and endorsed over to
the Fund.
- ------------
DISTRIBUTION Note: Dividends and capital gains may be reinvested or paid by check. If no options are selected
OPTIONS: below, both dividends and capital gains will be reinvested in additional Fund shares.
- ------------
Dividends |_| Pay by check |_| Reinvest |_| Capital Gains |_| Pay by check |_| Reinvest |_|
+--------------+ To use this option, you must initial the appropriate line below.
| 4 | I authorize the Transfer Agent to accept instructions from any persons to redeem or exchange shares in
| Telephone | my account(s) by telephone in accordance with the procedures and conditions set forth in the Fund's
| Redemption: | current prospectus.
+--------------+
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Redeem shares, and send the proceeds to the
____________________________ ________________________________ address of record.
individual initial joint initial
____________________________ ________________________________ Exchange shares for shares of The Boston
individual initial joint initial Partners Large Cap Value Fund, Mid Cap
Value Fund, Bond Fund, Market Neutral Fund
or Long-Short Equity Fund
+--------------+ The Account Investment Plan which is available to shareholders of the Fund, makes possible regularly
| 5 | scheduled purchases of Fund shares to allow dollar-cost averaging. The Fund's Transfer Agent can
| Automatic | arrange for an amount of money selected by you to be deducted from your checking account and used to
| Investment | purchase shares of the Fund.
| Plan: |
+--------------+ Please debit $________ from my checking account (named below) on or about the 20th of the month. Please attach an
unsigned, voided check.
|_| Monthly |_| Every Alternate Month |_| Quarterly |_| Other
_______________ ________________________________________________________________________________________________________
BANK OF RECORD: BANK NAME STREET ADDRESS OR P.O. BOX
________________________________________________________________________________________________________
CITY STATE ZIP CODE
________________________________________________________________________________________________________
BANK ABA NUMBER BANK ACCOUNT NUMBER
+--------------+ The undersigned warrants that I (we) have full authority and, if a natural person, I (we) am (are) of
| 6 | legal age to purchase shares pursuant to this Account Application, and I (we) have received a current
| | prospectus for the Fund in which I (we) am (are) investing.
| Signatures: | Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required to have the following
+--------------+ certification:
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a
number to be issued to), and
(2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service that I am subject to 31% backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
Note: You must cross out item (2) above if you have been notified by the IRS that you are currently
subject to backup withholding because you have failed to report all interest and dividends on your tax
return. The Internal Revenue Service does not require your consent to any provision of this document
other than the certification required to audit backup withholding.
________________________________________________________________________________________________________
SIGNATURE OF APPLICANT DATE
________________________________________________________________________________________________________
PRINT NAME TITLE (IF APPLICABLE)
________________________________________________________________________________________________________
SIGNATURE OF JOINT OWNER DATE
________________________________________________________________________________________________________
PRINT NAME TITLE (IF APPLICABLE)
(If you are signing for a corporation, you must indicate corporate office or title. If you wish
additional signatories on the account, please include a corporate resolution. If signing as a fiduciary,
you must indicate capacity.)
For information on additional options, such as IRA Applications, rollover requests for qualified
retirement plans, or for wire instructions, please call us at 1-888-261-4073.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Mail completed Account Application and check to: The Boston Partners Micro Cap Value Fund
c/o PFPC Inc.
P.O. Box 8852
Wilmington, DE 19899-8852
</TABLE>
<PAGE>
THE RBB FAMILY
Government Securities Portfolio,
(Investment Portfolio of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of a class (the "RBB Shares" or the "Shares") representing
interests in one investment portfolio (the "Portfolio") of The RBB Fund, Inc.
(the "Fund"): the Government Securities Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
RBB Prospectus of the Fund, dated December 29, 1998 (the "Prospectus"). A copy
of the Prospectus may be obtained from the Fund's distributor by calling
toll-free (800) 888-9723. This Statement of Additional Information is dated
December 29, 1998.
CONTENTS
Page
----
General.......................................... 2
Investment Objectives and Policies............... 2
Directors and Officers........................... 10
Investment Advisory, Distribution
and Servicing Arrangements..................... 13
Portfolio Transactions........................... 18
Purchase and Redemption Information.............. 20
Valuation of Shares.............................. 21
Performance and Yield Information................ 22
Taxes............................................ 24
Additional Information Concerning Fund
Shares......................................... 25
Miscellaneous.................................... 28
Financial Statements ............................ 29
Appendix A....................................... A-1
Appendix B....................................... B-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertains to one
class of shares (the "RBB Class") representing interests in one of the
investment portfolios of the Fund: the Government Securities Portfolio. The RBB
Class is offered by the Prospectus dated December 29, 1998. The (the
"Portfolio") Fund was organized as a Maryland corporation on February 29, 1988.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolio. A
description of ratings of certain instruments the Portfolio may purchase is set
forth in Appendix A to the Prospectus.
Additional Information on Portfolio Investments.
When-Issued Securities. The Portfolio may purchase "when-issued" and
delayed delivery securities which are securities purchased for delivery beyond
the normal settlement date at a stated price and yield. While such commitments
are outstanding, the Portfolio will maintain in a segregated account with the
Fund's custodian or a qualified sub-custodian, cash or liquid securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, a Portfolio's custodian will set aside portfolio securities to satisfy
a purchase commitment and, in such a case, such Portfolio may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of such
Portfolio's commitment. It may be expected that a Portfolio's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. A Portfolio's liquidity
and ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments. The Portfolio expects
that commitments to purchase "when-issued" securities will not exceed 25% of the
value of its total assets absent unusual market conditions. When a Portfolio
engages in when-issued transactions, it relies on the seller to consummate the
trade. Failure of the seller to do so may result in such Portfolio incurring a
loss or missing an opportunity to obtain a price considered to be advantageous.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. With respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or
-2-
<PAGE>
nationalization of foreign deposits, currency controls, interest
limitations, or other governmental restrictions which might affect the payment
of principal or interest on the securities held in a Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Portfolio will invest
in obligations of domestic branches of foreign banks and foreign branches of
domestic banks only when its investment adviser believes that the risks
associated with such investment are minimal.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Futures Contracts. The Portfolio may invest in futures contracts and
options thereon. These instruments are described in Appendix "B" hereto.
Purchasing Put Options. By purchasing a put option, a Portfolio obtains the
right (but not the obligation) to sell the option's underlying instrument at a
fixed strike price. The option may give a Portfolio the right to sell only on
the option's expiration date, or may be exercisable at any time up to and
including that date. In return for this right, a Portfolio pays the current
market price for the option (known as the option premium). The option's
underlying instrument may be a security, or a futures contract.
A Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. If the option is allowed to
expire, the Portfolio will lose the entire premium it paid. If the Portfolio
exercises the option, it completes the sale of the underlying instrument at the
strike price. If the Portfolio exercises a put option on a futures contract, it
assumes a seller's position in the underlying futures contract. Purchasing an
option on a futures contract does not require the Portfolio to make futures
margin payments unless it exercises the option. A Portfolio may also terminate a
put option position by closing it out in the secondary market at its current
price, if a liquid secondary market exists.
Put options may be used by a Portfolio to hedge securities it owns, in a
manner similar to selling futures contracts, by locking in a minimum price at
which the Portfolio can sell. If security prices fall, the value of the put
option would be expected to rise and offset all or a portion of the Portfolio's
resulting losses. However, option premiums tend to decrease over time as the
expiration date nears. Therefore, because of the cost of the option in the form
of the premium (and transaction costs), a Portfolio would expect to suffer a
loss in the put option if prices do not decline sufficiently to offset the
deterioration in the value of the option premium. At the same time, because the
maximum a Portfolio has at risk is the cost of the option,
-3-
<PAGE>
purchasing put options does not eliminate the potential for the Portfolio
to profit from an increase in the value of the securities hedged to the same
extent as selling a futures contract.
Purchasing Call Options. The features of call options are essentially the
same as those of put options, except that the purchaser of a call option obtains
the right to purchase, rather than sell, the underlying instrument at the
option's strike price (call options on futures contracts are settled by
purchasing the underlying futures contract). By purchasing a call option, a
Portfolio would attempt to participate in potential price increases of the
underlying instrument, with results similar to those obtainable from purchasing
a futures contract, but with risk limited to the cost of the option if security
prices fell. At the same time, a Portfolio can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
Writing Put Options. When a Portfolio writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, a Portfolio assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the option
chooses to exercise it. A Portfolio may seek to terminate its position in a put
option it writes before exercise by closing out the option in the secondary
market at its current price. If the secondary market is not liquid for an option
the Portfolio has written, however, the Portfolio must continue to be prepared
to pay the strike price while the option is outstanding, regardless of price
changes, and must continue to set aside assets to cover its position.
A Portfolio may write put options as an alternative to purchasing actual
securities. If security prices rise, the Portfolio would expect to profit from a
written put option, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the Portfolio will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Portfolio would expect to
suffer a loss. This loss should be less than the loss the Portfolio would have
experienced from purchasing the underlying instrument directly, however, because
the premium received for writing the option should mitigate the effects of the
decline. As with other futures and options strategies used as alternatives for
purchasing securities, the Portfolio's return from writing put options generally
will involve a smaller amount of interest income than purchasing longer-term
securities directly, because the Portfolio's cash will be invested in
shorter-term securities which usually offer lower yields.
Writing Call Options. Writing a call option obligates a Portfolio to sell
or deliver the option's underlying instrument, in return for the strike price,
upon exercise of the option. The characteristics of writing call options are
similar to those of writing put options, as described above, except that writing
covered call options generally is a profitable strategy if prices remain the
same or fall. Through receipt of the option premium, the Portfolio would seek to
mitigate the effects of a price decline. At the same time, because a Portfolio
would have to be prepared to deliver the underlying instrument in return for the
strike price, even if its current value is greater, the Portfolio would give up
some ability to participate in security price increases when writing call
options.
-4-
<PAGE>
Combined Option Positions. A Portfolio may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
overall position. For example, a Portfolio may purchase a put option and write a
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Risks of Options Transactions. Options are subject to certain
risks, including the risk of imperfect correlation between the option and a
Portfolio's other investments and the risk that there might not be a liquid
secondary market for the option. Options are also subject to the risks of an
illiquid secondary market, particularly in strategies involving writing options,
which a Portfolio cannot terminate by exercise. In general, options whose strike
prices are close to their underlying instruments' current value will have the
highest trading volume, while options whose strike prices are further away may
be less liquid. The liquidity of options may also be affected if options
exchanges impose trading halts, particularly when markets are volatile.
See Appendix "B" for a discussion of the risks of options on futures contracts.
Asset Coverage for Futures and Options Positions. A Portfolio will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. A Portfolio will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. A Portfolio will not enter into an option or futures position
that exposes the Portfolio to an obligation to another party unless it owns
either (i) an offsetting position in securities or other options or futures
contracts or (ii) cash, receivables and liquid securities with a value
sufficient to cover its potential obligations. A Portfolio will comply with
guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require will set
aside cash and liquid securities in a segregated account with its custodian bank
in the amount prescribed. Securities held in a segregated account cannot be sold
while the futures or option strategy is outstanding, unless they are replaced
with similar securities. As a result, there is a possibility that segregation of
a large percentage of the Portfolio's assets could impede portfolio management
or the Portfolio's ability to meet redemption requests or other current
obligations.
Limitations on Futures and Options Transactions. The Fund on behalf of the
Portfolio has filed a notice of eligibility for exclusion from the definition of
the term "commodity pool operator" with the Commodity Futures Trading Commission
("CFTC") and the National Futures Association, which regulate trading in the
futures markets. Pursuant to Section 4.5 of the regulations under the Commodity
Exchange Act, the notice of eligibility includes the following representations:
(a) The Portfolio will use commodity futures contracts and related
commodity options solely for bona fide hedging purposes within the meaning of
CFTC regulations; provided that the Portfolio may hold long positions in
commodity futures contracts and related commodity options that do not fall
within the definition of bona fide hedging transactions if the positions are
-5-
<PAGE>
used as part of a portfolio management strategy and are incidental to the
Portfolio's activities in the underlying cash market, and the underlying
commodity value of the positions at all times will not exceed the sum of (i)
cash or United States dollar-denominated high quality short-term money market
instruments set aside in an identifiable manner, plus margin deposits, (ii) cash
proceeds from existing investments due in 30 days, and (iii) accrued profits on
the positions held by a futures commission merchant; and
(b) The Portfolio will not enter into any commodity futures contract or
option on a commodity futures contract if, as a result, the sum of initial
margin deposits on commodity futures contracts and related commodity options and
premiums paid for options on commodity futures contracts the Portfolio has
purchased, after taking into account unrealized profits and losses on such
contracts, would exceed 5% of the Portfolio's total assets.
In addition, the Portfolio will not enter into any futures contract and any
option if, as a result, the sum of (i) the current value of assets hedged in the
case of strategies involving the sale of securities, and (ii) the current value
of securities or other instruments underlying the Portfolio's other futures or
options positions, would exceed 50% of the Portfolio's net assets.
The Portfolio's limitations on investments in futures contracts and its
policies regarding futures contracts and the limitations on investments in
options and its policies regarding options discussed above in this Statement of
Additional Information, are not fundamental policies and may be changed as
regulatory agencies permit. A Portfolio will not modify the above limitations to
increase its permissible futures and options activities without supplying
additional information in a current Prospectus or Statement of Additional
Information that has been distributed or made available to the Portfolio's
shareholders.
Short Sales "Against the Box." In a short sale, a Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The Portfolio may engage in short sales if at the time of
the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box." In a short sale, a seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If a Portfolio engages in a short sale,
the collateral for the short position will be maintained by the Portfolio's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Portfolio's long position. The Portfolio will not engage in short sales against
the box for speculative purposes. A Portfolio may, however, make a short sale as
a hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes possibly to
defer recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position.
-6-
<PAGE>
Conversely, any gain in the long position should be reduced by a loss in
the short position. The extent to which such gains or losses are reduced will
depend upon the amount of the security sold short relative to the amount the
Portfolio owns. There will be certain additional transaction costs associated
with short sales against the box, but the Portfolio will endeavor to offset
these costs with the income from the investment of the cash proceeds of short
sales.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio
involved plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). The financial institutions with which the Portfolio may
enter into repurchase agreements will be banks and non-bank dealers of U.S.
Government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to equal at
least the repurchase price (including accrued interest). In addition, the
Portfolio's adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
(including accrued premium) provided in the repurchase agreement. The accrued
premium is the amount specified in the repurchase agreement or the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser will
mark-to-market daily the value of the securities. Securities subject to
repurchase agreements will be held by the Fund's custodian in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
involved under the 1940 Act.
Loans of Portfolio Securities. With respect to loans by the Portfolio of
its portfolio securities as described in the Prospectus, the Portfolio would
continue to accrue interest on loaned securities and would also earn income on
loans. Any cash collateral received by such Portfolio in connection with such
loans would be invested in short-term U.S. Government obligations.
Illiquid Securities. The Portfolio may invest up to 15% of its net assets
in illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale. Securities that have legal or contractual restrictions on resale but
have a readily available market are not considered illiquid for purposes of this
limitation. The Portfolio's investment adviser will monitor the liquidity of
such restricted securities under the supervision of the Board of Directors.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted
-7-
<PAGE>
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of restricted or
other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Portfolio may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolio's adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of restricted
securities in the Portfolio pursuant to guidelines established by and under the
supervision of the Board of Directors. Where there are no readily available
market quotations, the security shall be valued at fair value as determined in
good faith by the Board of Directors of the Fund. In reaching liquidity
decisions, the investment adviser may consider, among others, the following
factors: (1) the unregistered nature of the security; (2) the frequency of
trades and quotes for the security; (3) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (4)
dealer undertakings to make a market in the security and (5) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Investment Limitations.
The Government Securities Portfolio may not:
1. Purchase the securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the value of the Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio, except
that up to 25% of the value of the Portfolio's total assets may be invested
without regard to such limitations;
2. Borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's total assets
at the time of such borrowing, and only if after such borrowing there is
asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge or hypothecate any of its assets except in connection with
any such borrowing and in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing; or purchase
portfolio
-8-
<PAGE>
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient);
3. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in any industry, provided that
there is no limitation with respect to investments in U.S. Government
obligations; (In determining whether the Portfolio has complied with this
limitation No. 3 above, the Portfolio will not take into account the
value of options and futures.)
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies;
5. Purchase securities on margin (but may make margin payments in
connection with transactions in financial futures contracts and related
options) or purchase real estate or interests therein, commodities or
commodity contracts except financial futures contracts and related options;
6. Engage in the underwriting of securities by other issuers, except
to the extent that the Portfolio may be deemed to be an underwriter in
selling, as part of an offering registered under the Securities Act,
securities which it has acquired, or participate on a joint or
joint-and-several basis in any securities trading account. The "bunching"
of orders with other accounts under the management of the investment
adviser to save commissions or to average prices among them is not deemed
to result in a securities trading account;
7. Effect a short sale of any security except in hedging strategies,
and then only to the extent such investments do not exceed 25% of the
Portfolio's net asset value or issue senior securities except as permitted
by limitation 2 above. For purposes of this restriction, the purchase and
sale of financial futures and related options does not constitute the
issuance of a senior security;
-9-
<PAGE>
8. Purchase securities of any company with a record of less than three
years' continuous operation if such purchase would cause the Portfolio's
investments in all such companies taken at cost to exceed 5% of the
Portfolio's total assets taken at market value;
9. Invest for the purpose of exercising control over or management of
any company;
10. Invest more than 10% of its total assets in the securities of
other investment companies; or
11. Purchase interest in oil, gas or other mineral exploration
programs; however, this policy will not prohibit the acquisition of
securities of companies engaged in the production or transmission of oil,
gas or other minerals.
The foregoing investment limitations cannot be changed without shareholder
approval.
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
<PAGE>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
- ----------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively,
each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors who are not "affiliated persons" (as that term
is defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund
or the Distributor and Mr. Sablowsky, who is considered to be an affiliated
person, $12,000 annually and $1,250 per meeting of the Board or any committee
thereof that is not held in conjunction with a Board meeting. In addition, the
Chairman of the Board receives an additional $6,000 per year for his services in
this capacity. Directors who are not affiliated persons of the Fund and Mr.
Sablowsky are reimbursed for any expenses incurred in attending meetings of the
Board of Directors or any committee thereof. For the year ended August 31, 1998,
each of the following members of the Board of Directors received compensation
from the Fund in the following amounts:
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<PAGE>
Directors' Compensation
Pension or
Retirement Estimated
Aggregate Benefits Accrued Annual
Name of Person/ Compensation as Part of Fund Benefits Upon
Position from Registrant Expenses Retirement
- ---------------- --------------- ---------------- ---------------
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
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") (formerly
known as "PNC Institutional Management Corporation"), the Portfolio's adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, and Provident
Distributors, Inc. (the "Distributor" or "PDI"), the Fund's distributor, the
Fund itself requires only one part-time employee. 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 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 it for such services are described in the Prospectus. BIMC renders
advisory services to the Portfolio pursuant to an Investment Advisory and
Administration Agreement. The Advisory Agreement relating to the Portfolio is
dated June 25, 1990. Such advisory and administration agreement is hereinafter
referred to as the "Advisory Agreement."
For the fiscal year ended August 31, 1998, the Fund paid BIMC advisory fees
as follows:
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<PAGE>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Government $0 $24,599 $31,208
Securities Portfolio
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- ------------------
Government $0 $30,188 $71,645
Securities Portfolio
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- ------------------
Government $0 $39,247 $82,957
Securities Portfolio
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
-15-
<PAGE>
any losses incurred in connection therewith; (b) fees payable to and
expenses incurred on behalf of a portfolio by BIMC; (c) expenses of organizing
the Fund that are not attributable to a class of the Fund; (d) certain of the
filing fees and expenses relating to the registration and qualification of the
Fund and a portfolio's shares under federal and/or state securities laws and
maintaining such registrations and qualifications; (e) fees and salaries payable
to the Fund's directors and officers; (f) taxes (including any income or
franchise taxes) and governmental fees; (g) costs of any liability and other
insurance or fidelity bonds; (h) any costs, expenses or losses arising out of a
liability of or claim for damages or other relief asserted against the Fund or a
portfolio for violation of any law; (i) legal, accounting and auditing expenses,
including legal fees of special counsel for the independent directors; (j)
charges of custodians and other agents; (k) expenses of setting in type and
printing prospectuses, statements of additional information and supplements
thereto for existing shareholders, reports, statements, and confirmations to
shareholders and proxy material that are not attributable to a class; (1) costs
of mailing prospectuses, statements of additional information and supplements
thereto to existing shareholders, as well as reports to shareholders and proxy
material that are not attributable to a class; (m) any extraordinary expenses;
(n) fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; (o) costs of mailing and
tabulating proxies and costs of shareholders' and directors' meetings; (p) costs
of BIMC's use of independent pricing services to value a portfolio's securities;
and (q) the cost of investment company literature and other publications
provided by the Fund to its directors and officers. The RBB Class of the Fund
pays its own distribution fees and may pay a different share than the other
classes of the Portfolio of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the RBB
Class or if it receives different services.
Under the Advisory Agreement, BIMC will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund or a Portfolio
in connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
BIMC in the performance of its duties or from reckless disregard of its duties
and obligations thereunder.
The Advisory Agreement was most recently approved for continuation with
respect to the Portfolio on July 29, 1998 by vote of the Fund's Board of
Directors, including a majority of those directors who are not parties to the
Advisory Agreement or interested persons (as defined in the 1940 Act) of such
parties. The Advisory Agreement was approved with respect to the Portfolio by
shareholders of the Portfolio at a special meeting held July 26, 1991, as
adjourned. The Advisory Agreement is terminable by vote of the Fund's Board of
Directors or by the holders of a majority of the outstanding voting securities
of the Portfolio, at any time without penalty, on 60 days' written notice to
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
-16-
<PAGE>
securities on account of the Portfolio, (c) accepts receipts and makes
disbursements of money on behalf of the Portfolio, (d) collects and receives all
income and other payments and distributions on account of the Portfolio's
portfolio securities and (e) makes periodic reports to the Fund's Board of
Directors concerning the Portfolio's operations. PNC Bank is authorized to
select one or more banks or trust companies to serve as sub-custodian on behalf
of the Fund, provided that PNC Bank remains responsible for the performance of
all its duties under the Custodian Agreement and holds the Fund harmless from
the acts and omissions of any sub-custodian. For its services to the Fund under
the Custodian Agreement, PNC Bank receives a fee which is calculated based upon
the Portfolio's average daily gross assets as follows: $.25 per $1,000 on the
first $50 million of average daily gross assets; $.20 per $1,000 on the next $50
million of average daily gross assets; and $.15 per $1,000 on average daily
gross assets over $100 million, with a minimum monthly fee of $1,000 per
Portfolio, exclusive of transaction charges and out-of-pocket expenses, which
are also charged to the Fund.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Shares pursuant to a Transfer Agency Agreement
dated June 29, 1990 (the "Transfer Agency Agreement"), under which PFPC (a)
issues and redeems Shares of the Portfolio, (b) addresses and mails all
communications by the Portfolio to record owners of the Shares, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic reports to the Fund's Board of
Directors concerning the operations of the Portfolio. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp.
For its services to the Fund under the Transfer Agency Agreement, PFPC
receives a fee at the annual rate of $11.00 per account for orders which are
placed via third parties and electronically relayed to PFPC, and at an annual
rate of $13.00 per account for all other orders, exclusive of out-of-pocket
expenses, and also receives reimbursement of its out-of-pocket expenses.
PFPC has entered into, and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolio. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolio for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
Administration Agreements. PFPC serves as administrator to the Portfolio
pursuant to an Administration Agreement effective April 10, 1991 (the
"Administration Agreement"). PFPC has agreed to furnish to the Fund on behalf of
the Portfolio statistical and
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research data, clerical, accounting and bookkeeping services, and certain
other services required by the Fund. In addition, PFPC has agreed to prepare and
file various reports with the appropriate regulatory agencies and prepare
materials required by the SEC or any state securities commission having
jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreement, PFPC receives a fee of .10%
of the average daily net assets of the Portfolio.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Government Securities
Portfolio $0 $6,149 $0
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Government Securities
Portfolio $0 $7,547 $0
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Government Securities
Portfolio $0 $9,813 $0
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, (the "Distribution Agreement") entered into by the
Distributor and
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<PAGE>
the Fund on behalf of the RBB Class, and a Plan of Distribution, as
amended, for the RBB Class (as amended, the "Plan") which were adopted by the
Fund in the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor
will use appropriate efforts to distribute shares of the RBB Class. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution Agreements, a distribution fee, to be
calculated daily and paid monthly, at the annual rate set forth in the
Prospectus. The Distributor currently proposes to reallow up to all of its
distribution payments to Authorized Dealers for selling shares of the Portfolio
based on a percentage of the amounts invested by their customers.
The Plan was approved by the Fund's Board of Directors, including the
directors who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan ("12b-1 Directors").
Among other things, the Plan provides that: (1) the Distributor shall be
required to submit quarterly reports to the directors of the Fund regarding all
amounts expended under the Plan and the purposes for which such expenditures
were made, including commissions, advertising, printing, interest, carrying
charges and any allocated overhead expenses; (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the RBB Class shall not be materially increased without the
affirmative vote of the holders of a majority of the Fund's shares in the Class;
and (4) while the Plan remains in effect, the selection and nomination of the
12b-1 Directors shall be committed to the discretion of such directors who are
not "interested persons" of the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plans for the RBB Family Class of the
Government Securities Portfolio in the aggregate amount of $5,929. Of that
amount, $5,929 was paid to dealers with whom PDI had entered into dealer
agreements and $0 was retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the Plans for the RBB Family Class of the Government
Securities Portfolio in the aggregate amount of $18,670. Of that amount, $7,575
was paid to dealers with whom Counsellors had entered into dealer agreements and
$11,059 was retained by Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plan by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
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<PAGE>
The Distribution Agreement also provides that the Distributor will be
entitled to receive sales commissions equal to 4.99% of the net asset value of
shares sold in any month, with such commissions being reduced for volume sales
and sales made under certain purchase programs described in the Prospectus.
Notwithstanding the foregoing, certain classes of investors described in the
Prospectus who are associated with the Fund, the Distributor, BIMC, PNC Bank or
PFPC are not charged any sales commissions.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors, BIMC is
responsible for the execution of portfolio transactions and the allocation of
brokerage transactions for the Portfolio. In executing portfolio transactions,
BIMC seeks to obtain the best net results for the Portfolio, taking into account
such factors as the price (including the applicable brokerage commission or
dealer spread), size of the order, difficulty of execution and operational
facilities of the firm involved. While BIMC generally seeks reasonably
competitive commission rates, payment of the lowest commission or spread is not
necessarily consistent with obtaining the best results in particular
transactions.
The Portfolio does not have any obligation to deal with any broker or group
of brokers in the execution of portfolio transactions. BIMC may, consistent with
the interests of a Portfolio and subject to the approval of the Board of
Directors, select brokers on the basis of the research, statistical and pricing
services they provide to a Portfolio and other clients of BIMC. Information and
research received from such brokers will be in addition to, and not in lieu of,
the services required to be performed by BIMC under its respective contract. A
commission paid to such brokers may be higher than that which another qualified
broker would have charged for effecting the same transaction, provided that
BIMC, as applicable, determines in good faith that such commission is reasonable
in terms either of the transaction or the overall responsibility of BIMC to a
Portfolio and its other clients and that the total commissions paid by a
Portfolio will be reasonable in relation to the benefits to the Portfolio over
the long-term.
Corporate debt and U.S. Government securities are generally traded on the
over-the-counter market on a "net" basis without a stated commission, through
dealers acting for their own account and not as brokers. The Portfolio will
primarily engage in transactions with these dealers or deal directly with the
issuer unless a better price or execution could be obtained by using a broker.
Prices paid to a dealer in debt securities will generally include a "spread,"
which is the difference between the prices at which the dealer is willing to
purchase and sell the specific security at the time, and includes the dealer's
normal profit.
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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that a
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<PAGE>
Portfolio would incur a capital loss in liquidating commercial paper (for which
there is no established market), especially if interest rates have risen since
acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by 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 a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
--------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
During the years ended August 31, 1996 through August 31, 1998, the
Portfolio did not pay any brokerage commissions.
The Portfolio expects that its annual portfolio turnover rate will not
exceed 200%. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses and other transaction costs, which must be borne
directly by the Portfolio. For the year ended August 31, 1998, the Portfolio had
a turnover rate of 5%. The Portfolio anticipates that its annual portfolio
turnover rate will vary from year to year. The portfolio turnover rate is
calculated by dividing the lesser of the Portfolio's annual sales or purchases
of portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year.
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<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
An illustration of the computation of the public offering price per RBB
Class Share of the Portfolio, based on the value of the Portfolio's net assets
as of August 31, 1998, is as follows:
Net Assets..................................... $5,901,262
Outstanding Shares............................. $ 665,080
Net Asset Value
Per Share.................................... $ 8.87
Maximum Sales Charge,
4.75% of offering
price (4.96% of net asset
value per share)............................... $ .44
Offering Price to
Public......................................... $ 9.31
Total front-end sales charges paid by shareholders of RBB Class Shares of
the Portfolio for the year ended August 31, 1998 were $476.
A front-end sales charge will be imposed (unless an exemption from the
sales charge applies) when shares of other classes of the Fund are redeemed and
the proceeds are used to purchase RBB Class Shares of the Portfolio.
-22-
<PAGE>
VALUATION OF SHARES
The net asset value per share of each class of the Portfolio is calculated
as of 12 noon Eastern Time and as of the close of the NYSE (generally 4:00 p.m.
Eastern Time) on each Business Day. "Business Day" means each weekday when the
NYSE is open. Currently, the NYSE is closed on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, Christmas Day and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
Securities which are listed on stock exchanges are valued at the last sale price
on the day the securities are valued or, lacking any sales on such day, at the
mean of the bid and asked prices available prior to the evaluation. In cases
where securities are traded on more than one exchange, the securities are
generally valued on the exchange designated by the Board of Directors as the
primary market. Securities traded in the over-the-counter market and listed on
the National Association of Securities Dealers Automatic Quotation System
("NASDAQ") are valued at the last trade price listed on the NASDAQ at 4:00 p.m.;
securities listed on NASDAQ for which there were no sales on that day and other
over-the-counter securities are valued at the mean of the bid and asked prices
available prior to valuation. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Fund's Board of Directors. The amortized cost method
of valuation may also be used with respect to debt obligations with sixty days
or less remaining to maturity. The net asset value per share for each class of
the Portfolio is calculated by adding the value of the proportionate interest of
the class in the Portfolio's cash, securities and other assets, deducting the
actual and accrued liabilities of the class, and dividing the result by the
number of outstanding shares of the class.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE AND YIELD INFORMATION
Total Return. For purposes of quoting and comparing the performance of the
Portfolio to that of other mutual funds and to stock or other relevant indices
in advertisements or in reports to shareholders, performance may be stated in
terms of total return. Under the rules of the Securities and Exchange
Commission, funds advertising performance must include total return quotes
calculated according to the following formula:
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<PAGE>
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertisement for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's registration statement. In calculating the ending redeemable
value, the maximum sales load is deducted from the initial $1,000 payment and
all dividends and distributions by the Fund are assumed to have been reinvested
at net asset value, as described in the Prospectus, on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5 and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value. Any sales loads that might in the
future be made applicable at the time to reinvestments would be included as
would any recurring account charges that might be imposed by the Fund.
The Portfolio may also from time to time include in such advertising an
aggregate total return figure or a total return figure that is not calculated
according to the formula set forth above in order to compare more accurately a
Portfolio's performance with other measures of investment return. For example,
in comparing a Portfolio's total return with data published by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. or Weisenberger Investment
Company Service, or with the performance of the Standard & Poor's 500 Stock
Index or the Dow Jones Industrial Average, as appropriate, the Portfolio may
calculate its aggregate and/or average annual total return for the specified
periods of time by assuming the investment of $10,000 in Portfolio shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date. The Portfolio does not, for these purposes,
deduct from the initial value invested any amount representing sales charges.
The Portfolio will, however, disclose the maximum sales charge and will also
disclose that the performance data do not reflect sales charges and that
inclusion of sales charges would reduce the performance quoted. Such alternative
total return information will be given no greater prominence in such advertising
than the information prescribed under SEC rules, and all advertisements
containing performance data will include a legend disclosing that such
performance data represent past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
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<PAGE>
Calculated according to the SEC rules, for the year ended August 31, 1998,
both the average annual total return and the aggregate total return for the
Government Securities Portfolio were 1.45%. Calculated according to the SEC
rules, for the period beginning on the commencement of the Portfolio's
operations and ending August 31, 1998, the average annual total return for the
Portfolio (commencing August 1, 1991) was 4.94%. For the same period, the
aggregate total return for the Portfolio (commencing August 1, 1991) was
40.73%.
Calculated according to the non-standardized computation, which assumes no
sales charges and reinvestment of all distributions for the year ended August
31, 1998, both the average annual total return and the aggregate total return
for the Portfolio were 6.54%. Calculated also according to the
non-standardized computation for the period beginning on the commencement of the
Portfolio's operations and ending on August 31, 1998, the average annual total
return for the Portfolio was 5.17%. The aggregate total return for the
Portfolio calculated according to the non-standardized computation for the
period beginning on the commencement of the Portfolio's operations and ending on
August 31, 1998 was 47.77%.
Yield. The Portfolio may also advertise its yield. Under the rules of the
SEC, the Portfolio advertising yield must calculate yield using the following
formula:
YIELD = 2[(a-b +1)6 - 1]
--
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last
day of the period.
Under the foregoing formula, yield is computed by compounding
semi-annually, the net investment income per share earned during a 30 day period
divided by the maximum offering price per share on the last day of the period.
For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by a Portfolio at a discount or premium,
the formula generally calls for amortization of the discount or premium; the
amortization schedule will be adjusted monthly to reflect changes in the market
values of the debt obligations.
The yield for the 30-day period ended August 31, 1998 for the Portfolio was
4.80%.
From time to time, in advertisements or in reports to shareholders with
respect to a Portfolio, the yields of such Portfolio may be quoted and compared
to those of other mutual
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<PAGE>
funds with similar investment objectives and to stock or other relevant
indices. For example, the yield of a Portfolio may be compared to the Donoghue's
Money Fund Average, which is an average compiled by IBC Money Fund Report(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income to
Shareholders each year, so that the Portfolio itself generally will be relieved
of federal income and excise taxes. If the Portfolio were to fail to so qualify:
(1) the Portfolio would be taxed at regular corporated rates without any
deduction for distributions to Shareholders; and (2) Shareholders would be taxed
as if they received ordinary dividends, although corporate Shareholders could be
eligible for the dividends received deduction.
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class P Common Stock constitute the
RBB Class of the Government Securities Portfolio, described herein. Under
RBB's charter, the Board of Directors has the power to classify or reclassify
any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
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<PAGE>
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 voting securities
of Common Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
-29-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
Shareholder Approvals. As used in this Statement of Additional Information
and in the Prospectuses, "shareholder approval" and a "majority of the
outstanding shares" of a class, series or Portfolio means, with respect to the
approval of an investment advisory agreement, a distribution plan or a change in
a fundamental investment limitation, the lesser of (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
-30-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-31-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
APPENDIX B
----------
As stated in the Prospectus, the Equity and Bond Funds may
enter into futures contracts and options for hedging purposes. Such transactions
are described in this Appendix.
I. INTEREST RATE FUTURES CONTRACTS.
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Funds, through using
futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest
rate futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by a Fund
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, a Fund is immediately
paid the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, a Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
Fund entering into a futures contract sale. If the offsetting sale price exceeds
the purchase price, a Fund realizes a gain, and if the purchase price exceeds
the offsetting sale price, a Fund realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange and the New York Futures Exchange.
The Fund would deal only in standardized contract's on recognized exchanges.
Each exchange guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the exchange
membership.
A public market now exists in futures contracts covering
various financial instruments including long-term Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month Treasury Bills; and ninety-day
commercial paper. A Fund may trade in any futures contract for which there
exists a public market, including, without limitation, the foregoing
instruments.
<PAGE>
II. STOCK INDEX FUTURES CONTRACTS.
GENERAL. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks included. Some stock index futures contracts are based on broad
market indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts are
traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a
decrease in market value of its securities that might otherwise result from a
market decline. A Fund may do so either to hedge the value of its portfolio as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, a Fund will purchase such securities
upon termination of the long futures position, but a long futures position may
be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize stock index futures contracts
in anticipation of changes in the composition of its holdings. For example, in
the event that a Fund expects to narrow the range of industry groups represented
in its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
III. FUTURES CONTRACTS ON FOREIGN CURRENCIES.
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by a Fund to
hedge against exposure to fluctuations in exchange rates between the U.S. dollar
and other currencies arising from multinational transactions.
IV. MARGIN PAYMENTS.
Unlike when a Fund purchases or sells a security, no price is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker or in a segregated
account with a Fund's custodian an amount of cash or cash equivalents, the value
of which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instrument fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and a Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the futures contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and a Fund would be
required to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, the Investment Advisor may elect to close
the position by taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate a Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to a Fund, and a Fund
realizes a loss or gain.
<PAGE>
V. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS.
There are several risks in connection with the use of futures
by a Fund as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, a
Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, a Fund involved
will experience either a loss or gain on the future which will not be completely
offset by movements in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the volatility
over such time period of the future, or if otherwise deemed to be appropriate by
the Investment Advisor. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by the
Investment Advisor. It is also possible that, where a Fund has sold futures to
hedge its portfolio against a decline in the market, the market may advance and
the value of securities held by a Fund may decline. If this occurred, a Fund
would lose money on the future and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities or a currency before a Fund is able to
invest its cash (or cash equivalents) in securities (or options) in an orderly
fashion, it is possible that the market may decline instead; if a Fund then
concludes not to invest in securities or options at that time because of concern
as to possible further market decline or for other reasons, a Fund will realize
a loss on the futures contract that is not offset by a reduction in the price of
securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Investment Advisor may
still not result in a successful hedging transaction over a short time frame.
<PAGE>
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Funds would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by the Funds is also subject to the
Investment Advisor's ability to predict correctly movements in the direction of
the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held in its portfolio and
securities prices increase instead, a Fund will lose part or all of the benefit
to the increased value of its securities which it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market. A
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
VI. OPTIONS ON FUTURES CONTRACTS.
The Funds may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not be fully reflected in
the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts. Although permitted by
their fundamental investment policies, the Funds do not currently intend to
write futures options during the current fiscal year, and will not do so in the
future absent any necessary regulatory approvals.
<PAGE>
VII. ACCOUNTING AND TAX TREATMENT.
Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts held by the Funds at the close of
the Funds' taxable year will be treated for federal income tax purposes as sold
for their fair market value on the last business day of such year, a process
known as "mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and sixty
percent of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time a Fund holds the futures contract ("the
40-60 rule"). The amount of any capital gain or loss actually realized by a Fund
in a subsequent sale or other disposition of those futures contracts will be
adjusted to reflect any capital gain or loss taken into account by a Fund in a
prior year as a result of the constructive sale of the contracts. With respect
to futures contracts to sell, which will be regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by a Fund, losses as to such contracts to sell will be subject
to certain loss deferral rules which limit the amount of loss currently
deductible on either part of the straddle to the amount thereof which exceeds
the unrecognized gain (if any) with respect to the other part of the straddle,
and to certain wash sales regulations. Under short sales rules, which will also
be applicable, the holding period of the securities forming part of the straddle
will (if they have not been held for the long-term holding period) be deemed not
to begin prior to termination of the straddle. With respect to certain futures
contracts, deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Fund may make an election which
will exempt (in whole or in part) those identified futures contracts from being
treated for federal income tax purposes as sold on the last business day of a
Fund's taxable year, but gains and losses will be subject to such short sales,
wash sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, a Fund would be allowed (in lieu
of the foregoing) to elect either (1) to offset gains or losses from portions
which are part of a mixed straddle by separately identifying each mixed straddle
to which such treatment applies, or (2) to establish a mixed straddle account
for which gains and losses would be recognized and offset on a periodic basis
during the taxable year. Under either election, the 40-60 rule will apply to the
net gain or loss attributable to the futures contracts, but in the case of a
mixed straddle account election, no more than 50% of any net gain may be treated
as long-term and no more than 40% of any net loss may be treated as short-term.
Options on futures contracts generally receive federal tax treatment similar to
that described above.
Certain foreign currency contracts entered into by the Funds
may be subject to the "mark-to-market" process. If the Fund makes a Capital
Asset Election with respect to such contracts, the contracts will be subject to
the 40-60 rule, described above. Otherwise, such gain or loss will be treated as
100% ordinary gain or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury has not
issued any such regulations. Foreign currency contracts entered into by a Fund
may result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales rules
and the requirement to capitalize interest and carrying charges may apply.
<PAGE>
Some investments may be subject to special rules which govern
the federal income tax treatment of certain transactions denominated in terms of
a currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
"mark-to-market" rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency rules.
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. It is anticipated that
some of the non-U.S. dollar denominated investments and foreign currency
contracts that a Fund may make or may enter into will be subject to the special
currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Funds which are not subject
to special currency rules (such as foreign equity investments other than certain
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.
Under the federal income tax provisions applicable to
regulated investment companies, less than 30% of a company's gross income must
be derived from gains realized on the sale or other disposition of securities
held for less than three months. With respect to futures contracts and other
financial instruments subject to the "mark-to-market" rules, the Internal
Revenue Service has ruled in private letter rulings that a gain realized from
such a futures contract or financial instrument will be treated as being derived
from a security held for three months or more (regardless of the actual period
for which the contract or instrument is held) if the gain arises as a result of
a constructive sale under the "mark-to-market" rules, and will be treated as
being derived from a security held for less than three months only if the
contract or instrument is terminated (or transferred) during the taxable year
(other than by reason of the mark-to-market rules) and less than three months
have elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the 30% test is met for a taxable year,
increases and decreases in the value of the Funds' futures contracts and other
investments that qualify as part of a "designated hedge," as defined in the
Code, may be netted.
<PAGE>
Bear Stearns Money Market Portfolio
(Investment Portfolio of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of a class (the "Bedford Shares" or the "Shares")
representing interests in the Money Market Portfolio (the "Portfolio") of The
RBB Fund, Inc. (the "Fund"). This Statement of Additional Information is not a
prospectus, and should be read only in conjunction with The RBB Fund Money
Market Portfolio (Bedford Shares) Prospectus of the Fund, dated December 29,
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 29, 1998.
CONTENTS
Page
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General...................................................................... 2
Investment Objectives and Policies........................................... 2
Directors and Officers.......................................................12
Investment Advisory, Distribution and Servicing Arrangements.................15
Portfolio Transactions.......................................................19
Purchase and Redemption Information..........................................21
Valuation of Shares..........................................................21
Performance Information......................................................23
Taxes........................................................................24
Additional Information Concerning Fund Shares................................24
Miscellaneous................................................................28
Financial Statements.........................................................29
Appendix.....................................................................A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertains to
shares of the class of common stock of the Fund (the "Class") representing
interests in the Money Market Portfolio of the Fund. The Class is offered by the
Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolio. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by the Portfolio pursuant to the Portfolio's agreement
to repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding,
the Portfolio will maintain in a segregated account with the Fund's custodian or
a qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio may have maturities of more than 13 months, provided:
(i) the Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, upon giving the prescribed notice
(which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 13 months.
In determining the average weighted maturity of the Money Market Portfolio and
whether a variable rate demand instrument has a remaining maturity of 13 months
or less, each long-term 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.
The absence of an active secondary market with respect to particular
variable and floating rate instruments could make it difficult for a Portfolio
to dispose of variable or floating rate notes if the issuer defaulted on its
payment obligations or during periods that the Portfolio is not entitled to
exercise its demand right, and the Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments.
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When-Issued or Delayed Delivery Securities. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Portfolio has such
commitments outstanding, the Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash or other liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the Portfolio will set aside
portfolio securities to satisfy a purchase commitment and, in such a case, the
Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, the Portfolio expects that commitments to purchase "when
issued" securities will not exceed 25% of the value of its total assets absent
unusual market conditions. When the Portfolio engages in when-issued
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Stand-By Commitments. The Money Market Portfolio may enter into stand-by
commitments with respect to obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities
(collectively, "Municipal Obligations") held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option a
specified Municipal Obligation at its amortized cost value to the Portfolio plus
accrued interest, if any. Stand-by commitments may be exercisable by the Money
Market Portfolio at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved.
The Money Market Portfolio expects that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Portfolio may pay for a stand-by
commitment either in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by the Money Market
Portfolio will not exceed 1/2 of 1% of the value of the Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
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The Money Market Portfolio intends to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the investment adviser's
opinion, present minimal credit risks. Either such Portfolio's reliance upon the
credit of these dealers, banks and broker-dealers will be secured by the value
of the underlying Municipal Obligations that are subject to the commitment.
The Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where the Portfolio pays directly or
indirectly for a stand-by commitment, its cost will be reflected as an
unrealized loss for the period during which the commitment is held by the
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note is backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds
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<PAGE>
issued prior to the effective date of the provisions of the Tax Reform Act of
1986. Investors should also be aware of the possibility of state and local
alternative minimum or minimum income tax liability on interest from Alternative
Minimum Tax Securities.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds that are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
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<PAGE>
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by the Portfolio
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). The financial institutions with which the Portfolio may enter into
repurchase agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed creditworthy by
the Portfolio's adviser or sub-adviser. The Portfolio's adviser or sub-adviser
will continue to monitor creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement to equal at least
the repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
including either (i) accrued premium provided in the repurchase agreement or
(ii) the daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-adviser will mark-to-market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by the Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
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Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Portfolio may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs"). These multiple class
securities may be issued by U.S. Government agencies or instrumentalities,
including FNMA and FHLMC, or by trusts formed by private originators of, or
investors in, mortgage loans. In general, CMOs are debt obligations of a legal
entity that are collateralized by a pool of residential or commercial mortgage
loans or mortgage pass-through securities (the "Mortgage Assets"), the payments
on which are used to make payments on the CMOs. Investors may purchase
beneficial interests in CMOs, which are known as "regular" interests or
"residual" interests. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making required payments of
principal of and interest on the CMOs, as well as the related administrative
expenses of the issuer. Residual interests generally are junior to, and may be
significantly more volatile than, "regular" CMO interests. The Portfolios do not
currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
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
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principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the investment adviser
pursuant to guidelines adopted by the Board of Directors. Eligible securities
generally include (1) U.S. Government securities, (2) securities that (a) are
rated (at the time of purchase) by two or more nationally recognized statistical
rating organizations ("Rating Organizations") in the two highest rating
categories for such securities (e.g., commercial paper rated "A-1" or "A-2" by
S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at the time
of purchase) by the only Rating Organization rating the security in one of its
two highest rating categories for such securities; (3) short-term obligations
and subject to certain SEC requirements, 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) subject to certain conditions
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imposed under Sec rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. The Portfolio may not invest more than 10% of its net
assets in illiquid securities (including, repurchase agreements that have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. With respect to the Money Market Portfolio, repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
The Portfolio may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolio's adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of restricted
securities in the Portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser may consider, among others,
the following factors: (1) the unregistered nature of the security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security and (5) the
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nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Investment Limitations
The Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and for
reverse repurchase agreements and then in amounts not in excess of 10% of
the value of the Portfolio's total assets at the time of such borrowing,
and only if after such borrowing there is asset coverage of at least 300%
for all borrowings of the Portfolio; or mortgage, pledge, hypothecate any
of its assets except in connection with such borrowings and then, in
amounts not in excess of 10% of the value of the Portfolio's total assets
at the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of the Portfolio's assets may be invested without
regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may
be deemed an underwriter under federal securities laws and except to the
extent that the purchase of Municipal Obligations directly from the issuer
thereof in accordance with the Portfolio's investment objective, policies
and limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
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(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
With respect to limitation (b) above concerning industry concentration
(applicable to the Portfolio), the Portfolio will consider wholly-owned finance
companies to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents, and will divide
utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
Portfolio's outstanding shares, but any such change would be subject to any
-11-
<PAGE>
applicable requirements 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, 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.
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
- -----------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
-14-
<PAGE>
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund or
the Distributor, and Mr. Sablowsky, who is considered to be an affiliated
person, $12,000 annually and $1,250 per meeting of the Board or any committee
thereof that is not held in conjunction with a Board meeting. In addition, the
Chairman of the Board receives an additional fee of $6,000 per year for his
services in this capacity. Directors who are not affiliated persons of the Fund
and Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings
of the Board of Directors or any committee thereof. For the year ended August
31, 1998, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
<TABLE>
<CAPTION>
Directors' Compensation
-----------------------
Pension or Retirement
Aggregate Benefits Accrued as Estimated Annual
Compensation Part of Fund Benefits Upon
Name of Person/Position from Registrant Expenses Retirement
----------------------- --------------- --------------------- ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
-15-
<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee) pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolio's 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" or "PDI"), the Fund's distributor, the
Fund itself requires only one part-time employee. 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 and Sub-Advisory Agreements. The Portfolio has an investment
advisory agreement with BIMC. Although BIMC in turn has a sub-advisory agreement
respecting the Portfolio with PNC Bank dated August 16, 1988, as of April 29,
1998, BIMC assumed these advisory responsibilities from PNC Bank. Pursuant to
the Sub-Advisory Agreement, PNC Bank would be entitled to receive an annual fee
from BIMC for its sub-advisory services calculated at the annual rate of 75% of
the fees received by BIMC on behalf of the Portfolio. The advisory agreement
relating to the Money Market Portfolio is dated August 16, 1988. Such advisory
and sub-advisory agreement are hereinafter collectively referred to as the
"Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC for administrative services obligated under the Advisory Agreement)
advisory fees as follows:
-16-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- -------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- -------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- -------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
</TABLE>
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)
-17-
<PAGE>
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 Portfolios' investment adviser or
Distributor; (j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n)
auditing fees; (o) brokerage fees and commissions; (p) certain of the fees and
expenses of registering and qualifying the Portfolios and their shares for
distribution under federal and state securities laws; (q) expenses of preparing
prospectuses and statements of additional information and distributing annually
to existing shareholders that are not attributable to a particular class of
shares of the Fund; (r) the expense of reports to shareholders, shareholders'
meetings and proxy solicitations that are not attributable to a particular class
of shares of the Fund; (s) fidelity bond and directors' and officers' liability
insurance premiums; (t) the expense of using independent pricing services; and
(u) other expenses which are not expressly assumed by the Portfolio's investment
adviser under its advisory agreement with the Portfolio. The Bedford Class of
the Portfolio pays its own distribution fees and may pay a different share than
other classes of other expenses (excluding advisory and custodial fees) if these
expenses are actually incurred in a different amount by the Bedford Class or if
it receives different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved on July 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 Agreements or "interested persons"
(as defined in the 1940 Act) of such parties. The Advisory Agreements were
approved with respect to the Money Market Portfolio by shareholders of the
Portfolio at a special meeting held December 22, 1989, as adjourned. Each
Advisory Agreement is terminable by vote of the Fund's Board of Directors or by
the holders of a majority of the outstanding voting securities of the Portfolio,
at any time without penalty, on 60 days' written notice to BIMC or PNC Bank. The
Advisory Agreements may also be terminated by BIMC or PNC Bank, respectively, on
60 days' written notice to the Fund. The Advisory Agreement terminates
automatically in the event of assignment thereof.
Administration Agreement. BIMC is obligated to render administrative
services to the Money Market Portfolio pursuant to the investment advisory
agreement. Pursuant to the terms of a Delegation Agreement, dated July 29, 1998,
-18-
<PAGE>
between BIMC and PFPC, however, BIMC has delegated to PFPC its administrative
responsibilities to the Money Market Portfolio. The Fund pays administrative
fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and Reimburse-
Portfolio reimbursements) Waivers ments
- --------- ------------------ ------- ----------
<S> <C> <C> <C>
Money Market $0 $0 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Portfolio (b) holds
and transfers portfolio securities on account of the Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of the Portfolio, (d)
collects and receives all income and other payments and distributions on account
of the Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Bedford Class pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC (a) issues and redeems Shares of the Portfolio, (b) addresses and mails all
communications by the Portfolio to record owners of Shares, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of the Shares. PFPC may, on 30 days' notice to the
Fund, assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per account
in the Portfolio for orders which are placed via third parties and relayed
electronically to PFPC, and at an annual rate of $17.00 per account in the
-19-
<PAGE>
Portfolio for all other orders, exclusive of out-of-pocket expenses and also
receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolio.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolio for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998 entered into by the Distributor and the Fund on behalf
of the Class (the "Distribution Agreement"), and the Plan of Distribution, as
amended, for the Class (the "Plan"), which was adopted by the Fund in the manner
prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute shares of the Class. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreement, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of the Portfolio based on a percentage of the
amounts invested by their customers.
The Plan was approved by the Fund's Board of Directors, including the
directors who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan ("12b-1 Directors").
Among other things, the Plan provides that: (1) the Distributor shall be
required to submit quarterly reports to the directors of the Fund regarding all
amounts expended under the Plan and the purposes for which such expenditures
were made, including commissions, advertising, printing, interest, carrying
charges and any allocated overhead expenses; (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Class under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the Fund's shares in the
affected Class; and (4) while the Plan remains in effect, the selection and
-20-
<PAGE>
nomination of the 12b-1 Directors shall be committed to the discretion of the
directors who are not interested persons of the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plan for the Bear Stearns (Bedford) Money
Market Portfolio, in the aggregate amount of $2,441,427. Of that amount,
$2,317,465 was paid to dealers with whom PDI had entered into dealer agreements
and $123,962 was retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the plans for the Bear Stearns Money Market
Portfolio in the aggregate amount of $9,261,897. Of that amount, $8,874,206 was
paid to dealers with whom Counsellors had entered into dealer agreements, and
$387,691 was retained by Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plan
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plans by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities of
13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less), and except
that the Money Market Portfolio may purchase variable rate securities with
remaining maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because the Portfolio intend to
purchase only securities with remaining maturities of 13 months or less, their
portfolio turnover rates will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by the
Portfolio, the turnover rate should not adversely affect such Portfolio's net
asset value or net income. The Portfolio does not intend to seek profits through
short term trading.
Purchases of portfolio securities by the Portfolio are made from dealers,
underwriters and issuers; sales are made to dealers and issuers. The Portfolio
currently expects to incur any brokerage commission expense on such transactions
-21-
<PAGE>
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 or PNC Bank are made independently of each other in light of
differing conditions. However, the same investment decision may occasionally be
made for two or more of such accounts. In such cases, simultaneous transactions
are inevitable. Purchases or sales are then averaged as to price and allocated
as to amount according to a formula deemed equitable to each such account. While
in some cases this practice could have a detrimental effect upon the price or
value of the security as far as the Portfolio is concerned, in other cases it is
believed to be beneficial to the Portfolio. The Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which BIMC or PNC Bank or any affiliated person (as defined in
the 1940 Act) thereof is a member except pursuant to procedures adopted by the
Fund's Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Fund's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
--------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
-22-
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that the Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of the Portfolio.
Under the 1940 Act, the Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolio at $1.00 per share. Net asset value per share, the
value of an individual share in the Portfolio, is computed by adding the value
of the proportionate interest of a class in the Portfolio's cash, securities,
and other assets, subtracting the actual and accrued liabilities of the class
and dividing the result by the number of outstanding shares of the class. The
net asset value per share of each class of the Fund is determined independently
of each other class. The Portfolio's "net assets" equal the value of the
Portfolio's investments and other securities less its liabilities. The Fund's
net asset value per share is computed twice each day, as of 12:00 noon (Eastern
Time) and as of the close of the NYSE (generally 4:00 p.m. Eastern Time) on each
Business Day. "Business Day" means each weekday, when both the NYSE and the
Federal Reserve Bank of Philadelphia (the "FRB") are open. Currently, the NYSE
is closed weekends and on New Year's Day, Dr. Martin Luther King, Jr. Day,
-23-
<PAGE>
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and the preceding Friday and subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays as the NYSE as well as
Veterans' Day and Columbus Day.
The Fund calculates the value of the portfolio securities of the Portfolio
by using the amortized cost method of valuation. Under this method the market
value of an instrument is approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on a straight-line
basis over the remaining life of the instrument. The effect of changes in the
market value of a security as a result of fluctuating interest rates is not
taken into account. The market value of debt securities usually reflects yields
generally available on securities of similar quality. When such yields decline,
market values can be expected to increase, and when yields increase, market
values can be expected to decline. In addition, if a large number of redemptions
take place at a time when interest rates have increased, the Portfolio may have
to sell portfolio securities prior to maturity and at a price which might not be
as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for the Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio maturity of
90 days or less, will not purchase any instrument with a deemed maturity under
Rule 2a-7 of the 1940 Act greater than 13 months, will limit portfolio
investments, 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.
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
-24-
<PAGE>
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
The Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for the
Portfolio are computed by: (a) determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1998 for the
Bedford Class of the Money Market Portfolio, before waivers was as follows:
Tax-Equivalent Yield
Effective (assumes a federal income
Portfolio Yield Yield tax rate of 28%)
--------- ----- --------- -------------------------
Money Market 4.58% 4.68% N/A
The annualized yield for the seven-day period ended August 31, 1998 for the
Bedford Class of the Money Market Portfolio after waivers was as follows:
Tax-Equivalent Yield
Effective (assumes a federal income
Portfolio Yield Yield tax rate of 28%)
--------- ----- --------- -------------------------
Money Market 4.70% 4.81% N/A
Total return and yield may fluctuate daily and does not provide a basis for
determining future returns and yields. Because the returns yields of the
Portfolio will fluctuate, they cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
-25-
<PAGE>
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of a
portfolio's securities, the method used by each fund to compute the yield
(methods may differ) and whether there are any special account charges which may
reduce the effective yield.
The yields on certain obligations, including the money market instruments
in which the Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or 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 Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that the Portfolio generally will be
relieved of federal income and excise taxes. If the Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.
-26-
<PAGE>
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class L Common Stock constitute the
Bedford, described herein. Under RBB's charter, the Board of Directors has the
power to classify or reclassify any unissued shares of Common Stock from time
to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
-29-
<PAGE>
1940 Act provides that any matter required to be submitted by the provisions of
such Act or applicable state law, or otherwise, to the holders of the
outstanding voting securities of an investment company such as the Fund shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding voting securities of each portfolio affected by
the matter. Rule 18f-2 further provides that a portfolio shall be deemed to be
affected by a matter unless it is clear that the interests of each portfolio in
the matter are identical or that the matter does not affect any interest of the
portfolio. Under the Rule the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by the holders of a majority of the
outstanding voting securities of such portfolio. However, the Rule also provides
that the ratification of the selection of independent public accountants and the
election of directors are not subject to the separate voting requirements and
may be effectively acted upon by shareholders of an investment company voting
without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
-31-
<PAGE>
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
Shareholder Approvals. As used in this Statement of Additional Information
and in the Prospectuses, "shareholder approval" and a "majority of the
outstanding shares" of a class, series or Portfolio means, with respect to the
approval of an investment advisory agreement, a distribution plan or a change in
a fundamental investment limitation, the lesser of (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-32-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BEDFORD MUNICIPAL MONEY MARKET PORTFOLIO
(Investment Portfolio of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to a class of shares (the "Class") of The RBB Fund, Inc. representing
interests in the Municipal Money Market Portfolio (the "Portfolio"). This
Statement of Additional Information is not a prospectus, and should be read only
in conjunction with the Bedford Municipal Money Market Portfolio Prospectus of
The RBB Fund, Inc., dated December 29, 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 29, 1998.
CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
General.............................................................................2
Investment Objectives and Policies..................................................2
Directors and Officers..............................................................7
Investment Advisory, Distribution and
Servicing Arrangements...........................................................10
Portfolio Transactions.............................................................15
Purchase and Redemption Information................................................16
Valuation of Shares................................................................16
Performance Information............................................................18
Taxes..............................................................................19
Additional Information Concerning
Fund Shares......................................................................20
Miscellaneous......................................................................23
Financial Statements...............................................................24
Appendix..........................................................................A-1
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertains to
shares of the Class of common stock of the Fund (the "Shares") representing
interests in the Municipal Money Market Portfolio of the Fund. The Shares are
offered by the Prospectus dated December 29, 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.
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 long-term 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. The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for a
Portfolio to dispose of variable or floating rate notes if the issuer defaulted
on its payment obligations or during periods that the Portfolio is not entitled
to exercise its demand right, and the Portfolio could, for these and other
reasons, suffer a loss with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Portfolio has such
commitments outstanding, the Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash or other liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the Portfolio will set aside
portfolio securities to satisfy a purchase commitment and, in such a case, the
Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
-2-
<PAGE>
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, the Portfolio expects that commitments to purchase
"when-issued" securities will not exceed 25% of the value of its total assets
absent unusual market conditions. When the Portfolio engages in when-issued
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Portfolio incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Stand-By Commitments. The Portfolio may enter into stand-by commitments
with respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Portfolio at any time
before the maturity of the underlying Municipal Obligations and may be sold,
transferred or assigned only with the instruments involved.
The Portfolio expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Portfolio may pay for a stand-by commitment either
in cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities). The total amount paid in either manner for
outstanding stand-by commitments held by the Portfolio will not exceed 1/2 of 1%
of the value of the Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
The Portfolio intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the investment adviser's opinion, present
minimal credit risks. The Portfolio's reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment.
The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to
-3-
<PAGE>
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 subject to certain SEC
requirements; 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) subject to certain conditions imposed under SEC rules,
obligations guaranteed by persons which meet the requisite rating requirements.
Illiquid Securities. The Portfolio may not invest more than 10% of its net
assets in illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and securities which are otherwise not readily marketable. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
The Portfolio may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is
-4-
<PAGE>
determined by the Portfolio's adviser that an adequate trading market exists for
the securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of restricted
securities in the Portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser may consider, among others,
the following factors: (1) the unregistered nature of the security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security and (5) the
nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Investment Limitations.
The Portfolio may not:
(1) borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's total assets
at the time of such borrowing, and only if after such borrowing there is
asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate any of its assets except in connection with
any such borrowing and then in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Portfolio's assets at
the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of the Portfolio's assets may be invested without
regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio
may be deemed an underwriter under federal securities laws and except to
the extent that the purchase of Municipal Obligations directly from the
issuer thereof in accordance with the Portfolio's investment objective,
policies and limitations may be deemed to be an underwriting;
-5-
<PAGE>
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Portfolio may not (i) under normal market conditions invest less than 80% of its
net assets in securities the interest on which is exempt from the regular
federal income tax, although the interest on such securities may constitute an
item of tax preference for purposes of the federal alternative minimum tax, (ii)
invest in private activity bonds where the payment of principal and interest are
the responsibility of a company (including its predecessors) with less than
three years of continuous operations; and (iii) purchase any securities which
would cause, at the time of purchase, more than 25% of the value of the total
assets of the Portfolio to be invested in the obligations of the issuers in the
same industry.
The foregoing investment limitations cannot be changed without shareholder
approval.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if
after the acquisition of the put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "put" means a right to sell a
specified underlying instrument within a specified period of time and at a
-6-
<PAGE>
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
-8-
<PAGE>
- -------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund or
the Distributor and Mr. Sablowsky, who is considered to be an affiliated person,
$12,000 annually and $1,250 per meeting of the Board or any committee thereof
that is not held in conjunction with a Board meeting. In addition, the Chairman
of the Board receives an additional fee of $6,000 per year for his services in
this capacity. Directors who are not affiliated persons of the Fund and Mr.
Sablowsky are reimbursed for any expenses incurred in attending meetings of the
Board of Directors or any committee thereof. For the year ended August 31, 1998,
each of the following members of the Board of Directors received compensation
from the Fund in the following amounts:
-9-
<PAGE>
Directors' Compensation
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits
Aggregate Accrued as Part Estimated Annual
Compensation from of Fund Benefit Upon
Name of Person/Position Registrant Expenses Retirement
- ----------------------- ----------------- --------------- ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
-10-
<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolio's adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the Portfolio's administrator and the Fund's transfer and dividend
disbursing agent, and Provident Distributors, Inc. (the "Distributor" or "PDI"),
the Fund's distributor, the Fund itself requires only one part-time employee.
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 and Sub-Advisory Agreements. The Portfolio has an investment
advisory agreement with BIMC. Although BIMC in turn has a sub-advisory
agreements respecting the Portfolio with PNC Bank dated August 16, 1988, as of
April 29, 1998, BIMC assumed these advisory responsibilities from PNC Bank.
Pursuant to the Sub-Advisory Agreement, PNC Bank would be entitled to receive a
annual fee from BIMC for its sub-advisory services calculated at the annual rate
of 75% of the fees received by BIMC on behalf of the Portfolio. The advisory
agreement relating to the Municipal Money Market Portfolio is dated April 21,
1992. Such advisory and sub-advisory agreements are hereinafter collectively
referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC advisory fees
as follows:
-11-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $238,721 $822,533 $55,085
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $201,095 $1,269,553 $14,921
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $190,687 $1,218,973 $17,576
</TABLE>
Each 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
-12-
<PAGE>
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 Portfolios' investment adviser or
Distributor; (j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n)
auditing fees; (o) brokerage fees and commissions; (p) certain of the fees and
expenses of registering and qualifying the Portfolios and their shares for
distribution under federal and state securities laws; (q) expenses of preparing
prospectuses and statements of additional information and distributing annually
to existing shareholders that are not attributable to a particular class of
shares of the Fund; (r) the expense of reports to shareholders, shareholders'
meetings and proxy solicitations that are not attributable to a particular class
of shares of the Fund; (s) fidelity bond and directors' and officers' liability
insurance premiums; (t) the expense of using independent pricing services; and
(u) other expenses which are not expressly assumed by the Portfolio's investment
adviser under its advisory agreement with the Portfolio. The Bedford Class of
the Portfolio pays its own distribution fees, and may pay a different share than
other classes of other expenses (excluding advisory and custodial fees) if these
expenses are actually incurred in a different amount by the Bedford Class or if
it receives different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Investment Advisory Agreement was
approved by shareholders of the Portfolio at a special meeting held June 10,
1992, as adjourned. The Sub-Advisory Agreement was approved by shareholders of
the Portfolio at a special meeting held December 22, 1989. Each Advisory
Agreement is terminable by vote of the Fund's Board of Directors or by the
holders of a majority of the outstanding voting securities of the Portfolio, at
any time without penalty, on 60 days' written notice to BIMC or PNC Bank. Each
of the Advisory Agreements may also be terminated by BIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminates automatically in the event of assignment thereof.
-13-
<PAGE>
Administration Agreement. PFPC serves as the administrator to the Portfolio
pursuant to an Administration and Accounting Services Agreement dated April 21,
1992 (the "Administration Agreement.") PFPC has agreed to furnish to the Fund on
behalf of the Portfolio statistical and research data, clerical, accounting and
bookkeeping services and certain other services required by the Fund. PFPC has
also agreed to prepare and file various reports with the appropriate regulatory
agencies and prepare materials required by the SEC or any state securities
commission having jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or the
Portfolio in connection with the performance of the Agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreement, PFPC receives a fee of .10%
of the average daily net assets of the Portfolio.
Pursuant to the terms of a Delegation Agreement, dated July 29, 1998,
between BIMC and PFPC, However, BIMC has delegated to PFPC its administrative
responsibilities to these Portfolios. The Fund pays administrative fees directly
to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Portfolios Fees Paid Waivers Reimbursements
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Portfolios Fees Paid Waivers Reimbursements
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
Portfolios waivers) Waivers Reimbursements
- ---------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $67,204 $0 $0
</TABLE>
-14-
<PAGE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated April 10, 1991, as amended
(the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Portfolio (b) holds
and transfers portfolio securities on account of the Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of the Portfolio, (d)
collects and receives all income and other payments and distributions on account
of the Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning the Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Shares pursuant to a Transfer Agency Agreement dated
August 16, 1988 (the "Transfer Agency Agreement"), under which PFPC (a) issues
and redeems Shares, (b) addresses and mails all communications by the Portfolio
to record owners of Shares, including reports to shareholders, dividend and
distribution notices and proxy materials for its meetings of shareholders, (c)
maintains shareholder accounts and, if requested, sub-accounts and (d) makes
periodic reports to the Fund's Board of Directors concerning the operations of
the classes of the Fund. PFPC may, on 30 days' notice to the Fund, assign its
duties as transfer and dividend disbursing agent to any other affiliate of PNC
Bank Corp. For its services to the Fund under the Transfer Agency Agreement,
PFPC receives a fee at the annual rate of $15.00 per account in the Portfolio
for orders which are placed via third parties and relayed electronically to
PFPC, and at an annual rate of $17.00 per account in the Portfolio for all other
orders, exclusive of out-of-pocket expenses and also receives a fee for each
redemption check cleared and reimbursement of its out-of-pocket expenses.
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.
-15-
<PAGE>
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
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, (the "Distribution Agreement"), entered into by the
Distributor and the Fund on behalf of the Shares, and a Plan of Distribution as
amended, for the Shares (the "Plan"), both of which were adopted by the Fund in
the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute the Shares. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreement, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling Shares of the Portfolio based on a percentage of the
amounts invested by their customers.
The Plan was approved by the Fund's Board of Directors, including the
directors who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan ("12b-1 Directors").
Among other things, the Plan provides that: (1) the Distributor shall be
required to submit quarterly reports to the directors of the Fund regarding all
amounts expended under the Plan including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by the Fund on the distribution of the Shares
under the Plan shall not be materially increased without the affirmative vote of
the holders of a majority of the Shares; and (4) while the Plan remains in
effect, the selection and nomination of the 12b-1 Directors shall be committed
to the discretion of the directors who are not interested persons of the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plan for the Bedford Municipal Money Market
Portfolio in the aggregate amount of $219,413. Of that amount, $215,691 was paid
to dealers with whom PDI had entered into dealer agreements, and $3,722 was
retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the Plan for the Bedford Municipal Money Market
-16-
<PAGE>
Portfolio, in the aggregate amount of $900,154. Of that amount, $884,634
was paid to dealers with whom Counsellors had entered into dealer agreements,
and $15,500 was retained by Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plan by virtue of his respective position with Fahnestock Co., Inc. and
Counsellors Securities, Inc., respectively, each a broker-dealer.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities of
13 months or less, and may purchase variable rate securities with remaining
maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because the Portfolio intends to
purchase only securities with remaining maturities of 13 months or less, its
portfolio turnover rate will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by the
Portfolio, the turnover rate should not adversely affect the Portfolio's net
asset value or net income. The Portfolio does not intend to seek profits through
short term trading.
Purchases of portfolio securities by the Portfolio are made from dealers,
underwriters and issuers; sales are made to dealers and issuers. The Portfolio
does not currently expect to incur any brokerage commission expense on such
transactions because money market instruments are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission. The price of the security, however, usually includes a profit to the
dealer. Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased directly from or sold
directly to an issuer, no commissions or discounts are paid. It is the policy of
the Portfolio to give primary consideration to obtaining the most favorable
price and efficient execution of transactions. In seeking to implement the
policies of the Portfolio, 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.
-17-
<PAGE>
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 the light of differing
conditions. However, the same investment decision may occasionally be made for
two or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as the Portfolio is concerned, in other cases it is
believed to be beneficial to the Portfolio. The Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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.
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, 1998,
the following portfolios held the following securities:
PORTFOLIO SECURITIES VALUE
- --------- ---------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
-18-
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that the Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of the Portfolio.
Under the 1940 Act, the Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolio at $1.00 per share. Net asset value per share, the
value of an individual share in the Portfolio, is computed by adding the value
of the proportionate interest of the class in the Portfolio's securities, cash
and other assets, deducting actual and accrued liabilities of each class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class of the Portfolio is determined independently of the
other classes and the other Portfolios. The Portfolio's "net assets" equal the
value of the Portfolio's investments and other 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 on New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed, on weekends and the same
holidays as the NYSE as well as Veterans' Day and Columbus Day.
The Fund calculates the value of the portfolio securities of the Portfolio
by using the amortized cost method of valuation. Under this method the market
value of an instrument is approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on a straight-line
basis over the remaining life of the instrument. The effect of changes in the
-19-
<PAGE>
market value of a security as a result of fluctuating interest rates is not
taken into account. The market value of debt securities usually reflects yields
generally available on securities of similar quality. When such yields decline,
market values can be expected to increase, and when yields increase, market
values can be expected to decline. In addition, if a large number of redemptions
take place at a time when interest rates have increased, the Portfolio may have
to sell portfolio securities prior to maturity and at a price which might not be
as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for the Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio maturity of
90 days or less, will not purchase any instrument with a deemed maturity under
Rule 2a-7 of the 1940 Act greater than 13 months, will limit portfolio
investments to those 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.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
The current and effective yields of Shares of the Class are computed using
standardized methods required by the SEC. The annualized yield for Shares of the
Class is computed by: (a) determining the net change in the value of a
hypothetical account having a balance of one Share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
-20-
<PAGE>
net change in the value of the account reflects the value of additional Shares
purchased with dividends declared and all dividends declared on both the
original Share and such additional Shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1998 for the
Shares of the Class before waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent
Yield (assumes a
Effective federal income
Portfolio Yield Yield tax rate of 28%)
- --------- ----- ----- ----------------
<S> <C> <C> <C>
Municipal Money Market 2.37% 2.40% 3.29%
</TABLE>
The annualized yield for the seven-day period ended August 31, 1998 for the
Shares of the Class after waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent
Yield (assumes a
Effective federal income
Portfolio Yield Yield tax rate of 28%)
- --------- ----- ----- ----------------
<S> <C> <C> <C>
Municipal Money Market 2.63% 2.66% 3.65%
</TABLE>
Total return and yield may fluctuate daily and do not provide a basis for
determining future returns and yields. Because the yield of Shares of the Class
will fluctuate, it cannot be compared with returns and yields on savings
accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which the Portfolio invests, are dependent on a variety of factors, including
general money market conditions, conditions in the particular market for the
obligation, the financial condition of the issuer, the size of the offering, the
maturity of the obligation and the ratings of the issue. The ratings of Moody's
and S&P represent their respective opinions as to the quality of the obligations
-21-
<PAGE>
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.
From time to time, in advertisements or in reports to shareholders, the
return and/or yield of Shares of the Class may be quoted and compared to those
of other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of Shares of the Class may be compared
to the Donoghue's Money Fund Average, which is an average compiled by IBC Money
Fund Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
TAXES
The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its income to
shareholders each year, so that the Portfolio generally will be relieved of
federal income and excise taxes. If the Portfolio were to fail to so qualify:
(1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Portfolio to pay
tax-exempt dividends for any taxable year, at least 50% of the aggregate value
of the Portfolio's assets at the close of each quarter of the Fund's taxable
year must consist of exempt-interest obligations.
-22-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class M Common Stock constitute the
Bedford Classes, described herein. Under RBB's charter, the Board of Directors
has the power to classify or reclassify any unissued shares of Common Stock
from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in six non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
-25-
<PAGE>
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
As stated in the Prospectus, holders of shares of each class of the Fund
will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular portfolio. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted by the provisions of
such Act or applicable state law, or otherwise, to the holders of the
outstanding voting securities of an investment company such as the Fund shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding voting securities of each portfolio affected by
the matter. Rule 18f-2 further provides that a portfolio shall be deemed to be
affected by a matter unless it is clear that the interests of each portfolio in
the matter are identical or that the matter does not affect any interest of the
portfolio. Under the Rule the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to the portfolio only if approved by the holders of a majority of
the outstanding voting securities of the portfolio. However, the Rule also
provides that the ratification of the selection of independent public
accountants and the election of directors are not subject to the separate voting
requirements and may be effectively acted upon by shareholders of an investment
company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
As of the same date, directors and officers as a group owned less than one
percent of the shares of the Fund.
-26-
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-27-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BEDFORD GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
(Investment Portfolio of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to a class of Shares (the "Class") of The RBB Fund, Inc. representing
interests in the Government Obligations Money Market Portfolio (the
"Portfolio"). This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the Bedford Government Obligations Money
Market Portfolio Prospectus of The RBB Fund, Inc. dated December 29, 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 29, 1998.
CONTENTS
Page
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General.....................................................2
Investment Objectives and Policies..........................2
Directors and Officers......................................7
Investment Advisory, Distribution and Servicing
Arrangements..........................................10
Portfolio Transactions.....................................15
Purchase and Redemption Information........................16
Valuation of Shares........................................17
Performance Information ...................................18
Taxes......................................................20
Additional Information Concerning Fund Shares..............20
Miscellaneous..............................................23
Financial Statements.......................................24
Appendix A................................................A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertains to
shares of the Class of common stock of the Fund (the "Shares") representing
interests in the Government Obligations Money Market Portfolio of the Fund. The
Shares are offered by the Prospectus dated December 29, 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 liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury bills, notes and bonds and the obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Federal National Mortgage
Association, Government National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Short Sales "Against the Box." In a short sale, the Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The Portfolio may engage in short sales if at the time of
the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the
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security being sold short. This investment technique is known as a short
sale "against the box." In a short sale, a seller does not immediately deliver
the securities sold and is said to have a short position in those securities
until delivery occurs. If the Portfolio engages in a short sale, the collateral
for the short position will be maintained by the Portfolio's custodian or a
qualified sub-custodian. While the short sale is open, the Portfolio will
maintain in a segregated account an amount of securities equal in kind and
amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Portfolio's long position. The Portfolio will not engage in short sales against
the box for investment purposes. A Portfolio may, however, make a short sale as
a hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes possibly to
defer recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Portfolio, and
the value of securities of any one issuer in which the Portfolio is short will
not exceed the lesser of 2% of net assets or 2% of the securities of any class
of an issuer.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by the Portfolio
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). The financial institutions with which the Portfolio may enter into
repurchase agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed creditworthy by
the Portfolio's adviser or sub-adviser. The Portfolio's adviser or sub-adviser
will continue to monitor creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement to equal at least
the repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
including either (i) accrued premium provided in the repurchase agreement or
(ii) the daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by the Portfolio
under the 1940 Act.
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Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The 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, and multiple class pass-through securities
represent direct ownership interests in, a pool of residential or commercial
mortgage loans or mortgage pass-through securities (the "Mortgage Assets"), the
payments on which are used to make payments on the CMOs. Investors may purchase
beneficial interests in CMOs, which are known as "regular" interests or
"residual" interests. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making required payments of
principal of and interest on the CMOs, as well as the related administrative
expenses of the issuer. Residual interests generally are junior to, and may be
significantly more volatile than, "regular" CMO interests. The 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.
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Principal prepayments on the Mortgage Assets underlying the CMOs may cause
some or all of the classes of CMOs to be retired substantially earlier than
their final distribution dates. Generally, interest is paid or accrues on all
classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Lending of Securities. With respect to loans by the Portfolio of its
portfolio securities as described in the Prospectus, the Portfolio would
continue to accrue interest on loaned securities and would also earn income on
loans. Any cash collateral received by the Portfolio in connection with such
loans would be invested in short-term U.S. Government obligations. Any loan by
the Portfolio of its portfolio's securities will be fully collateralized and
marked to market daily.
Illiquid Securities. The Portfolio may not invest more than 10% of its net
assets in illiquid securities (including repurchase agreements that have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
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Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
The Portfolio may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolio's adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in the Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of restricted
securities in the Portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser may consider, among others,
the following factors: (1) the unregistered nature of the security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security and (5) the
nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Investment Limitations
The Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
There is no limit on the amount of the Portfolio's assets which may be
invested in the securities of any one issuer of obligations that the
Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300 percent for all
borrowings of the Portfolio; or mortgage, pledge, hypothecate its assets,
except in connection with any such borrowing and in amounts not in excess
of 10% of the value of the Portfolio's assets at the time of such
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borrowing; or purchase portfolio securities while borrowings are in excess
of 5% of the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio
by enabling the Portfolio to meet redemption requests where the liquidation
of portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
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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>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
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* Each of Mr. Sablowsky and Mr. Reichman is an "interested person" of RBB as
that term is defined in the 1940 Act, by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund or
the Distributor and Mr. Sablowsky, who is considered to be an affiliated person,
$12,000 annually and $1,250 per meeting of the Board or any committee thereof
that is not held in conjunction with a Board meeting. In addition, the Chairman
of the Board receives an additional fee of $6,000 per year for his services
in this capacity. Directors who are not affiliated persons of the Fund and
Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings of
the Board of Directors or any committee thereof. For the year ended August 31,
1998, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
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Directors' Compensation
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Accrued Estimated
Compensation from as Part of Fund Annual Benefits
Name of Person/Position Registrant Expenses Upon Retirement
- ----------------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC") (formerly
known as PNC Institutional Management Corporation), the Portfolio's 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" or "PDI"), the Fund's distributor, the Fund
itself requires only one part-time employee. 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.
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INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The Portfolio has an investment
advisory agreement with BIMC. Although BIMC in turn has a sub-advisory agreement
respecting the Portfolio with PNC Bank dated August 16, 1988, as of April 29,
1998, BIMC assumed these advisory responsibilities from PNC Bank. Pursuant to
the Sub-Advisory Agreement, PNC Bank is entitled to receive a annual fee from
BIMC for its sub-advisory services calculated at the annual rate of 75% of the
fees received by BIMC on behalf of the Portfolio. The advisory agreement
relating to the Portfolios is dated August 16, 1988. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Government Obligations Portfolios, for
administrative services obligated under the Advisory Agreements) advisory fees
as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Government Obligations
Money Market $1,649,453 $723,970 $392,949
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Government Obligations
Money Market $1,774,123 $647,063 $404,193
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
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Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Government Obligations
Money Market $1,638,622 $671,811 $406,954
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 to the
investment adviser and PFPC; (i) fees and expenses of officers and directors who
are not affiliated with the Portfolios' investment adviser or Distributor; (j)
taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees; (o)
brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the 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 Bedford Class of the
Portfolio pays its own distribution fees, and may pay a different share than
other classes of other expenses (excluding advisory and custodial fees) if these
expenses are actually incurred in a different amount by the Bedford Class or if
it receives different services.
Under the Advisory Agreements, BIMC and PNC will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
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<PAGE>
The Advisory Agreements were each 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 Agreements or "interested persons"
(as defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved by shareholders of the Portfolio at a special meeting held December 22,
1989, as adjourned. Each Advisory Agreement is terminable by vote of the Fund's
Board of Directors or by the holders of a majority of the outstanding voting
securities of the Portfolio, at any time without penalty, on 60 days' written
notice to BIMC or PNC Bank. Each of the Advisory Agreements may also be
terminated by BIMC or PNC Bank on 60 days' written notice to the Fund. Each of
the Advisory Agreements terminates automatically in the event of assignment
thereof.
Administration Services. BIMC is obligated to render administrative
services to the Government Obligations Money Market Portfolio pursuant to the
investment advisory agreements. Pursuant to the terms of a Delegation Agreement,
dated July 29, 1998, between BIMC and PFPC, BIMC has delegated to PFPC its
administrative responsibilities to the Portfolio. The Fund pays to PFPC directly
the fees accrued for administrative services to those Portfolios.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Government Obligations
Money Market $0 $0 $0
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Portfolio, (b) holds
and transfers portfolio securities on account of the Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of the Portfolio, (d)
collects and receives all income and other payments and distributions on account
of the Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning the Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
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PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Shares of the Fund pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC (a) issues and redeems Shares, (b) addresses and mails all communications
by the Portfolio to record owners of Shares, including reports to shareholders,
dividend and distribution notices and proxy materials for its meetings of
shareholders, (c) maintains shareholder accounts and, if requested, sub-accounts
and (d) makes periodic reports to the Fund's Board of Directors concerning the
operations of the classes of the Fund. PFPC may, on 30 days' notice to the Fund,
assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per account
in the Portfolio for orders which are placed via third parties and relayed
electronically to PFPC, and at the annual rate of $17.00 per account in the
Portfolio for all other orders, exclusive of out-of-pocket expenses and also
receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolio.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolio for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, (the "Distribution Agreement") entered into by the
Distributor and the Fund on behalf of the Shares, and a Plan of Distribution, as
amended, for the Shares (the "Plan"), both of which were adopted by the Fund in
the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute the Shares. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreement, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to 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
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<PAGE>
will continue in effect only so long as it is approved at least annually,
and any material amendment thereto is approved, by the Fund's directors,
including the 12b-1 Directors, acting in person at a meeting called for said
purpose; (3) the aggregate amount to be spent by the Fund on the distribution of
the Shares under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the Shares; and (4) while the
Plan remains in effect, the selection and nomination of the 12b-1 Directors
shall be committed to the discretion of the directors who are not interested
persons of the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plans for the Bedford Government Obligations
Money Market Portfolio in the aggregate amount of $197,504, of which amount
$194,285 was paid to dealers with whom PDI had entered into dealer agreements,
and $3,219 of which was retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the Plan for the Bedford Government Obligations
Money Market Portfolio in the aggregate amount of $864,695, of which amount
$850,468 was paid to dealers with whom Counsellors had entered into dealer
agreements, and $14,227 of which was retained by Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that the Plan
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plan by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities of
13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less). Because the
Portfolio intends to purchase only securities with remaining maturities of 13
months or less, its portfolio turnover rate will be relatively high. However,
because brokerage commissions will not normally be paid with respect to
investments made by the Portfolio, the turnover rate should not adversely affect
the Portfolio's net asset value or net income. The Portfolio does not intend to
seek profits through short term trading.
Purchases of portfolio securities by the Portfolio are made from dealers,
underwriters and issuers; sales are made to dealers and issuers. The Portfolio
does not currently expect to incur any brokerage commission expense on such
transactions because money market
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<PAGE>
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 the light of differing
conditions. However, the same investment decision may occasionally be made for
two or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as the Portfolio is concerned, in other cases it is
believed to be beneficial to the Portfolio. The Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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.
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, 1998,
the following portfolios held the following securities:
PORTFOLIO SECURITY VALUE
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that the Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of the Portfolio.
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<PAGE>
Under the 1940 Act, the Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolio at $1.00 per share. Net asset value per share, the
value of an individual share in the Portfolio, is computed by adding the value
of the proportionate interest of the class in the Portfolio's cash, securities,
and other assets, subtracting the actual and accrued liabilities of the class
and dividing the result by the number of outstanding shares of the class. The
net asset value of each class of the Fund is determined independently of the
other classes of the Fund. The Portfolio's "net assets" equal the value of the
Portfolio's investments and other securities less its liabilities. The
Portfolio's net asset value per share is computed twice each day, as of 12:00
noon (Eastern Time) and as of the close of 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 on weekends and New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE, as well as Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of the Portfolio
by using the amortized cost method of valuation. Under this method the market
value of an instrument is approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on a straight-line
basis over the remaining life of the instrument. The effect of changes in the
market value of a security as a result of fluctuating interest rates is not
taken into account. The market value of debt securities usually reflects yields
generally available on securities of similar quality. When such yields decline,
market values can be expected to increase, and when yields increase, market
values can be expected to decline. In addition, if a large number of redemptions
take place at a time when interest rates have increased, the Portfolio may have
to sell portfolio securities prior to maturity and at a price which might not be
as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for the Portfolio, which include a
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review of the extent of any deviation of net asset value per share, based
on available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio maturity of
90 days or less, will not purchase any instrument with a deemed maturity under
Rule 2a-7 of the 1940 Act greater than 13 months, will limit portfolio
investments, 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.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
The Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yield for the Portfolio
is computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one Share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional Shares purchased with dividends
declared and all dividends declared on both the original Share and such
additional Shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
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The annualized yield for the seven-day period ended August 31, 1998 for the
Bedford Class of the Portfolio before waivers was as follows:
Tax-Equivalent Yield
(assumes a federal
Effective income tax
Portfolio Yield Yield rate of 28%)
- --------- --------- --------- --------------------
Bedford Government
Obligations Money
Market 4.47% 4.57% N/A
The annualized yield for the seven-day period ended August 31, 1998 for the
Bedford Class of the Portfolio after waivers was as follows:
Tax-Equivalent Yield
(assumes a federal
Effective income tax
Portfolio Yield Yield rate of 28%)
- --------- --------- --------- --------------------
Bedford Government
Obligations Money
Market 4.59% 4.69% N/A
Total return and yield may fluctuate daily and do not provide a basis for
determining future returns and yields. Because the return and yield of Shares of
the Class will fluctuate, it cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and 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.
From time to time, in advertisements or in reports to shareholders, the
return and/or yield of Shares of the Class may be quoted and compared to those
of other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of Shares of the Class may be compared
to the Donoghue's Money Fund Average, which is an
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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 Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that the Portfolio generally will be
relieved of federal income and excise taxes. If the Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.
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ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class N Common Stock constitute the
Bedford Class, described herein. Under RBB's charter, the Board of Directors has
the power to classify or reclassify any unissued shares of Common Stock from
time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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 the portfolio only if approved by the holders of a majority of
the outstanding voting securities of the portfolio. However, the Rule also
provides
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that the ratification of the selection of independent public
accountants and the election of directors are not subject to the separate voting
requirements and may be effectively acted upon by shareholders of an investment
company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
-24-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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
-25-
<PAGE>
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, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-26-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are 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
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A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BEDFORD FAMILY
Money Market Portfolio,
Municipal Money Market Portfolio and
Government Obligations Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to shares of three classes (the "Bedford Shares") each
representing interests in one of three investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio and the Government Obligations Money Market Portfolio.
This Statement of Additional Information is not a prospectus, and should be read
only in conjunction with the Bedford Family Prospectus of the Fund, dated
December 29, 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 29, 1998.
CONTENTS
Page
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General......................................................................1
Investment Objectives and Policies...........................................1
Directors and Officers.......................................................12
Investment Advisory, Distribution and Servicing Arrangements.................15
Portfolio Transactions.......................................................21
Purchase and Redemption Information..........................................23
Valuation of Shares..........................................................23
Performance Information......................................................25
Taxes........................................................................26
Additional Information Concerning Fund Shares................................27
Miscellaneous................................................................30
Financial Statements.........................................................31
Appendix A...................................................................A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertains to
three classes of shares (the "Bedford Classes") representing interests in three
of the investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio and the Government Obligations
Money Market Portfolio. The Bedford Classes are offered by the Prospectus dated
December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve
the sale of securities held by a Portfolio pursuant to a Portfolio's agreement
to repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held
by the Money Market Portfolio or the Municipal Money Market Portfolio may have
maturities of more than 13 months, provided: (i) the Portfolio is entitled to
the payment of principal at any time, or during specified intervals not
exceeding 13 months, upon giving the prescribed notice (which may not exceed 30
days), and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 13 months. In determining the average weighted
maturity of the Money Market or the Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 13 months or less,
each long-term 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. The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for a
Portfolio to disposeof variable or floating rate notes if the
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issuer defaulted on its payment obligations or during periods that the Portfolio
is not entitled to exercise its demand right and the Portfolio could, for these
or other reasons, suffer a loss with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Money Market and
Municipal Money Market Portfolios may purchase "when-issued" and delayed
delivery securities purchased for delivery beyond the normal settlement date at
a stated price and yield. While the Money Market or Municipal Money Market
Portfolios has such commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash
or liquid securities of an amount at least equal to the purchase price of the
securities to be purchased. Normally, the custodian for the relevant Portfolio
will set aside portfolio securities to satisfy a purchase commitment and, in
such a case, the Portfolio may be required subsequently to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Portfolio's commitment. It may be expected
that a Portfolio's net assets will fluctuate to a greater degree when it sets
aside portfolio securities to cover such purchase commitments than when it sets
aside cash. Because a Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it is expected that commitments to purchase "when issued"
securities will not exceed 25% of the value of a Portfolio's total assets absent
unusual market conditions. When either the Money Market Portfolio or Municipal
Money Market Portfolio engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
such Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio and Municipal
Money Market Portfolio may enter into stand-by commitments with respect to
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities and authorities (collectively, "Municipal
Obligations") held in its portfolio. Under a stand-by commitment, a dealer would
agree to purchase at the Portfolio's option a specified Municipal Obligation at
its amortized cost value to the Portfolio plus accrued interest, if any.
Stand-by commitments may be exercisable by the Money Market Portfolio or
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio and Municipal Money Market Portfolio
expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, either such Portfolio may pay for a stand-by commitment either in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities). The total amount paid in either manner for
outstanding stand-by commitments held by the Money Market Portfolio and
Municipal Money Market Portfolio will not exceed 1/2 of 1% of the value of the
relevant Portfolio's total assets calculated immediately after each stand-by
commitment is acquired.
Each of the Money Market Portfolio and Municipal Money Market Portfolio
intends to enter into stand-by commitments only with dealers, banks and
broker-dealers which, in the investment adviser's opinion, present minimal
credit risks. These Portfolios' reliance upon the credit of these
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<PAGE>
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment.
The Money Market Portfolio and Municipal Money Market Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes. The acquisition
of a stand-by commitment will not affect the valuation or assumed maturity of
the underlying Municipal Obligation which will continue to be valued in
accordance with the amortized cost method. The actual stand-by commitment will
be valued at zero in determining net asset value. Accordingly, where either such
Portfolio pays directly or indirectly for a stand-by commitment, its cost will
be reflected as an unrealized loss for the period during which the commitment is
held by such Portfolio and will be reflected in realized gain or loss when the
commitment is exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of
U.S. Banks. For purposes of the Money Market Portfolio's investment policies
with respect to bank obligations, the assets of a bank or savings institution
will be deemed to include the assets of its domestic and foreign branches.
Investments in bank obligations will include obligations of domestic branches of
foreign banks and foreign branches of domestic banks. Such investments may
involve risks that are different from investments in securities of domestic
branches of U.S. banks. These risks may include future unfavorable political and
economic developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
Short Sales "Against the Box": In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case,
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<PAGE>
any future losses in the Portfolio's long position should be reduced by a gain
in the short position. Conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Portfolio owns. There will be certain additional
transaction costs associated with short sales against the box, but the Portfolio
will endeavor to offset these costs with the income from the investment of the
cash proceeds of short sales. The dollar amount of short sales at any time will
not exceed 25% of the net assets of the Government Obligations Money Market
Portfolio, and the value of securities of any one issuer in which the Portfolio
is short will not exceed the lesser of 2% of net assets or 2% of the securities
of any class of an issuer.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase
agreements described in the Prospectus generally equals the price paid by a
Portfolio plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks and non-bank dealers of U.S.
Government Securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to equal at
least the repurchase price (including accrued interest). In addition, the
Portfolio's adviser or sub-adviser will require that the value of this
collateral, after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to or greater than the repurchase
price including either (i) accrued premium provided in the repurchase agreement
or (ii) the daily amortization of the difference between the purchase price and
the repurchase price specified in the repurchase agreement. The Portfolio's
adviser or sub-adviser will mark to market daily the value of the securities.
Securities subject to repurchase agreements will be held by the Fund's custodian
in the
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<PAGE>
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may invest in
multiple class pass-through securities, including collateralized mortgage
obligations ("CMOs"). These multiple class securities may be issued by U.S.
Government agencies or instrumentalities, including FNMA and FHLMC, or by trusts
formed by private originators of, or investors in, mortgage loans. In general,
CMOs are debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
(the "Mortgage Assets"), the payments on which are used to make payments on the
CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMO interests.
The Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of
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CMOs to be retired substantially earlier than their final distribution dates.
Generally, interest is paid or accrues on all classes of CMOs on a monthly
basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
Asset-Backed Securities. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
Lending of Securities. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more Rating Organizations (as
defined in the Prospectus) in the two highest rating categories for such
securities (e.g., commercial paper rated "A-1" or "A-2" by S&P, or rated
"Prime-1" or "Prime-2" by Moody's), or (b) are rated (at the time of purchase)
by the only Rating Organization rating the security in one of its two highest
rating categories for such securities; (3) short-term obligations and subject to
certain SEC requirements; 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)
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<PAGE>
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) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of
its net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Money Market Portfolio and the Government
Obligations Money Market Portfolio, repurchase agreements subject to demand are
deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under
the Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the
-8-
<PAGE>
investment adviser may consider, among others, the following factors: (1) the
unregistered nature of the security; (2) the frequency of trades and quotes for
the security; (3) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (4) dealer undertakings to make a
market in the security and (5) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio. Neither
the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after
such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate any of its assets except
in connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with respect to
the Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Portfolio's
total assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of a Portfolio's assets may be invested without regard
to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may
be deemed an underwriter under federal securities laws and except to the
extent that the purchase of Municipal Obligations directly from the issuer
thereof in accordance with a Portfolio's investment objective, policies and
limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
-9-
<PAGE>
(6) purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter
into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the
Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5% of
the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio
to be invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry;
and
(c) Invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
shareholder approval.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the
-10-
<PAGE>
industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry. The
policy and practices stated in this paragraph may be changed without the
affirmative vote of the holders of a majority of the Money Market Portfolio's
outstanding shares, but any such change would be subject to any applicable
requirements of the Securities and Exchange Commission (the "SEC") and would be
disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Money Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization (as defined in the Prospectus), are rated (at the
time of purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization in its highest rating
category for such securities, (iii) have no short-term rating and are
comparable in priority and security to a class of short-term obligations of
the issuer of such securities that have been rated in accordance with (i)
or (ii) above, or (iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First Tier Securities
that come within categories (ii) and (iv) above will be approved or
ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if
after the acquisition of the put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise Price that may be sold, transferred or assigned only
with the underlying instrument.
-11-
<PAGE>
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
Government Obligations Money Market Portfolio. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
There is no limit on the amount of the Portfolio's assets which may be
invested in the securities of any one issuer of obligations that the
Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge, hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 10% of
the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
The foregoing investment limitations cannot be changed without
shareholder approval.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
-12-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- -------------------
* Each of Mr. Sablowsky and Mr. Reichman is an "interested person" of the
Fund, as that term is defined in the 1940 Act by virtue of his
respective position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee
of the Board of Directors. The Audit Committee, among other things, reviews
results of the annual audit and recommends to the Fund the firm to be selected
as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund or
the Distributor and Mr. Sablowsky, who is considered to be an affiliated person,
$12,000 annually and $1,250 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 $6,000 per year for his services in this
capacity. Directors who are not affiliated persons of the Fund and Mr. Sablowsky
are reimbursed for any expenses incurred in attending meetings of the Board of
Directors or any committee thereof. For the year ended August 31, 1998, each of
the following members of the Board of Directors received compensation from the
Fund in the following amounts:
-15-
<PAGE>
Directors' Compensation
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual
Compensation Accrued as Part Benefits Upon
Name of Person/Position from Registrant of Fund Expenses Retirement
- ----------------------- --------------- ------------------- ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 the Fund adopted, as a participating employer, the
Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach and one other employee) pursuant
to which the Fund will contribute on a quarterly basis amounts equal to 10% of
the quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC
-16-
<PAGE>
Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the Municipal Money Market Portfolio's administrator and the Fund's
transfer and dividend disbursing agent, and Provident Distributors, Inc. (the
"Distributor" or "PDI"), the Fund's distributor, the Fund itself requires only
one part-time employee. 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 and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios with PNC Bank dated August 16, 1988, as of April 29,
1998, BIMC assumed these advisory responsibilities from PNC Bank. Pursuant to
the Sub-Advisory Agreement, PNC Bank would be entitled to receive a annual fee
from BIMC for its sub-advisory services calculated at the annual rate of 75% of
the fees received by BIMC on behalf of the Money Market, Municipal Money Market
and Government Obligations Portfolios. The advisory agreements relating to the
Money Market and Government Obligations Money Market Portfolios are dated August
16, 1988, the advisory agreement relating to the New York Municipal Money Market
Portfolio is date November 5, 1991 and the advisory agreement relating to the
Municipal Money Market Portfolio is dated April 21, 1992. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC
(excluding fees to PFPC, with respect to the Money Market and the Government
Obligations Portfolios, for administrative services obligated under the Advisory
Agreements) advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and Reimburse-
Portfolios reimbursements) Waivers ments
- ---------- --------------- ------- ----------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money Market $1,649,453 $ 723,970 $392,949
</TABLE>
-17-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory
fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and Reimburse-
Portfolios reimbursements) Waivers ments
- ---------- --------------- ------- ----------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money Market $1,774,123 $ 647,063 $404,193
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and Reimburse-
Portfolios reimbursements) Waivers ments
- ---------- --------------- ------- ----------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
</TABLE>
Each 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
-18-
<PAGE>
allocated among all investment portfolios by or under the direction of the
Fund's Board of Directors in such manner as the Board determines to be fair and
equitable. Expenses borne by a portfolio include, but are not limited to, the
following (or a portfolio's share of the following): (a) the cost (including
brokerage commissions) of securities purchased or sold by a portfolio and any
losses incurred in connection therewith; (b) fees payable to and expenses
incurred on behalf of a portfolio by 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 Portfolios' investment adviser or Distributor; (j)
taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees; (o)
brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Bedford Class of the Fund
pays its own distribution fees, and may pay a different share than other classes
of other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the Bedford Class or if it receives
different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund or
a Portfolio in connection with the performance of the Advisory Agreements,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC and PNC Bank in the performance of their respective duties
or from reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved on July 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 Agreements or "interested persons"
(as defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held December 22, 1989, as adjourned. The Investment Advisory Agreement was
approved with respect to the Municipal Money Market Portfolio by shareholders at
a special meeting held June 10, 1992, as adjourned. The Sub-Advisory Agreement
was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held on December 22, 1989. Each Advisory
Agreement is terminable by vote of the Fund's Board of Directors or by the
holders of a majority of the outstanding voting securities of the relevant
Portfolio, at any time without penalty, on 60 days' written notice to BIMC or
PNC Bank. Each of the Advisory Agreements may also be terminated by BIMC or PNC
Bank on 60 days' written notice to the Fund. Each of the Advisory Agreements
terminates automatically in the event of assignment thereof.
-19-
<PAGE>
Administration Agreement. PFPC serves as the administrator to the
Municipal Money Market Portfolio pursuant to an Administration and Accounting
Services Agreement dated April 21, 1992 (the "Administration Agreement"). PFPC
has agreed to furnish to the Fund on behalf of the Municipal Money Market
Portfolio statistical and research data, clerical, accounting, and bookkeeping
services, and certain other services required by the Fund. PFPC has also agreed
to prepare and file various reports with the appropriate regulatory agencies,
and prepare materials required by the SEC or any state securities commission
having jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Fund or the
Portfolio in connection with the performance of the Agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreement, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market Portfolio.
BIMC is obligated to render administrative services to the Money Market
and Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of a Delegation Agreement, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and Reimburse-
Portfolios reimbursements) Waivers ments
- ---------- ------------------- ------- ----------
<S> <C> <C> <C>
Money Market $0 $0 $0
Municipal Money Market $312,593 $0 $0
Government Obligations Money Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and Reimburse-
Portfolio reimbursements) Waivers ments
- --------- ------------------ ------- ----------
<S> <C> <C> <C>
Municipal Money Market $99,071 $0 $0
</TABLE>
-20-
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- ------------------ ------- --------------
<S> <C> <C> <C>
Municipal Money Market $67,204 $0 $0
</TABLE>
*3 moved from here; text not shown
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Bedford Class pursuant to a Transfer Agency Agreement
dated August 16, 1988 (the "Transfer Agency Agreement"), under which PFPC (a)
issues and redeems Shares, (b) addresses and mails all communications by each
Portfolio to record owners of Shares of each such Portfolio, including reports
to shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Portfolio. PFPC may, on 30 days' notice to the
Fund, assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank
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<PAGE>
Corp. For its services to the Fund under the Transfer Agency Agreement, PFPC
receives a fee at the annual rate of $15.00 per account in each Portfolio for
orders which are placed via third parties and relayed electronically to PFPC,
and at an annual rate of $17.00 per account in each Portfolio for all other
orders, exclusive of out-of-pocket expenses and also receives a fee for each
redemption check cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution
agreement, dated as of May 29, 1998, entered into by the Distributor and the
Fund on behalf of each of the Bedford Classes (the "Distribution Agreement"),
and separate Plans of Distribution, as amended, for each of the Bedford Classes
(collectively, the "Plans"), all of which were adopted by the Fund in the manner
prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute shares of each of the Bedford Classes. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution Agreements, a distribution fee, to be
calculated daily and paid monthly, at the annual rate set forth in the
Prospectus. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of each of the
Portfolios based on a percentage of the amounts invested by their customers.
Each of the Plans was approved by the Fund's Board of Directors,
including the directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of the Plans or
any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provide that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plans and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plans will
continue in effect only so long as they are approved at least annually, and any
material amendment thereto is approved, by the Fund's directors, including the
12b-1 Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Bedford Class under the Plans shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Bedford Class; and (4) while the Plans remain in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
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<PAGE>
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plans for the Bedford Classes of each of the
Money Market Portfolio, the Municipal Money Market Portfolio and the Government
Obligations Money Market Portfolio in the aggregate amounts of $1,042,018,
$219,413, and $197,504, respectively. Of those amounts, $1,023,591, $215,691,
and $194,285, respectively, was paid to dealers with whom PDI had entered into
dealer agreements, and $18,427, $3,722, and $3,219, respectively, was retained
by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund
paid distribution fees to the Fund's previous distributor, Counsellors
Securities, Inc. ("Counsellors"), under the plans for the Bedford Classes of
each of the Money Market Portfolio, the Municipal Money Market Portfolio and the
Government Obligations Money Market Portfolio in the aggregate amounts of
$5,467,476, $900,154, and $864,695, respectively. Of these amounts,
$5,366,157, $884,634, and $850,468, was paid to dealers with whom
Counsellors had entered into dealer agreements, and $101,325, $15,520, and
$14,227, respectively, was retained by Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plans by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Money Market Portfolio and the Municipal Money
Market Portfolio may purchase variable rate securities with remaining maturities
of 13 months or more so long as such securities comply with conditions
established by the SEC under which they may be considered to have remaining
maturities of 13 months or less. Because all Portfolios intend to purchase only
securities with remaining maturities of 13 months or less, their portfolio
turnover rates will be relatively high. However, because brokerage commissions
will not normally be paid with respect to investments made by each such
Portfolio, the turnover rate should not adversely affect such Portfolio's net
asset value or net income. The Portfolios do not intend to seek profits through
short term trading.
Purchases of portfolio securities by each of the Portfolios are made
from dealers, underwriters and issuers; sales are made to dealers and issuers.
None of the Portfolios currently expects to incur any brokerage commission
expense on such transactions because money market instruments are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Securities
-23-
<PAGE>
purchased in underwritten offerings include a fixed amount of compensation to
the underwriter, generally referred to as the underwriter's concession or
discount. When securities are purchased directly from or sold directly to an
issuer, no commissions or discounts are paid. It is the policy of such
Portfolios to give primary consideration to obtaining the most favorable price
and efficient execution of transactions. In seeking to implement the policies of
such Portfolios, 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 a Portfolio prior to their maturity at their original cost plus
interest (sometimes adjusted to reflect the actual maturity of the securities),
if it believes that a Portfolio's anticipated need for liquidity makes such
action desirable. Any such repurchase prior to maturity reduces the possibility
that the Portfolio would incur a capital loss in liquidating commercial paper
(for which there is no established market), especially if interest rates have
risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment
accounts managed by 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 a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
--------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
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<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of a
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset
value of each class of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by adding
the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets subtracting the actual and accrued liabilities
of the Class and dividing the result by the number of outstanding shares of such
class. The net asset value of each class of a Portfolio is determined
independently of the other classes and the other Portfolios. A Portfolio's "net
assets" equal the value of a Portfolio's investments and other securities less
its liabilities. Each Portfolio's net asset value per share is computed twice
each day, as of 12:00 noon (Eastern Time) and as of the close of regular trading
on the NYSE (generally 4:00 p.m. Eastern Time), on each Business Day. "Business
Day" means each weekday when both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Veterans' Day and Columbus Day.
The Fund calculates the value of the portfolio securities of each of
the Portfolios by using the amortized cost method of valuation. Under this
method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When
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<PAGE>
such yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months will
limit portfolio investments, including repurchase agreements (where permitted),
to those United States dollar-denominated instruments that 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.
In determining the approximate market value of portfolio investments,
the Fund may employ outside organizations, which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
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<PAGE>
The annualized yield for the seven (7) day period ended August 31, 1998
for the Bedford Classes of each of the Money Market Portfolio, the Municipal
Money Market Portfolio and the Government Obligations Money Market Portfolio
before waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent Yield
Effective (assumes a federal income
Portfolio Yield Yield tax rate of 28%)
- ---------- ----- --------- ---------------------------
<S> <C> <C> <C>
Money Market 4.58% 4.68% N/A
Municipal Money Market 2.37% 2.40% 3.29%
Government Obligations Money Market 4.47% 4.57% N/A
</TABLE>
The annualized yield for the seven (7) day period ended August 31, 1998
for the Bedford Classes of each of the Money Market Portfolio, the Municipal
Money Market Portfolio and the Government Obligations Money Market Portfolio
after waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent Yield
Effective (assumes a federal income
Portfolio Yield Yield tax rate of 28%)
- ---------- ----- --------- ---------------------------
<S> <C> <C> <C>
Money Market 4.70% 4.81% N/A
Municipal Money Market 2.63% 2.66% 3.65%
Government Obligations Money Market 4.59% 4.69% N/A
</TABLE>
Total return and yield may fluctuate daily and does not provide a basis
for determining future returns and yields. Because the returns and yields of
each Portfolio will fluctuate, they cannot be compared with returns and yields
on savings accounts or other investment alternatives that provide an agreed to
or guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and 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
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<PAGE>
method used by each fund to compute the yield (methods may differ) and whether
there are any special account charges which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of a Portfolio may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices. For
example, the yield of a Portfolio may be compared to the Donoghue's Money Fund
Average, which is an average compiled by IBC Money Fund Report(R), a widely
recognized independent publication that monitors the performance of money market
funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
Each Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that each Portfolio generally
will be relieved of federal income and excise taxes. If a Portfolio were to fail
to so qualify: (1) the Portfolio would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction. For the
Municipal Money Market Portfolio to pay tax-exempt dividends for any taxable
year, at least 50% of the aggregate value of the Portfolio's assets at the close
of each quarter of the Fund's taxable year must consist of exempt-interest
obligations.
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<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class L Common Stock, Class M Common
Stock and Class N Common Stock constitute the Bedford classes, described
herein. Under RBB's charter, the Board of Directors has the power to classify
or reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money
Market and Municipal Money Market Portfolios; the Sansom Street Family
represents interests in the Money Market, Municipal Money Market and Government
Obligations Money Market Portfolios; the Bedford Family represents interests
in the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market Portfolios; the n/i numeric investors family
of funds represents interests in five non-money market portfolios; the Boston
Partners Family represents interests in five non-money market portfolios; the
Schneider Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
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<PAGE>
otherwise required by law or when the Board of Directors determines that the
matter to be voted upon affects only the interests of the shareholders of a
particular portfolio. Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted by the provisions of such Act or applicable state law,
or otherwise, to the holders of the outstanding voting securities of an
investment company such as the Fund shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
voting securities of each portfolio affected by the matter. Rule 18f-2 further
provides that a portfolio shall be deemed to be affected by a matter unless it
is clear that the interests of each portfolio in the matter are identical or
that the matter does not affect any interest of the portfolio. Under the Rule
the approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a portfolio
only if approved by the holders of a majority of the outstanding voting
securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants and the election
of directors are not subject to the separate voting requirements and may be
effectively acted upon by shareholders of an investment company voting without
regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote
of shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and
the non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
-32-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations
-33-
<PAGE>
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, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-34-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are 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
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A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BEDFORD FAMILY
Money Market Portfolio,
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of four classes (the "Bedford Shares") representing
interests in four investment portfolios (the "Portfolios") of The RBB Fund, Inc.
(the "Fund"): the Money Market Portfolio, the Municipal Money Market Portfolio,
the Government Obligations Money Market Portfolio and the New York Municipal
Money Market Portfolio. This Statement of Additional Information is not a
prospectus, and should be read only in conjunction with the Bedford Family
Prospectus of the Fund dated December 29, 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 29,
1998.
CONTENTS
Page
----
General.......................................2
Investment Objectives and Policies............2
Directors and Officers.......................29
Investment Advisory, Distribution and
Servicing Arrangements.....................32
Portfolio Transactions.......................38
Purchase and Redemption Information..........39
Valuation of Shares..........................40
Performance Information......................41
Taxes........................................43
Additional Information Concerning Fund
Shares.....................................43
Miscellaneous................................46
Financial Statements.........................55
Appendix....................................A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
<PAGE>
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
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<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertains to four
classes of shares (the "Bedford Classes") representing interests in four
investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Bedford Classes are offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio or the Municipal Money Market Portfolio may have
maturities of more than 13 months, provided: (i) the Portfolio is entitled to
the payment of principal at any time, or during specified intervals not
exceeding 13 months, upon giving the prescribed notice (which may not exceed 30
days), and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 13 months. In determining the average weighted
maturity of the Money Market, Municipal Money Market or New York Municipal Money
Market Portfolio and whether a variable rate demand instrument has a remaining
maturity of 13 months or less, each long-term 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. The absence of an active secondary
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<PAGE>
market with respect to particular variable and floating rate instruments could
make it difficult for a Portfolio to dispose of variable or floating rate notes
if the issuer defaulted on its payment obligations or during periods that the
Portfolio is not entitled to exercise its demand right, and the Portfolio could,
for these or other reasons, suffer a loss with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Money Market, Municipal
Money Market and New York Municipal Money Market Portfolios may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolios has such
commitments outstanding, such Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
the Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that a
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because a Portfolio's liquidity and ability to manage its portfolio might
be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it is expected that commitments to purchase "when-issued"
securities will not exceed 25% of the value of a Portfolio's total assets absent
unusual market conditions. When the Money Market, Municipal Money Market or the
New York Municipal Money Market Portfolios engage in when-issued transactions,
it relies on the seller to consummate the trade. Failure of the seller to do so
may result in such Portfolio's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
Stand-By Commitments. Each of the Money Market, Municipal Money Market and
New York Municipal Money Market Portfolios may enter into stand-by commitments
with respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Money Market Portfolio,
Municipal Money Market Portfolio or New York Municipal Money Market Portfolio at
any time before the maturity of the underlying Municipal Obligations and may be
sold, transferred or assigned only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio expects that stand-by commitments will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, either such Portfolio may pay
for a stand-by commitment either in cash or by paying a higher price for
portfolio securities which are acquired subject to the commitment (thus reducing
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<PAGE>
the yield to maturity otherwise available for the same securities). The total
amount paid in either manner for outstanding stand-by commitments held by the
Money Market Portfolio, Municipal Money Market Portfolio and New York Municipal
Money Market Portfolio will not exceed 1/2 of 1% of the value of the relevant
Portfolio's total assets calculated immediately after each stand-by commitment
is acquired.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the investment
adviser's opinion, present minimal credit risks. These Portfolios' reliance upon
the credit of these dealers, banks and broker-dealers will be secured by the
value of the underlying Municipal Obligations that are subject to the
commitment.
The Money Market Portfolio, Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
Short Sales "Against the Box." In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the securities sold and is
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<PAGE>
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for investment purposes. A Portfolio
may, however, make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Portfolio (or a security convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an attractive current price, but
also wishes possibly to defer recognition of gain or loss for federal income tax
purposes. (A short sale against the box will defer recognition of gain for
federal income tax purposes only if the Portfolio subsequently closes the short
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) In such case, any future losses in the
Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales. The
dollar amount of short sales at any time will not exceed 25% of the net assets
of the Government Obligations Money Market Portfolio, and the value of
securities of any one issuer in which the Portfolio is short will not exceed the
lesser of 2% of net assets or 2% of the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
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<PAGE>
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government Securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the portfolio's
adviser or sub-adviser. A Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
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<PAGE>
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price including either (i)
accrued premium provided in the repurchase agreement or (ii) the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may invest in
multiple class pass-through securities, including collateralized mortgage
obligations ("CMOs"). These multiple class securities may be issued by U.S.
Government agencies or instrumentalities, including FNMA and FHLMC, or by trusts
formed by private originators of, or investors in, mortgage loans. In general,
CMOs are debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
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<PAGE>
(the "Mortgage Assets"), the payments on which are used to make payments on the
CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMO interests.
The Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Lending of Securities. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
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such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2," by Standard & Poor's Ratings Services ("S&P"), or rated "Prime-1" or
"Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements; 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) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Money Market Portfolio, the Government
Obligations Money Market Portfolio, and the New York Municipal Money Market
Portfolio, repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
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Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of illiquid securities because
of the potential for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of portfolio
securities and a mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven days. A mutual fund
might also have to register such restricted securities in order to dispose of
them, resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal Obligations.
Some of the significant financial considerations relating to the Fund's
investments in New York Municipal Obligations are summarized below. This summary
information is not intended to be a complete description and is principally
derived from official statements relating to issues of New York Municipal
Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
State Economy. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
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excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region, State personal
income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the enacted
budget forecast. Continued growth is projected in 1998 and 1999 for employment,
wages, and personal income, although the growth rates of personal income and
wages are expected to be lower than those in 1997. The growth of personal income
is projected to decline from 5.7 percent in 1997 to 4.8 percent in 1998 and 4.2
percent in 1999, in part because growth in bonus payments is expected to slow
down, a distinct shift from the torrid rate of the last few years. Overall
employment growth is expected to be 1.9 percent in 1998, the strongest in a
decade, but will drop to 1.0 percent in 1999, reflecting the slowing growth in
the national economy, continued restraint in governmental spending, and
restructuring in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
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State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The School Tax Relief Program ("STAR")
program, which dedicates a portion of personal income tax receipts to fund
school tax reductions, has a significant impact on General Fund receipts. STAR
is projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99 base,
scheduled reductions to estate and gift, sales and other taxes, reflecting tax
cuts enacted in 1997-98 and 1998-99, will lower General Fund taxes and fees by
an estimated $1.8 billion in 2000-01. Disbursement projections for the outyears
currently assume additional outlays for school aid, Medicaid, welfare reform,
mental health community reinvestment, and other multi-year spending commitments
in law.
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On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on March
31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under STAR, expansion of the child care
income-tax credit for middle-income families, a phased-in reduction of the
general business tax, and reduction of several other taxes and fees, including
an accelerated phase-out of assessments on medical providers. The enacted budget
also provides for significant increases in spending for public schools, special
education programs, and for the State and City university systems. It also
allocates $50 million for a new Debt Reduction Reserve Fund ("DRRF") that may
eventually be used to pay debt service costs on or to prepay outstanding
State-supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
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Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resource to help finance any extraordinary litigation costs during the
fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $62 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
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In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur
in its projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its first-ever,
accumulated positive balance in its General Fund. This "accumulated
surplus" was $567 million. The improvement in the State's GAAP position is
attributable, in part, to the cash surplus recorded at the end of the State's
1997-98 fiscal year. Much of that surplus is reserved for future requirements,
but a portion is being used to meet spending needs in 1998-99. Thus, the State
expects some deterioration in its GAAP position, but expects to maintain a
positive GAAP balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an
operating surplus in the General Fund of $1.56 billion, in Capital Projects
Funds of $232 million and in Special Revenue Funds of $49 million, offset in
part by an operating deficit of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56
billion for the 1997-98 fiscal year, as compared to an operating surplus of
$1.93 billion for the 1996-97 fiscal year. As a result, the State reported an
accumulated surplus of $567 million in the General Fund for the first time since
it began reporting its operations on a GAAP-basis. The 1997-98 fiscal year
operating surplus reflects several major factors, including the cash-basis
operating surplus resulting from the higher-than-anticipated personal income tax
receipts, an increase in taxes receivable of $681 million, an increase in other
assets of $195 million and a decrease in pension liabilities of $144 million.
This was partially offset by an increase in payables to local governments of
$270 million and tax refunds payable of $147 million.
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Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
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On January 13, 1992, Standard & Poor's Ratings Services ("S&P") reduced its
ratings on the State's general obligation bonds from A to A- and, in addition,
reduced its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On August 28, 1997, S&P revised its ratings on
the State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On March 2, 1998, S&P affirmed its A rating on the State's outstanding
bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget, will be released on or before July 30, 1998. The
projection of State borrowings for the 1998-99 fiscal year is subject to change
as market conditions, interest rates and other factors vary throughout the
fiscal year.
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The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
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maintain proper housing; (4) alleged responsibility of New York State officials
to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
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Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
Authorities. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned on A3 rating to the City's general
obligations and stated that its outlook was stable.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City. As of June
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
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its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year in
the event the City fails to provide such financing.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
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1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
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Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
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constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's current financial plan projects $2.4
billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
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Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
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<PAGE>
Investment Limitations.
Money Market Portfolio and Municipal Money Market Portfolio. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after
such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, or hypothecate any of its assets
except in connection with such borrowings and then, with respect to the
Money Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with respect to
the Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Portfolio's
total assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of a Portfolio's assets may be invested without regard
to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may
be deemed an underwriter under federal securities laws and except to the
extent that the purchase of Municipal Obligations directly from the issuer
thereof in accordance with a Portfolio's investment objective, policies and
limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
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(6) purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter
into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
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<PAGE>
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the Money
Market Portfolio's outstanding shares, but any such change would be subject to
any applicable requirements of the Securities and Exchange Commission (the
"SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization (as defined in the Prospectus), are rated (at the
time of purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization in its highest rating
category for such securities, (iii) have no short-term rating and are
comparable in priority and security to a class of short-term obligations of
the issuer of such securities that have been rated in accordance with (i)
or (ii) above, or (iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First Tier Securities
that come within categories (ii) and (iv) above will be approved or
ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
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<PAGE>
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if
after the acquisition of the put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
There is no limit on the amount of the Portfolio's assets which may be
invested in the securities of any one issuer of obligations that the
Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge, or hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 10% of
the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
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lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under federal income tax provisions applicable to regulated
investment companies.
The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York Municipal Money
Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10%
of the value of the Portfolio's total assets at the time of such borrowing,
and only if after such borrowing there is asset coverage of at least 300%
for all borrowings of the Portfolio; or mortgage, pledge, or hypothecate
any of its assets except in connection with such borrowings and then in
amounts not in excess of 10% of the value of a Portfolio's total assets at
the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient);
(2) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio
may be deemed an underwriter under federal securities laws and except to
the extent that the purchase of Municipal Obligations directly from the
issuer thereof in accordance with the Portfolio's investment objective,
policies and limitations may be deemed to be an underwriting;
(4) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
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(5) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development programs;
(8) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the New
York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest"), (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this limitation
only, private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without shareholder
approval.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
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issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
In order to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, the Portfolio will not purchase the securities
of any issuer if as a result more than 5% of the value of the Portfolio's assets
would be invested in the securities of such issuer, except that (a) up to 50% of
the value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any one issuer and (b) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
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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>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
-36-
<PAGE>
- ----------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively,
each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund or
the Distributor, and Mr. Sablowsky, who is considered to be an affiliated
person, $12,000 annually and $1,250 per meeting of the Board or any committee
thereof that is not held in conjunction with a Board meeting. In addition, the
Chairman of the Board receives an additional fee of $6,000 per year for his
services in this capacity. Directors who are not affiliated persons of the Fund
and Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings
of the Board of Directors or any committee thereof. For the year ended August
31, 1998, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
-37-
<PAGE>
Directors' Compensation
-----------------------
<TABLE>
<CAPTION>
Pension or Retirement
Benefits Accrued As Estimated Annual
Aggregate Compensation Part of Fund Benefits Upon
Name of Person/Position from Registrant Expenses Retirement
- ----------------------- --------------- -------- ----------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach), 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") (formerly known as "PNC
Institutional Management Corporation"), the Portfolios' adviser, PNC Bank,
National Association ("PNC Bank"), the Fund's custodian ("PFPC"), the
administrator to the Municipal Money Market and New York Municipal Money Market
-38-
<PAGE>
Portfolios and the Fund's transfer and dividend disbursing agent, and Provident
Distributors Inc. (the "Distributor"), the Fund's distributor, the Fund itself
requires only one part-time employee. 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 and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios (except the New York Municipal Money Market Portfolio)
with PNC Bank dated August 16, 1988, as of April 29, 1998, BIMC assumed these
advisory responsibilities from PNC Bank. Pursuant to the Sub-Advisory
Agreements, PNC Bank would be entitled to receive a annual fee from BIMC for its
sub-advisory services calculated at the annual rate of 75% of the fees received
by BIMC on behalf of the Money Market, Municipal Money Market and Government
Obligations Portfolios. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Money Market and Government Obligations
Portfolios, for administrative services obligated under the Advisory Agreements)
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money
Market $ 238,721 $ 822,533 $ 55,085
Government Obligations
Money Market $1,649,453 $ 723,970 $392,949
New York Municipal
Money Market $ 60,758 $ 267,374 $0
</TABLE>
-39-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations $1,774,123 $ 647,063 $404,193
Money Market
New York Municipal $ 21,831 $ 324,917 $0
Money Market
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations $1,638,622 $ 671,811 $406,954
Money Market
New York Municipal Money $ 2,709 $ 268,017 $0
Market
</TABLE>
-40-
<PAGE>
Each 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 Portfolios' investment adviser or Distributor;
(j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees;
(o) brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Bedford Classes of the Fund
pays their own distribution fees, and may pay a different share than other
classes of the Fund (excluding advisory and custodial fees) if those expenses
are actually incurred in a different amount by the Bedford Classes or if they
receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. The investment advisory agreement was
approved with respect to the Municipal Money Market Portfolio by shareholders at
a special meeting held June 10, 1992, as adjourned. The Advisory Agreement was
approved with respect to the New York Municipal Money Market Portfolio by the
Portfolio's shareholders at a special meeting of shareholders held December 22,
-41-
<PAGE>
1989. Each Advisory Agreement is terminable by vote of the Fund's Board of
Directors or by the holders of a majority of the outstanding voting securities
of the relevant Portfolio, at any time without penalty, on 60 days' written
notice to BIMC or PNC Bank. Each of the Advisory Agreements may also be
terminated by BIMC or PNC Bank on 60 days' written notice to the Fund. Each of
the Advisory Agreements terminates automatically in the event of assignment
thereof.
Administration Agreements. PFPC serves as the administrator to the New York
Municipal Money Market Portfolio pursuant to an Administration Agreement dated
November 5, 1991 and as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (together, the "Administration Agreements"). PFPC has agreed to
furnish to the Fund on behalf of the Municipal Money Market and New York
Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market and New York
Municipal Money Market Portfolios.
BIMC is obligated to render administrative services to the Money Market and
Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of Delegation Agreements, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
-42-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money Market
$ 85,926 $7,826 $0
Money Market $0 $0 $0
Government Obligations Money
Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid (After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money $ 99,071 $0 $0
Market
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid (After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $ 0 $0
New York Municipal Money $ 67,204 $10,146 $0
Market
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
-43-
<PAGE>
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio, (b)
holds and transfers portfolio securities on account of each Portfolio, (c)
accepts receipts and makes disbursements of money on behalf of each Portfolio,
(d) collects and receives all income and other payments and distributions on
account of each Portfolio's portfolio securities and (e) makes periodic reports
to the Fund's Board of Directors concerning each Portfolio's operations. PNC
Bank is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Bedford Classes pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC (a) issues and redeems shares of each of the Bedford Classes, (b) addresses
and mails all communications by each Portfolio to record owners of shares of
each such Class, including reports to shareholders, dividend and distribution
notices and proxy materials for its meetings of shareholders, (c) maintains
shareholder accounts and, if requested, sub-accounts and (d) makes periodic
reports to the Fund's Board of Directors concerning the operations of each
Bedford Class. PFPC may, on 30 days' notice to the Fund, assign its duties as
transfer and dividend disbursing agent to any other affiliate of PNC Bank Corp.
For its services to the Fund under the Transfer Agency Agreement, PFPC receives
a fee at the annual rate of $15.00 per account in each Portfolio for orders
which are placed via third parties and relayed electronically to PFPC, and at an
annual rate of $17.00 per account in each Portfolio for all other orders,
exclusive of out-of-pocket, expenses, and also receives a fee for each
redemption check cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, and supplements entered into by the Distributor and
-44-
<PAGE>
the Fund on behalf of each of the Bedford Classes, (the "Distribution
Agreement") and separate Plans of Distribution, as amended, for each of the
Bedford Classes (collectively, the "Plans"), all of which were adopted by the
Fund in the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor
will use appropriate efforts to distribute shares of each of the Bedford
Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, a distribution
fee, to be calculated daily and paid monthly, at the annual rate set forth in
the Prospectus. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of each of the
Portfolios based on a percentage of the amounts invested by their customers.
Each of the Plans was approved by the Fund's Board of Directors, including
the directors who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the operation of the Plans or any
agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provide that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plans and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plans will
continue in effect only so long as they are approved at least annually, and any
material amendment thereto is approved, by the Fund's directors, including the
12b-1 Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Bedford Class under the Plans shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Bedford Class; and (4) while the Plans remain in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plans for the Bedford Classes of each of the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio, and the New York Municipal Money Market
Obligations Portfolio in the aggregate amounts of $1,042,018, $219,413,
$197,504, and $47,652, respectively. Of those amounts $1,023,591, $215,691,
$194,285, and $46,858, respectively, was paid to dealers with whom PDI had
entered into dealer agreements, and $18,424, $3,722, $3,219, and $794,
respectively, was retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the plans for the Bedford Classes of each of the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio, and the New York Municipal Money Market
Portfolio in the aggregate amounts of $5,467,476, $900,154, $864,695, and
$122,528, respectively. Of these amounts, $5,366,151, $884,634, $850,648, and
$120,500, was paid to dealers with whom Counsellors had entered into dealer
agreements, and $101,325, $15,520, $14,227, and $2,028, respectively, was
retained by Counsellors.
-45-
<PAGE>
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plans by virtue of his respective position with Fahnestock Co., Inc. and
Counsellors Securities, Inc., respectively, each a broker-dealer.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may purchase variable
rate securities with remaining maturities of 13 months or more so long as such
securities comply with conditions established by the SEC under which they may be
considered to have remaining maturities of 13 months or less. Because all
Portfolios intend to purchase only securities with remaining maturities of 13
months or less, their portfolio turnover rates will be relatively high. However,
because brokerage commissions will not normally be paid with respect to
investments made by each such Portfolio, the turnover rate should not adversely
affect such Portfolio's net asset value or net income. The Portfolios do not
intend to seek profits through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, 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.
-46-
<PAGE>
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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by 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 a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolio held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
-47-
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of the class in the Portfolio's securities, cash and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of such class. The net
asset value of each class of the Fund is determined independently of the other
classes. A Portfolio's "net assets" equal the value of a Portfolio's investments
and other securities less its liabilities. Each Portfolio's net asset value per
share is computed twice each day, as of 12:00 noon (Eastern Time) and as of the
close of 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 on New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and the preceding Friday and subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays as the NYSE as well as
Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
-48-
<PAGE>
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that 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.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
-49-
<PAGE>
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1998 for the
Bedford Classes of each of the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio before waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent Yield
(assumes a federal
Effective income
Portfolios Yield Yield tax rate of 28%)
- ---------- ----- ----- ----------------
<S> <C> <C> <C>
Money Market 4.58% 4.68% N/A
Municipal Money Market 2.37% 2.40% 3.29%
Government Obligations Money
Market 4.47% 4.57% N/A
New York Municipal Money Market 2.07% 2.09% 2.88%
</TABLE>
The annualized yield for the seven-day period ended August 31, 1998 for The
Bedford Classes of the Money Market, Municipal Money Market, Government
Obligations Money Market Portfolio and the New York Money Market Portfolio after
waivers was as follows:
-50-
<PAGE>
<TABLE>
<CAPTION>
Tax-Equivalent Yield
(assumes a federal
Effective income
Portfolios Yield Yield tax rate of 28%)
- ---------- ----- ----- ----------------
<S> <C> <C> <C>
Money Market 4.70% 4.81% N/A
Municipal Money Market 2.63% 2.66% 3.65%
Government Obligations Money
Market 4.59% 4.69% N/A
New York Municipal Money Market 2.47% 2.50% 3.43%
</TABLE>
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Portfolio will fluctuate, they cannot
be compared with yields on savings accounts or other investment alternatives
that provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
-51-
<PAGE>
From time to time, in advertisements or in reports to shareholders, the
yields of a Portfolio may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices. For
example, the yield of a Portfolio may be compared to the Donoghue's Money Fund
Average, which is an average compiled by IBC Money Fund Report(R), a widely
recognized independent publication that monitors the performance of money market
funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of such
Portfolio's assets at the close of each quarter of the Fund's taxable year must
consist of exempt-interest obligations.
-52-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Class L Common Stock, Class M Common Stock,
Class N Common Stock and Class O Common Stock constitute the Bedford Classes,
described herein. Under RBB's charter, the Board of Directors has the power to
classify or reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
-54-
<PAGE>
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).
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 LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
-55-
<PAGE>
Control Persons. As of November 16, 1998, 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>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</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
-56-
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believes they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-57-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
CASH PRESERVATION PORTFOLIOS
Money Market Portfolio and
Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of two classes (the "Cash Preservation Shares")
representing interests in two investment portfolios (the "Portfolios") of The
RBB Fund, Inc. (the "Fund"): the Money Market Portfolio and the Municipal Money
Market Portfolio. This Statement of Additional Information is not a prospectus,
and should be read only in conjunction with the Cash Preservation Shares
Prospectus of the Fund, dated December 29, 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 29, 1998.
CONTENTS
Page
----
General.........................................................2
Investment Objectives and Policies..............................2
Directors and Officers..........................................10
Investment Advisory, Distribution and
Servicing Arrangements........................................13
Portfolio Transactions..........................................19
Purchase and Redemption Information.............................20
Valuation of Shares.............................................20
Performance Information.........................................22
Taxes...........................................................24
Additional Information Concerning
Fund Shares...................................................24
Miscellaneous...................................................27
Financial Statements............................................28
Appendix A......................................................A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertains to two
classes of shares (the "Cash Preservation Classes") representing interests in
two of the investment portfolios (the "Portfolios") of the Fund: the Money
Market Portfolio and the Municipal Money Market Portfolio. The Cash Preservation
Classes are offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian cash or liquid securities of an amount at least equal to
the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio or the Municipal Money Market Portfolio may have
maturities of more than 13 months, provided: (i) the Portfolio is entitled to
the payment of principal at any time, or during specified intervals not
exceeding 13 months, upon giving the prescribed notice (which may not exceed 30
days), and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 13 months. In determining the average weighted
maturity of the Money Market or the Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 13 months or less,
each long-term 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. The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for a
-2-
<PAGE>
Portfolio to dispose of variable or floating rate notes if the issuer defaulted
on its payment obligations or during periods that the Portfolio is not entitled
to exercise its demand right, and the Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Money Market and Municipal
Money Market Portfolios may purchase "when-issued" and delayed delivery
securities purchased for delivery beyond the normal settlement date at a stated
price and yield. While the Money Market or Municipal Money Market Portfolios has
such commitments outstanding, such Portfolio will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian cash or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
the Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that a
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because a Portfolio's liquidity and ability to manage its portfolio might
be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it is expected that commitments to purchase "when-issued"
securities will not exceed 25% of the value of a Portfolio's total assets absent
unusual market conditions. When either the Money Market Portfolio or Municipal
Money Market Portfolio engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
such Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio and Municipal
Money Market Portfolio may enter into stand-by commitments with respect to
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities and authorities (collectively "Municipal
Obligations") held in its portfolio. Under a stand-by commitment, a dealer would
agree to purchase at the Portfolio's option a specified Municipal Obligation at
its amortized cost value to the Portfolio plus accrued interest, if any.
Stand-by commitments may be exercisable by the Money Market Portfolio or
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio and Municipal Money Market Portfolio
expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, either such Portfolio may pay for a stand-by commitment either in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities). The total amount paid in either manner for
outstanding stand-by commitments held by the Money Market Portfolio and
Municipal Money Market Portfolio will not exceed 1/2 of 1% of the value of the
relevant Portfolio's total assets calculated immediately after each stand-by
commitment is acquired.
-3-
<PAGE>
Each of the Money Market Portfolio and Municipal Money Market Portfolio
intends to enter into stand-by commitments only with dealers, banks and
broker-dealers which, in the investment adviser's opinion, present minimal
credit risks. These Portfolios' reliance upon the credit of these dealers, banks
and broker-dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment.
The Money Market Portfolio and Municipal Money Market Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes. The acquisition
of a stand-by commitment will not affect the valuation or assumed maturity of
the underlying Municipal Obligation which will continue to be valued in
accordance with the amortized cost method. The actual stand-by commitment will
be valued at zero in determining net asset value. Accordingly, where either
Portfolio pays directly or indirectly for a stand-by commitment, its cost will
be reflected as an unrealized loss for the period during which the commitment is
held by such Portfolio and will be reflected in realized gain or loss when the
commitment is exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
-4-
<PAGE>
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the Portfolio's
adviser or sub-adviser. A Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price including (i) accrued
premium provided in the repurchase agreement or (ii) the daily amortization of
the difference between the purchase price and the repurchase price specified in
the repurchase agreement. The Portfolio's adviser or sub-adviser will
mark-to-market daily the value of the securities. Securities subject to
repurchase agreements will be held by the Fund's custodian in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities; (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's) or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements, 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
-5-
<PAGE>
security satisfying (2) or (3) above; and (5) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. Neither Portfolio may invest more than 10% of its net
assets in illiquid securities (including with respect to the Money Market
Portfolio, repurchase agreements that have a maturity of longer than seven
days), including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. Each Portfolio's investment adviser will monitor the liquidity of
such restricted securities under the supervision of the Board of Directors. With
respect to the Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
-6-
<PAGE>
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Investment Limitations
Neither Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after
such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge or hypothecate any of its assets
except in connection with such borrowings and then, with respect to the
Money Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with respect to
the Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Portfolio's
total assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of a Portfolio's assets may be invested without regard
to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may
be deemed an underwriter under federal securities laws and except to the
extent that the purchase of Municipal Obligations directly from the issuer
thereof in accordance with a Portfolio's investment objective, policies and
limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
-7-
<PAGE>
(6) purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter
into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
-8-
<PAGE>
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the Money
Market Portfolio's outstanding shares, but any such change would be subject to
any applicable requirements of the Securities and Exchange Commission (the
"SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization (as defined in the Prospectus), are rated (at the
time of purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating Organization
are rated by such Rating Organization, in its highest rating category for
such securities, (iii) have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer of
such securities that have been rated in accordance with (i) or (ii) above,
or (iv) are Unrated Securities that are determined to be of comparable
quality to such securities. Purchases of First Tier Securities that come
within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
-9-
<PAGE>
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if
after the acquisition of the put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinion relating to the validity of Municipal Obligations and to the
exemption of interest thereof from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- -------------------
*Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively,
each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund or
the Distributor, and Mr. Sablowsky, who is considered to be an affiliated
person. $12,000 annually and $1,250 per meeting of the Board or any committee
thereof that is not held in conjunction with a Board meeting. In addition, the
Chairman of the Board receives an additional fee of $6,000 per year for his
services in this capacity. Directors who are not affiliated persons of the Fund
and Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings
of the Board of Directors or any committee thereof. For the year ended August
31, 1998, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
-12-
<PAGE>
Directors' Compensation
-----------------------
<TABLE>
<CAPTION>
Pension or
Retirement Estimated
Aggregate Benefits Annual
Compensation Accrued as Benefits
Name of Person/ from Part of Fund Upon
Position Registrant Expenses Retirement
-------- ---------- -------- ----------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
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<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee) pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by BlackRock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the Municipal Money Market Portfolio's administrator and the Fund's
transfer and dividend disbursing agent, and Provident Distributors Inc. (the
"Distributor" or "PDI"), the Fund's distributor, the Fund itself requires only
one part-time employee. 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 and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios with PNC Bank dated August 16, 1988, as of April 29,
1998, BIMC assumed these advisory responsibilities from PNC Bank. Pursuant to
the Sub-Advisory Agreements, PNC Bank would be entitled to receive a annual fee
from BIMC for its sub-advisory services calculated at the annual rate of 75% of
the fees received by BIMC on behalf of the Money Market and Municipal Money
Market Portfolios. The advisory agreements relating to the Money Market
Portfolio is dated August 16, 1988, and the advisory agreement relating to the
Municipal Money Market Portfolio is dated April 21, 1992. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Money Market Portfolio, for administrative
services obligated under the Advisory Agreements) advisory fees as follows:
-14-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $238,721 $822,533 $55,085
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market
$5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory
fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market 190,687 1,218,973 $ 17,576
</TABLE>
-15-
<PAGE>
Each 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 Portfolios' investment adviser or Distributor;
(j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees;
(o) brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Cash Preservation Classes
of the Fund pay their own distribution fees, and may pay a different share than
other classes of other expenses (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount by the Cash Preservation
Classes or if they receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
-16-
<PAGE>
The Advisory Agreements were each most recently approved 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were approved
with respect to the Money Market Portfolio by the shareholders of the Portfolio
at a special meeting held December 22, 1989. The Investment Advisory Agreement
was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned. The
Sub-Advisory Agreement was approved with respect to the Municipal Money Market
Portfolio by shareholders at a special meeting held December 22, 1989. Each
Advisory Agreement is terminable by vote of the Fund's Board of Directors or by
the holders of a majority of the outstanding voting securities of the relevant
Portfolio, at any time without penalty, on 60 days' written notice to BIMC or
PNC Bank. Each of the Advisory Agreements may also be terminated by BIMC or PNC
Bank, respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminates automatically in the event of assignment thereof.
Administration Agreement. PPFC serves as the administrator to the Municipal
Money Market Portfolio pursuant to an Administration and Accounting Services
Agreement dated April 21, 1992 (the "Administration Agreement"). PPFC has agreed
to furnish to the Fund on behalf of the Municipal Money Market Portfolio
statistical and research data, clerical, accounting, and bookkeeping services,
and certain other services required by the Fund. PFPC has also agreed to prepare
and file various reports with the appropriate regulatory agencies, and prepare
materials required by the SEC or any state securities commission having
jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or the
Portfolio in connection with the performance of services under the agreement,
except a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreement, PFPC receives a fee
of .10% of the average daily net assets of the Municipal Money Market Portfolio.
BIMC is obligated to render administrative services to the Money Market
Portfolio pursuant to the investment advisory agreement. Pursuant to the terms
of a Delegation Agreement, dated July 29, 1998, between BIMC and PFPC, however,
BIMC has delegated to PFPC its administrative responsibilities to the Money
Market Portfolio. The Fund pays administration fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
-17-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid (After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $312,593 $0 $0
Municipal Money Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid (After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid (After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio, (b)
holds and transfers portfolio securities on account of each Portfolio, (c)
accepts receipts and makes disbursements of money on behalf of each Portfolio,
(d) collects and receives all income and other payments and distributions on
account of each Portfolio's portfolio securities, and (e) makes periodic reports
to the Fund's Board of Directors concerning each Portfolio's operations. PNC
Bank is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
-18-
<PAGE>
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Shares pursuant to a Transfer Agency Agreement dated
August 16, 1988 (the "Transfer Agency Agreement"), under which PFPC (a) issues
and redeems Shares, (b) addresses and mails all communications by each Portfolio
to record owners of shares of each such Class, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Portfolio. PFPC may, on 30 days' notice to the
Fund, assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per account
in each Portfolio, for orders which are placed via third parties and relayed
electronically to PFPC, and at an annual rate of $17.00 per account in each
Portfolio for all other orders, exclusive of out-of-pocket expenses and also
receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, entered into by the Distributor and the Fund on behalf
of each of the Cash Preservation Classes (the "Distribution Agreement") and
separate Plans of Distribution, as amended, for each of the Cash Preservation
Classes (collectively, the "Plans"), all of which were adopted by the Fund in
the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute shares of each of the Cash Preservation
Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, a distribution
fee, to be calculated daily and paid monthly, at the annual rate set forth in
the Prospectus. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of each of the
Portfolios based on a percentage of the amounts invested by their customers.
-19-
<PAGE>
Each of the Plans was approved by the Fund's Board of Directors, including
the directors who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the operation of the Plans or any
agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plans and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plans will
continue in effect only so long as they are approved at least annually, and any
material amendment thereto is approved, by the Fund's directors, including the
12b-1 Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Cash Preservation Class under the Plans shall not be materially
increased without the affirmative vote of the holders of a majority of the
Fund's shares in the affected Cash Preservation Class; and (4) while the Plans
remain in effect, the selection and nomination of the 12b-1 Directors shall be
committed to the discretion of the directors who are not interested persons of
the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plans for the Cash Preservation Classes of
the Money Market Portfolio and the Municipal Money Market Portfolio in the
aggregate amounts of $225 and $96, respectively. Of those amounts
$0 and $0, respectively, was paid to dealers with whom PDI had
entered into dealer agreements, and $225 and $96, respectively, was
retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the Plans for the Cash Preservation Classes of the
Money Market Portfolio and the Municipal Money Market Portfolio in the aggregate
amounts of $639 and $298, respectively. Of these amounts, $4
and $2, respectively, was paid to dealers with whom Counsellors had
entered into dealer agreements, and $635 and $296, respectively, was
retained by Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plans by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
-20-
<PAGE>
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that both Portfolios may purchase variable rate securities with
remaining maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because both Portfolios intend to
purchase only securities with remaining maturities of 13 months or less, their
portfolio turnover rates will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by each
such Portfolio, the turnover rate should not adversely affect such Portfolio's
net asset value or net income. The Portfolios do not intend to seek profits
through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers.
Neither of the Portfolios currently expects to incur any brokerage commission
expense on such transactions because money market instruments are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Securities purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. When securities are purchased
directly from or sold directly to an issuer, no commissions or discounts are
paid. It is the policy of such Portfolios to give primary consideration to
obtaining the most favorable price and efficient execution of transactions. In
seeking to implement the policies of such Portfolios, 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 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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by 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 a Portfolio is concerned, in other cases it is
-21-
<PAGE>
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios, held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
-22-
<PAGE>
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of each class in the Portfolio's securities, cash and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of such class. The net
asset value of each class of the Fund is determined independently of the other
classes. A Portfolio's "net assets" equal the value of a Portfolio's investments
and other securities less its liabilities. Each Portfolio's net asset value per
share is 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 on New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and the preceding Friday and subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays as the NYSE as well as
Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of both of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Both of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
-23-
<PAGE>
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.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Both of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1998 for the
Cash Preservation Classes of each of the Money Market Portfolio and the
Municipal Money Market Portfolio before waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent
Yield
(assumes a
Effective federal income
Portfolios Yield Yield tax rate of 28%)
- ---------- ----- ----- ----------------
<S> <C> <C> <C>
Money Market 4.60% 4.71% N/A
Municipal Money Market 2.28% 2.31% 3.17%
</TABLE>
-24-
<PAGE>
The annualized yield for the seven-day period ended August 31, 1998 for the
Cash Preservation Classes of each of the Money Market Portfolio and the
Municipal Money Market Portfolio after waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent
Yield
(assumes
Effective a federal income
Portfolios Yield Yield tax rate of 28%)
- ---------- ----- ----- ----------------
<S> <C> <C> <C>
Money Market 4.72% 4.83% N/A
Municipal Money Market 2.54% 2.57% 3.53%
</TABLE>
Total return and yield may fluctuate daily and does not provide a basis for
determining future returns and yields. Because the returns and yields of each
Portfolio will fluctuate, they cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
-25-
<PAGE>
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
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio's generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio to pay tax-exempt dividends for any taxable year, at least 50% of the
aggregate value of the Portfolio's assets at the close of each quarter of the
Fund's taxable year must consist of exempt-interest obligations.
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class L Common Stock and Class M
Common Stock constitute the Cash Preservation Classes, described herein. Under
RBB's charter, the Board of Directors has the power to classify or reclassify
any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money
Market and Municipal Money Market Portfolios; the Sansom Street Family
represents interests in the Money Market, Municipal Money Market and Government
Obligations Money Market Portfolios; the Bedford Family represents interests
in the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market Portfolios; the n/i numeric investors family
of funds represents interests in five non-money market portfolios; the Boston
Partners Family represents interests in five non-money market portfolios; the
Schneider Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
-27-
<PAGE>
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).
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 LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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
-28-
<PAGE>
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>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
-29-
<PAGE>
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, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
30
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
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The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
JANNEY MONTGOMERY SCOTT MONEY FUNDS
Money Market Portfolio,
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of four classes (the "Janney Shares") representing
interests in four investment portfolios (the "Portfolios") of The RBB Fund, Inc.
(the "Fund"): the Money Market Portfolio, the Municipal Money Market Portfolio,
the Government Obligations Money Market Portfolio and the New York Municipal
Money Market Portfolio. This Statement of Additional Information is not a
prospectus, and should be read only in conjunction with the Janney Montgomery
Scott Money Funds Prospectus of the Fund dated December 29, 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 29, 1998.
CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
General.......................................................................... 2
Investment Objectives and Policies............................................... 2
Directors and Officers........................................................... 27
Investment Advisory, Distribution and Servicing Arrangements..................... 29
Portfolio Transactions........................................................... 36
Purchase and Redemption Information.............................................. 37
Valuation of Shares.............................................................. 38
Performance Information.......................................................... 39
Taxes............................................................................ 41
Miscellaneous.................................................................... 41
Financial Statements............................................................. 45
Appendix A....................................................................... A-1
</TABLE>
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 four
classes of shares (the "Janney Classes") representing interests in four
investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Janney Classes are offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio or the Municipal Money Market Portfolio may have
maturities of more than 13 months, provided: (i) the Portfolio is entitled to
the payment of principal at any time, or during specified intervals not
exceeding 13 months, upon giving the prescribed notice (which may not exceed 30
days), and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 13 months. In determining the average weighted
maturity of the Money Market, Municipal Money Market or New York Municipal Money
Market Portfolio and whether a variable rate demand instrument has a remaining
maturity of 13 months or less, each long-term 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. The absence of an active secondary
market with respect to particular variable and floating rate instruments could
make it difficult for a Portfolio to dispose of variable or floating rate notes
if the issuer defaulted on its payment obligations or during periods that the
Portfolio is not entitled to exercise its demand right and the Portfolio could,
for these or other reasons, suffer a loss with respect to such instruments.
-2-
<PAGE>
When-Issued or Delayed Delivery Securities. The Money Market, Municipal
Money Market and New York Municipal Money Market Portfolios may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolios has such
commitments outstanding, such Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
the Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that a
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because a Portfolio's liquidity and ability to manage its portfolio might
be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it is expected that commitments to purchase "when issued"
securities will not exceed 25% of the value of a Portfolio's total assets absent
unusual market conditions. When any of the Money Market Portfolio, Municipal
Money Market Portfolio or the New York Municipal Money Market Portfolio engages
in when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio, Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio may enter into
stand-by commitments with respect to obligations issued by or on behalf of
states, territories, and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instrumentalities and
authorities (collectively, "Municipal Obligations") held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option a specified Municipal Obligation at its amortized cost value to the
Portfolio plus accrued interest, if any. Stand-by commitments may be exercisable
by the Money Market Portfolio, Municipal Money Market Portfolio or New York
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio expects that stand-by commitments will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, either such Portfolio may pay
for a stand-by commitment either in cash or by paying a higher price for
portfolio securities which are acquired subject to the commitment (thus reducing
the yield to maturity otherwise available for the same securities). The total
amount paid in either manner for outstanding stand-by commitments held by the
Money Market Portfolio, Municipal Money Market Portfolio and New York Municipal
Money Market Portfolio will not exceed 1/2 of 1% of the value of the relevant
Portfolio's total assets calculated immediately after each stand-by commitment
is acquired.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the investment
adviser's opinion, present minimal credit risks. These Portfolios' reliance upon
the credit of these dealers, banks and broker-dealers will be secured by the
value of the underlying Municipal Obligations that are subject to the
commitment.
-3-
<PAGE>
The Money Market Portfolio, Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
Short Sales "Against the Box." In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for investment purposes. A Portfolio
may, however, make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Portfolio (or a security convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an attractive current price, but
also wishes possibly to defer recognition of gain or loss for federal income tax
purposes. (A short sale against the box will defer recognition of gain for
federal income tax purposes only if the Portfolio subsequently closes the short
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) In such case, any future losses in the
Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position
-4-
<PAGE>
should be reduced by a loss in the short position. The extent to which such
gains or losses are reduced will depend upon the amount of the security sold
short relative to the amount the Portfolio owns. There will be certain
additional transaction costs associated with short sales against the box, but
the Portfolio will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales. The dollar amount of short sales
at any time will not exceed 25% of the net assets of the Government Obligations
Money Market Portfolio, and the value of securities of any one issuer in which
the Portfolio is short will not exceed the lesser of 2% of net assets or 2% of
the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
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Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the Portfolio's
adviser or sub-adviser. A Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price including either (i)
accrued premium provided in the repurchase agreement or (ii) the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark-to-market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the
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United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States
or by any Federal Home Loan Banks and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Money Market and Government Obligations Money Market Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMO interests. The Portfolios do not currently intend to purchase residual
interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs, payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
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.
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In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Lending of Securities. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2," by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements, 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) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Money Market Portfolio, the Government
Obligations Money Market Portfolio, and the New York Municipal Money Market
Portfolio, repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
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Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal Obligations. Some of
the significant financial considerations relating to the Fund's investments in
New York Municipal Obligations are summarized below. This summary information is
not intended to be a complete description and is principally derived from
official statements relating to issues of New York Municipal Obligations that
were available prior to the date of this Statement of Additional Information.
The accuracy and completeness of the information contained in those official
statements have not been independently verified.
State Economy. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
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The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region, State personal
income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the
enacted budget forecast. Continued growth is projected in 1998 and 1999 for
employment, wages, and personal income, although the growth rates of personal
income and wages are expected to be lower than those in 1997. The growth of
personal income is projected to decline from 5.7 percent in 1997 to 4.8 percent
in 1998 and 4.2 percent in 1999, in part because growth in bonus payments is
expected to slow down, a distinct shift from the torrid rate of the last few
years. Overall employment growth is expected to be 1.9 percent in 1998, the
strongest in a decade, but will drop to 1.0 percent in 1999, reflecting the
slowing growth in the national economy, continued restraint in governmental
spending, and restructuring in the health care, social service, and banking
sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
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Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of
the 1999-00 Executive Budget process, as required by law. The revised
expectations for years 2000-01 and 2001-02 will reflect the cumulative impact of
tax reductions and spending commitments enacted over the last several years as
well as new 1999-00 Executive Budget recommendations. The School Tax Relief
Program ("STAR") program, which dedicates a portion of personal income tax
receipts to fund school tax reductions, has a significant impact on General Fund
receipts. STAR is projected to reduce personal income tax revenues available to
the General Fund by an estimated $1.3 billion in 2000-01. Measured from the
1998-99 base, scheduled reductions to estate and gift, sales and other taxes,
reflecting tax cuts enacted in 1997-98 and 1998-99, will lower General Fund
taxes and fees by an estimated $1.8 billion in 2000-01. Disbursement projections
for the outyears currently assume additional outlays for school aid, Medicaid,
welfare reform, mental health community reinvestment, and other multi-year
spending commitments in law.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on March
31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
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General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under STAR, expansion of the child care
income-tax credit for middle-income families, a phased-in reduction of the
general business tax, and reduction of several other taxes and fees, including
an accelerated phase-out of assessments on medical providers. The enacted budget
also provides for significant increases in spending for public schools, special
education programs, and for the State and City university systems. It also
allocates $50 million for a new Debt Reduction Reserve Fund ("DRRF") that may
eventually be used to pay debt service costs on or to prepay outstanding
State-supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resource to help finance any extraordinary litigation costs during the
fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
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The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $62 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur
in its projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its first-ever,
accumulated positive balance in its General Fund. This "accumulated surplus" was
$567 million. The improvement in the State's GAAP position is attributable, in
part, to the cash surplus recorded at the end of the State's 1997-98 fiscal
year. Much of that surplus is reserved for future requirements, but a portion is
being used to meet spending needs in 1998-99. Thus, the State expects some
deterioration in its GAAP position, but expects to maintain a positive GAAP
balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating surplus in
the General Fund of $1.56 billion, in Capital Projects Funds of $232 million and
in Special Revenue Funds of $49 million, offset in part by an operating deficit
of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56 billion for
the 1997-98 fiscal year, as compared to an operating surplus of $1.93 billion
for the 1996-97 fiscal year. As a result, the State reported an accumulated
surplus of $567 million in the General Fund for the first time since it began
reporting its operations on a GAAP-basis. The 1997-98 fiscal year operating
surplus reflects several major factors, including the cash-basis operating
surplus resulting from the higher-than-anticipated personal income tax receipts,
an increase in taxes receivable of $681 million, an increase in other assets of
$195 million and a decrease in pension liabilities of $144 million. This was
partially offset by an increase in payables to local governments of $270 million
and tax refunds payable of $147 million.
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The General Fund had a closing balance of $638 million, an increase of $205
million from the prior fiscal year. The balance is held in three accounts within
the General Fund: the Tax Stabilization Reserve Fund, the Contingency Reserve
Fund and the Community Projects Fund. The TSRF closing balance was $400 million,
following a required deposit of $15 million (repaying a transfer made in
1991-92) and an extraordinary deposit of $68 million made from the 1997-98
surplus. The CRF closing balance was $68 million, following a $27 million
deposit from the surplus. The CPF, which finances legislative initiatives,
closed the fiscal year with a balance of $170 million, an increase of $95
million. The General Fund closing balance did not include $2.39 billion in the
tax refund reserve account, of which $521 million was made available as a result
of the Local Government Assistance Corporation ("LGAC") financing program and
was required to be on deposit on March 31, 1998.
General Fund receipts and transfers from other funds for the 1997-98 fiscal
year (including net tax refund reserve account activity) totaled $34.55 billion,
an annual increase of $1.51 billion, or 4.57 percent over 1996-97. General Fund
disbursements and transfers to other funds were $34.35 billion, an annual
increase of $1.45 billion or 4.41 percent.
Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
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In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
On January 13, 1992, Standard & Poor's Ratings Services ("S&P") reduced its
ratings on the State's general obligation bonds from A to A- and, in addition,
reduced its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On August 28, 1997, S&P revised its ratings on
the State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On March 2, 1998, S&P affirmed its A rating on the State's outstanding
bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget, will be released on or before July 30, 1998. The
projection of State borrowings for the 1998-99 fiscal year is subject to change
as market conditions, interest rates and other factors vary throughout the
fiscal year.
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The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
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Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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Authorities. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
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On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned on A3 rating to the City's general
obligations and stated that its outlook was stable.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City. As of June
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year in
the event the City fails to provide such financing.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
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On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
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Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's
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current financial plan projects $2.4 billion of seasonal financing for the 1998
fiscal year, the City expects to undertake only approximately $1.4 billion of
seasonal financing. The City issued $2.4 billion of short-term obligations in
fiscal year 1997. Seasonal financing requirements for the 1996 fiscal year
increased to $2.4 billion from $2.2 billion and $1.75 billion in the 1995 and
1994 fiscal years, respectively. Seasonal financing requirements were $1.4
billion in the 1993 fiscal year. The delay in the adoption of the State's budget
in certain past fiscal years has required the City to issue short-term notes in
amounts exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
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From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of the
Portfolio; or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then, with respect to the Money Market
Portfolio, in amounts not in excess of 10% of the value of a Portfolio's total
assets at the time of such borrowing and, with respect to the Municipal Money
Market Portfolio, in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of a Portfolio's total assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in excess of 5%
of the Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase more
than 5% of a Portfolio's total assets would be invested in the
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securities of such issuer, or more than 10% of the outstanding voting securities
of such issuer would be owned by the Portfolio, except that up to 25% of the
value of a Portfolio's assets may be invested without regard to this 5%
limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may be
deemed an underwriter under federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with a Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter into
repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
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(a) Purchase any securities other than Money-Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the Money
Market Portfolio's outstanding shares, but any such change would be subject to
any applicable requirements of the Securities and Exchange Commission (the
"SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government securities,
to 5% of its total assets, except that the Money Market Portfolio may invest
more than 5% of its total assets in First Tier Securities of one issuer for a
period of up to three business days. "First Tier Securities" include eligible
securities that (i) if rated by more than one Rating Organization (as defined in
the Prospectus), are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii) if rated
by only one Rating Organization, are rated by such Rating Organization in its
highest rating category for such securities, (iii) have no short-term rating and
are comparable in priority and security to a class of short-term obligations of
the issuer of such securities that have been rated in accordance with (i) or
(ii) above, or (iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First Tier Securities that
come within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities, to
5% of its total assets.
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3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1 million.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if
after the acquisition of the put the Municipal Money Market Portfolio has more
than 5% of its total assets invested in instruments issued by or subject to puts
from the same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the Municipal Money Market Portfolio's total
assets. A "put" means a right to sell a specified underlying instrument within a
specified period of time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations. There
is no limit on the amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is permitted to
purchase.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10% of
the value of the Portfolio's total assets, and only if after such borrowing
there is asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate management of
the Portfolio by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the
-26-
<PAGE>
amount of securities that may be loaned, except that payments received on such
loans, including amounts received during the loan on account of interest on the
securities loaned, may not (together with all non-qualifying income) exceed 10%
of the Portfolio's annual gross income (without offset for realized capital
gains) unless, in the opinion of counsel to the Fund, such amounts are
qualifying income under federal income tax provisions applicable to regulated
investment companies.
The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York Municipal Money
Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10% of
the value of the Portfolio's total assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for all
borrowings of the Portfolio; or mortgage, pledge, hypothecate any of its assets
except in connection with such borrowings and then in amounts not in excess of
10% of the value of a Portfolio's total assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient);
(2) Purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio may be
deemed an underwriter under federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(4) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development programs;
(8) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
-27-
<PAGE>
(9) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the New
York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest"), (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this limitation
only, private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without shareholder
approval.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments issued by
or subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the New York Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a specified
exercise price that may be sold, transferred or assigned only with the
underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
In order to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, the Portfolio will not purchase the securities
of any issuer if as a result more than 5% of the value of the Portfolio's assets
would be invested in the securities of such issuer, except that (a) up to 50% of
the value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any
-28-
<PAGE>
one issuer and (b) this 5% limitation does not apply to securities issued or
guaranteed by the U.S. Government, or its agencies or instrumentalities. For
purposes of this limitation, a security is considered to be issued by the
governmental entity (or entities) whose assets and revenues back the security,
or, with respect to a private activity bond that is backed only by the assets
and revenues of a non-governmental user, by such non-governmental user. In
certain circumstances, the guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee. This investment
policy is not fundamental and may be changed by the Board of Directors without
shareholder approval.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
-30-
<PAGE>
- ----------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively,
each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors $12,000 annually and $1,250 per meeting of the
Board or any committee thereof that is not held in conjunction with a Board
meeting. In addition, the Chairman of the Board receives an additional fee of
$6,000 per year for his services in this capacity. Directors are reimbursed for
any expenses incurred in attending meetings of the Board of Directors or any
committee thereof.
For the year ended August 31, 1998, each of the following members of the
Board of Directors received compensation from the Fund in the following amounts:
-31-
<PAGE>
Directors' Compensation
-----------------------
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits
Aggregate Accrued as Estimated Annual
Name of Person/ Compensation Part of Fund Benefits Upon
Position from Registrant Expenses Retirement
- --------------- --------------- ------------ ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's Custodian, PFPC Inc.
("PFPC"), the administrator to the Municipal Money Market and New York Municipal
Money Market Portfolios and the Fund's transfer and dividend disbursing agent,
and Provident Distributors, Inc., (the "Distributor" or "PDI"), the Fund's
distributor, the Fund itself requires only one part-time employee. 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 and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios (except the New York Municipal Money Market Portfolio)
with PNC Bank dated August 16, 1988, as of April 29, 1998, BIMC assumed these
advisory responsibilities from PNC Bank. Pursuant to the Sub-Advisory
Agreements, PNC Bank would be entitled to receive a annual fee from BIMC for its
sub-advisory services calculated at the annual rate of 75% of the fees received
by BIMC on behalf of the Money Market, Municipal Money Market and Government
Obligations Portfolios. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Money Market and Government Obligations
Portfolios, for administrative services obligated under the Advisory Agreements)
advisory fees as follows:
-32-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money Market $1,649,453 $ 723,970 $392,949
New York Municipal Money Market $ 60,758 $ 267,374 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money Market $1,774,123 $ 647,063 $404,193
New York Municipal Money Market $ 21,831 $ 324,917 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 7,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
New York Municipal Money Market $ 2,709 $ 268,017 $0
</TABLE>
-33-
<PAGE>
Each 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 Portfolios' investment adviser or Distributor;
(j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees;
(o) brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Janney Montgomery Scott
Classes of the Fund pay their own distribution fees, and may pay a different
share than other classes of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Janney Montgomery Scott Classes or if they receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. The investment advisory agreement was
approved with respect to the Municipal Money Market Portfolio by shareholders at
a special meeting held June 10, 1992, as adjourned and the sub-advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held on December 22, 1989. The Advisory
Agreement was approved with respect to the New York Municipal Money Market
Portfolio by the Portfolio's shareholders at a special meeting of shareholders
held November 21, 1991, as adjourned. Each Advisory Agreement is terminable by
vote of the Fund's Board of Directors or by the holders of a majority of the
outstanding voting securities of the relevant Portfolio, at any time without
penalty, on 60 days' written notice to BIMC or PNC Bank. Each of the Advisory
Agreements may also be terminated by BIMC or PNC Bank, respectively, on 60 days'
written notice to the Fund. Each of the Advisory Agreements terminates
automatically in the event of assignment thereof.
-34-
<PAGE>
Administration Agreements. PFPC serves as the administrator to the New York
Municipal Money Market Portfolio pursuant to an Administration Agreement dated
November 5, 1991 and as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (together, the "Administration Agreements"). PFPC has agreed to
furnish to the Fund on behalf of the Municipal Money Market and New York
Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market and New York
Municipal Money Market Portfolios.
BIMC is obligated to render administrative services to the Money Market and
Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of Delegation Agreements, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
-35-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money Market $ 85,926 $7,826 $0
Money Market $0 $0 $0
Government Obligations Money Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money Market $ 99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
New York Municipal Money Market $ 67,204 $10,146 $0
</TABLE>
-36-
<PAGE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Janney Classes pursuant to a Transfer Agency
Agreement dated November 5, 1991 and supplements dated November 5, 1991 (the
"Transfer Agency Agreement"), under which PFPC (a) issues and redeems shares of
each of the Janney Classes, (b) addresses and mails all communications by each
Portfolio to record owners of shares of each such Class, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Janney Class. PFPC may, on 30 days' notice to
the Fund, assign its duties as transfer and dividend disbursing agent to any
other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, entered into by the Distributor and the Fund on behalf
of each of the Janney Classes, (the "Distribution Agreement") and separate
-37-
<PAGE>
Plans of Distribution, as amended, for each of the Janney Classes (collectively,
the "Plans"), all of which were adopted by the Fund in the manner prescribed by
Rule 12b-1 under the 1940 Act, the Distributor will use appropriate efforts to
distribute shares of each of the Janney Classes. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreements, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans was approved by the Fund's Board of Directors, including
the directors who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the operation of the Plans or any
agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plans and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plans will
continue in effect only so long as they are approved at least annually, and any
material amendment thereto is approved, by the Fund's directors, including the
12b-1 Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Janney Class under the Plans shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Janney Class; and (4) while the Plans remain in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plans for the Janney Classes of each of the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio, and the New York Municipal Money Market
Portfolio in the aggregate amounts of $1,312,389, $150,352, $572,721, and
$47,652, respectively. Of those amounts, $1,290,516, $147,846, $563,176, and
$46,858, respectively, was paid to dealers with whom PDI had entered into
dealer agreements, and $21,873, $2,506, $9,545, and $794, respectively,
was retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the plans for the Janney Classes of each of the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio, and the New York Municipal Money Market
Portfolio in the aggregate amounts of $3,550,116, $482,532, $1,714,977, and
$122,528, respectively. Of these amounts, $3,490,760, $474,531, $1,686,604,
and $120,500, was paid to dealers with whom Counsellors had entered into dealer
agreements, and $59,358, $8,001, $28,373, and $2,028, respectively, was
retained by Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plans by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively each a broker-dealer.
-38-
<PAGE>
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may purchase variable
rate securities with remaining maturities of 13 months or more so long as such
securities comply with conditions established by the SEC under which they may be
considered to have remaining maturities of 13 months or less. Because all
Portfolios intend to purchase only securities with remaining maturities of 13
months or less, their portfolio turnover rates will be relatively high. However,
because brokerage commissions will not normally be paid with respect to
investments made by each such Portfolio, the turnover rate should not adversely
affect such Portfolio's net asset value or net income. The Portfolios do not
intend to seek profits through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by 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
-39-
<PAGE>
cases this practice could have a detrimental effect upon the price or value
of the security as far as a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 procedure, 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 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 a
Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
--------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
-40-
<PAGE>
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of a class in the Portfolio's cash, securities, and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of such class. The net
asset value of each class of the Fund is determined independently of the other
classes of the Fund. A Portfolio's "net assets" equal the value of a Portfolio's
investments and other securities less its liabilities. Each Portfolio's net
asset value per share is computed twice each day, as of 12:00 noon (Eastern
Time) and as of the close of 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 on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and the preceding Friday and
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays as the NYSE as well as
Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that 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
-41-
<PAGE>
is no assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
The annualized yield for the seven (7) day period ended August 31, 1998 for
the Janney Classes of each of the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio before waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent Yield
(assumes a federal
Effective income
Portfolios Yield Yield tax rate of 28%)
- ---------- ----- --------- --------------------
<S> <C> <C> <C>
Money Market 4.46% 4.56% N/A
Municipal Money Market 2.36% 2.39 3.28%
Government Obligations Money
Market 4.33% 4.42% N/A
New York Municipal Money
Market 2.07% 2.09% 2.88%
</TABLE>
-42-
<PAGE>
The annualized yield for the seven-day period ended August 31, 1998 for the
Janney Classes of each of the Money Market Portfolio, the Municipal Money Market
Portfolio, the Government Obligations Money Market Portfolio and the New York
Municipal Money Market Portfolio after waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent Yield
(assumes a federal
Effective income
Portfolios Yield Yield tax rate of 28%)
- ---------- ----- --------- --------------------
<S> <C> <C> <C>
Money Market 4.67% 4.78% N/A
Municipal Money Market 2.66% 2.69% 3.69%
Government Obligations Money
Market 4.56% 4.66% N/A
New York Municipal Money
Market 2.47% 2.50% 3.43%
</TABLE>
-43-
<PAGE>
Total return and yield may fluctuate daily and does not provide a basis for
determining future returns and yields. Because the returns and yields of each
Portfolio will fluctuate, they cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio's generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of such
Portfolio's assets at the close of each quarter of the Fund's taxable year must
consist of exempt-interest obligations.
-44-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class Janney Money, Class Janney
Municipal Money, Class Janney Government Money and Class Janney N.Y. Municipal
Money Common Stock constitute the Janney classes, described herein. Under
RBB's charter, the Board of Directors has the power to classify or reclassify
any unissued shares of Common Stock from time to time.
-46-
<PAGE>
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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).
-47-
<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 LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of
-48-
<PAGE>
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, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 Annual Report may be
obtained at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
-49-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC," "CC," "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are 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
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A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
RBB Select Money Market Portfolio
(Investment Portfolio of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of a class (the "Select Shares" or the "Shares")
representing interests in the Money Market Portfolio (the "Money Market
Portfolio" or the "Portfolio") of The RBB Fund, Inc. (the "Fund"). This
Statement of Additional Information is not a prospectus, and should be read only
in conjunction with the Prospectus of the Fund, dated December 29, 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 29, 1998.
CONTENTS
<TABLE>
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Page
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General..........................................................................2
Investment Objective and Policies................................................2
Directors and Officers...........................................................12
Investment Advisory, Distribution and Servicing Arrangements.....................15
Portfolio Transactions...........................................................18
Purchase and Redemption Information..............................................20
Valuation of Shares..............................................................21
Performance of Information.......................................................22
Taxes............................................................................23
Additional Information Concerning Fund Shares ..................................23
Miscellaneous....................................................................27
Financial Statements.............................................................28
Appendix A......................................................................A-1
</TABLE>
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 a
class of shares (the "Select Class" or the "Class") representing interests in
the Money Market Portfolio (the "Money Market Portfolio" or the "Portfolio") of
the Fund. The Class is offered by the Prospectus dated December 29, 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 objectives and policies of the Portfolio. A
description of ratings of Municipal Obligations (defined below) and commercial
paper is set forth in the Appendix hereto.
Additional Information on Portfolio Investments
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by the Portfolio pursuant to the Portfolio's agreement
to repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the 1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding,
the Portfolio will maintain in a segregated account with the Fund's custodian or
a qualified sub-custodian, cash, or liquid securities of an amount at least
equal to the market value of the securities, plus accrued interest, subject to
the agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio may have maturities of more than 13 months, provided:
(i) the Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, upon giving the prescribed notice
(which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 13 months.
In determining the average weighted maturity of the Money Market Portfolio and
whether a variable rate demand instrument has a remaining maturity of 13 months
or less, each long-term 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. The absence of an active secondary market with respect
to particular variable and floating rate instruments could make it difficult for
a Portfolio to dispose of variable or floating rate notes if the issuer
defaulted on its payment obligations or during periods that the Portfolio is not
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entitled to exercise its demand right and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio has such commitments outstanding, it will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the Portfolio will set aside
portfolio securities to satisfy a purchase commitment and, in such a case, the
Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it 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 Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
Stand-By Commitments. The Money Market Portfolio may enter into stand-by
commitments with respect to obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities
(collectively, "Municipal Obligations") held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option a
specified Municipal Obligation at its amortized cost value to the Portfolio plus
accrued interest, if any. Stand-by commitments may be exercisable by the Money
Market Portfolio at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved.
The Money Market Portfolio expects that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, such Portfolio may pay for a stand-by
commitment either in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by either such Portfolio
will not exceed 1/2 of 1% of the value of such Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
The Money Market Portfolio intends to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the 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.
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<PAGE>
The Money Market 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 such Portfolio pays directly or
indirectly for a stand-by commitment, its cost will be reflected as an
unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
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<PAGE>
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by the Portfolio
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). The financial institutions with which the Portfolio may enter into
repurchase agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed creditworthy by
the Portfolio's adviser or sub-adviser. A Portfolio's adviser or sub-adviser
will continue to monitor creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement to equal at least
the repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
including either (i) accrued premium provided in the repurchase agreement or
(ii) the daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-adviser will mark-to-market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by the Portfolio
under the 1940 Act.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by the Portfolio, the Portfolio may, upon
the notice specified in the note, demand payment of the principal of the note at
any time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
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<PAGE>
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds that are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market Portfolio may invest in multiple class pass-through
securities, including collateralized mortgage obligations ("CMOs"). These
multiple class securities may be issued by U.S. Government agencies or
instrumentalities, including FNMA and FHLMC, or by trusts formed by private
originators of, or investors in, mortgage loans. In general, CMOs are debt
obligations of a legal entity that are collateralized by a pool of residential
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<PAGE>
or commercial mortgage loans or mortgage pass-through securities (the "Mortgage
Assets"), the payments on which are used to make payments on the CMOs. Investors
may purchase beneficial interests in CMOs, which are known as "regular"
interests or "residual" interests. The residual in a CMO structure generally
represents the interest in any excess cash flow remaining after making required
payments of principal of and interest on the CMOs, as well as the related
administrative expenses of the issuer. Residual interests generally are junior
to, and may be significantly more volatile than, "regular" CMO interests. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs, payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the investment adviser
pursuant to guidelines adopted by the Board of Directors. Eligible securities
generally include (1) U.S. Government securities, (2) securities that (a) are
rated (or, in certain cases, whose guarantor is rated) at the time of purchase
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<PAGE>
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 "Prime-1" or "Prime-2" by Moody's) or (b) are rated
(or, in certain cases, whose guarantor, is 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) securities that have no short term
rating (or securities with a guarantee with no such rating), but which are (or
whose guarantee is) comparable in priority and security to a class of short-term
obligations of the issuer or provider that has been rated in accordance with
2(a) or (b) above ("comparable obligations"); and (4) securities that are not
(or whose guarantor is not) rated and are issued or guaranteed by a person that
does not have comparable obligations rated by a Rating Organization ("Unrated
Securities"), provided that such securities are (or their guarantee is)
determined to be of comparable quality to a security satisfying (2) or (3)
above.
Illiquid Securities. The Portfolio may not invest more than 10% of its net
assets in illiquid securities (including repurchase agreements that have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. The Money Market Portfolio's repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
The Portfolio may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolio's adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of restricted
securities in the Portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser may consider, among others,
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the following factors: (1) the unregistered nature of the security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security and (5) the
nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Investment Limitations
The Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and for
reverse repurchase agreements, and then in amounts not in excess of 10% of
the value of the Portfolio's total assets at the time of such borrowing,
and only if after such borrowing there is asset coverage of at least 300%
for all borrowings of the Portfolio; or mortgage, pledge or hypothecate any
of its assets except in connection with such borrowing, and then in amounts
not in excess of 10% of the value of the Portfolio's total assets at the
time of the borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Portfolio's total assets
at the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of the Portfolio's assets may be invested without
regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio
may be deemed an underwriter under federal securities laws and except to
the extent that the purchase of Municipal Obligations directly from the
issuer thereof in accordance with the Portfolio's investment objective,
policies and limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
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<PAGE>
(6) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(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
-10-
<PAGE>
telephone will each be considered a separate industry. The policy and practices
stated in this paragraph may be changed without the affirmative vote of the
holders of a majority of the Money Market Portfolio's outstanding shares, but
any such change would be subject to any applicable requirements of the
Securities and Exchange Commission (the "SEC") and would be disclosed in the
Select Class Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities (other than securities with certain guarantees) of any one
issuer, other than issuers of U.S. Government securities, to 5% of its
total assets, except that the Money Market Portfolio may invest more than
5% of its total assets in First Tier Securities of one issuer for a period
of up to three business days. "First Tier Securities" generally include
eligible securities that (i) if rated (or guaranteed by a person which has
been 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 (or guaranteed by a person which has been 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 have a guarantee which satisfies this standard), or (iv)
are Unrated Securities that are determined to be of comparable quality to
such securities (or have a guarantee which satisfies this standard). The
Money Market Portfolio's compliance with this diversification requirement
is deemed to be in compliance with the fundamental diversification limit in
paragraph 2 above.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
-11-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
- ---------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
-13-
<PAGE>
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors $12,000 annually and $1,250 per meeting of the
Board or any committee thereof that is not held in conjunction with a Board
meeting. In addition, the Chairman of the Board receives an additional fee of
$6,000 per year for his services in this capacity. Directors are reimbursed for
any expenses incurred in attending meetings of the Board of Directors or any
committee thereof. For the year ended August 31, 1998, each of the following
members of the Board of Directors received compensation from the Fund in the
following amounts:
Directors' Compensation
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual
Compensation from Accured as Part Benefits Upon
Name of Person/ Position Regostrant of Fund Expenses Retirement
- ------------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
-14-
<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by BlackRock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolio's 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" or "PDI"), the Fund's distributor, the
Fund itself requires only one part-time employee. 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, ADMINISTRATION, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The Portfolio has an investment
advisory agreement with BIMC. Although BIMC in turn has a sub-advisory
agreement respecting the Portfolio with PNC Bank dated August 16, 1988, as of
April 29, 1998, BIMC assumed these advisory responsibilities from PNC Bank.
Pursuant to the Sub-Advisory Agreement, PNC Bank would be entitled to receive a
annual fee from BIMC for its sub-advisory services calculated at the annual rate
of 75% of the fees received by BIMC on behalf of the Portfolio. The advisory
agreement relating to the Portfolio is dated August 16, 1988. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Agreements."
-15-
<PAGE>
For the period ended August 31, 1998, the Fund paid BIMC (excluding fees to
PFPC for administrative services obligated under the Advisory Agreements)
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory
fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory
fees as follows
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements Waivers Reimbursements
- --------- -------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
</TABLE>
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 Portfolios' investment adviser or Distributor;
(j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees;
(o) brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
-16-
<PAGE>
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 Select Class of the Fund
pays its own distribution fees, and may pay a different share than the other
classes of the Fund of other expenses (excluding advisory and custodial fees) if
those expenses are actually incurred in a different amount by the Select Class
or if it receives different services.
Under the Advisory Agreement, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of its respective duties or from
reckless disregard of its duties and obligations thereunder.
The Advisory Agreements were 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were approved
by the shareholders of the Money Market Portfolio at a special meeting held
December 22, 1989, as adjourned. The Advisory Agreements are 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 or PNC Bank. The Advisory Agreements may also be
terminated by BIMC or PNC Bank on 60 days' written notice to the Fund. Each of
the Advisory Agreements terminate automatically in the event of assignment
thereof.
Administrative Services. BIMC is obligated to render administrative
services to the Money Market Portfolio pursuant to the investment advisory
agreement. Pursuant to the terms of a Delegation Agreement, dated July 29, 1998,
between BIMC and PFPC, however, BIMC has delegated to PFPC its administrative
responsibilities to this Portfolio. The Fund pays administrative fees directly
to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market $0 $0 $0
</TABLE>
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998 (the "Distribution Agreement"), the Distributor will
use appropriate efforts to distribute shares of the Fund. As compensation for
-17-
<PAGE>
its distribution services, the Distributor receives, pursuant to the terms of
the Distribution Agreement, a distribution fee of 0.01%, to be calculated daily
and paid monthly. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of each of the
Portfolios based on a percentage of the amounts invested by their customers.
The amounts, if any, retained by Counsellors and PDI were used to pay
certain advertising and promotion, printing, postage, legal fees, travel,
entertainment sales, marketing and administrative expenses. The Fund believes
that the Portfolio's 12b-1 Plan may benefit the Fund by increasing sales of
Shares. Each of Mr. Sablowsky and Mr. Reichman, Directors of the Fund, had an
indirect interest in the operation of the 12b-1 Plan by virtue of his position
with Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
broker-dealer.
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Portfolio, (b) holds
and transfers portfolio securities on account of the Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of the Portfolio, (d)
collects and receives all income and other payments and distributions on account
of the Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning the Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
-18-
<PAGE>
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Select Shares pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC (a) issues and redeems shares of the Select Class, (b) addresses and mails
all communications by the Select Class to record owners of shares of each such
Class, including reports to shareholders, dividend and distribution notices and
proxy materials for its meetings of shareholders, (c) maintains shareholder
accounts and, if requested, sub-accounts and (d) makes periodic reports to the
Fund's Board of Directors concerning the operations of the Select Class. PFPC
may, on 30 days' notice to the Fund, assign its duties as transfer and dividend
disbursing agent to any other affiliate of PNC Bank Corp. For its services to
the Fund under the Transfer Agency Agreement, PFPC receives a fee at the annual
rate of $15.00 per account in the Portfolio for orders placed via third parties
and relayed electronically to PFPC, and $17.00 per account in the Portfolio for
all other orders, exclusive of out-of-pocket expenses and also receives a fee
for each redemption check cleared and reimbursement of its out-of-pocket
expenses.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase only securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less), and except
that the Money Market Portfolio may purchase variable rate securities with
remaining maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because the Portfolio intends to
purchase only securities with remaining maturities of 13 months or less, its
portfolio turnover rate will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by the
Portfolio, the turnover rate should not adversely affect such Portfolio's net
asset value or net income. The Portfolio does not intend to seek profits through
short term trading.
Purchases of portfolio securities by the Portfolio are made from dealers,
underwriters and issuers; sales are made to dealers and issuers. The Portfolio
does not currently expect to incur any brokerage commission expense on such
transactions because money market instruments are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission. The price of the security, however, usually includes a profit to the
dealer. Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased directly from or sold
directly to an issuer, no commissions or discounts are paid. It is the policy of
the Portfolio to give primary consideration to obtaining the most favorable
price and efficient execution of transactions. In seeking to implement the
policies of the Portfolio, 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.
-19-
<PAGE>
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 a 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 the member except pursuant to procedures adopted by the Fund's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Fund's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
- --------- -------- ------
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
-20-
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that the Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of the Portfolio.
Under the 1940 Act, the Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
A shareholder of record may be required by the Fund's Board of Directors to
redeem shares in the Class if the balance in such shareholder's account drops
below $500 and the shareholder does not increase its balance to at least $500
upon 30 days' written notice. If a Customer has agreed with a particular PNC
Bank to maintain a minimum balance in his account, and the balance in the PNC
Bank account falls below that minimum, the Customer may be obliged to redeem all
or part of his shares in the Portfolio to the extent necessary to maintain the
minimum balance required.
-21-
<PAGE>
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolio at $1.00 per share. Net asset value per share, the
value of an individual share in the Portfolio, is computed by adding the value
of the proportionate interest of the class in a Portfolio's cash, securities,
and other assets, subtracting the actual and accrued liabilities of the class
and dividing the result by the number of outstanding shares of the class. The
net asset value of each class of the Fund is determined independently of each
other class. The Portfolio's "net assets" equal the value of the Portfolio's
investments and other securities less its liabilities. The Portfolio's net asset
value per share is computed twice each day, as of 12:00 noon (Eastern Time) and
as of the close of 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 on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and the preceding Friday and
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays as the NYSE as well as
Veterans' Day and Columbus Day.
The Fund calculates the value of the portfolio securities of the Portfolio
by using the amortized cost method of valuation. Under this method the market
value of an instrument is approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on a straight-line
basis over the remaining life of the instrument. The effect of changes in the
market value of a security as a result of fluctuating interest rates is not
taken into account. The market value of debt securities usually reflects yields
generally available on securities of similar quality. When such yields decline,
market values can be expected to increase, and when yields increase, market
values can be expected to decline. In addition, if a large number of redemptions
take place at a time when interest rates have increased, the Portfolio may have
to sell portfolio securities prior to maturity and at a price which might not be
as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for the Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
-22-
<PAGE>
The Portfolio will maintain a dollar-weighted average portfolio maturity of
90 days or less, will not purchase any instrument with a deemed maturity greater
than 13 months under Rule 2a-7 of the 1940 Act, will limit portfolio
investments, including repurchase agreements (where permitted), to those United
States dollar-denominated instruments that 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.
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.
Performance may fluctuate daily and does not provide a basis for
determining future performance. Because the performance of the Portfolio will
fluctuate, it cannot be compared with performance on savings accounts or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. However, performance information may be useful to an
investor considering temporary investments in money market instruments. In
comparing the performance of one money market fund to another, consideration
should be given to each fund's investment policies, including the types of
investments made, lengths of maturities of a portfolio securities, the method
used by each fund to compute the performance (methods may differ) and whether
there are any special account charges which may reduce the effective
performance.
-23-
<PAGE>
The yields and returns 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.
From time to time, in advertisements or in reports to shareholders, the
yield and returns 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 Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its income to
shareholders each year, so that the Portfolio generally will be relieved of
federal income and excise taxes. If the Portfolio were to fail to so qualify:
(1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.
-24-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class Select Common Stock constitute
the Select Class, described herein. Under RBB's charter, the Board of Directors
has the power to classify or reclassify any unissued shares of Common Stock from
time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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.
-27-
<PAGE>
As stated in the Prospectus, holders of shares of each class of the Fund
will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular portfolio. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted by the provisions of
such Act or applicable state law, or otherwise, to the holders of the
outstanding voting securities of an investment company such as the Fund shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding voting securities of each portfolio affected by
the matter. Rule 18f-2 further provides that a portfolio shall be deemed to be
affected by a matter unless it is clear that the interests of each portfolio in
the matter are identical or that the matter does not affect any interest of the
portfolio. Under the Rule the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by the holders of a majority of the
outstanding voting securities of such portfolio. However, the Rule also provides
that the ratification of the selection of independent public accountants and the
election of directors are not subject to the separate voting requirements and
may be effectively acted upon by shareholders of an investment company voting
without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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 the Fund's Shares"
above. The Fund does not know whether such persons also beneficially own such
shares.
-28-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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.
-29-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-30-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
Robertson Stephens Money Market Portfolio
(Investment Portfolio of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of a class (the "Sansom Street Shares" or the "Shares")
representing interests in the Money Market Portfolio (the "Money Market
Portfolio" or the "Portfolio") of The RBB Fund, Inc. (the "Fund"). This
Statement of Additional Information is not a prospectus, and should be read only
in conjunction with the Prospectus of the Fund, dated December 29, 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 29, 1998.
CONTENTS
Page
----
General.............................................. 2
Investment Objectives and
Policies........................................... 2
Directors and Officers............................... 12
Investment Advisory, Distribution and
Servicing Arrangements............................. 14
Portfolio Transactions............................... 19
Purchase and Redemption
Information........................................ 21
Valuation of Shares.................................. 21
Performance Information.............................. 23
Taxes................................................ 24
Additional Information Concerning
Fund Shares........................................ 24
Miscellaneous........................................ 28
Financial Statements................................. 29
Appendix A........................................... A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertaining to a
class of shares (the "Sansom Street Class" or the "Class") representing
interests in the Money Market Portfolio (the "Money Market Portfolio" or the
"Portfolio") of the Fund. The Class is offered by the Prospectus dated
December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended ("the 1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio may have maturities of more than 13 months, provided:
(i) the Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, upon giving the prescribed notice
(which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 13 months.
In determining the average weighted maturity of the Money Market Portfolio and
whether a variable rate demand instrument has a remaining maturity of 13 months
or less, each long-term 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. The absence of an active secondary market with respect
to particular variable and floating rate instruments could make it difficult for
a Portfolio to dispose of variable or floating rate notes if the issuer
defaulted on its payment obligations or during periods that the Portfolio is not
-2-
<PAGE>
entitled to exercise its demand right and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio has such commitments outstanding, it will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the Portfolio will set aside
portfolio securities to satisfy a purchase commitment and, in such a case, the
Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it expected that commitments to purchase "when- issued"
securities will not exceed 25% of the value of the Portfolio's total assets
absent unusual market conditions. When the Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
Stand-By Commitments. The Money Market Portfolio may enter into stand-by
commitments with respect to obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities
(collectively, "Municipal Obligations") held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option a
specified Municipal Obligation at its amortized cost value to the Portfolio plus
accrued interest, if any. Stand-by commitments may be exercisable by the Money
Market Portfolio at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved.
The Money Market Portfolio expects that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, such Portfolio may pay for a stand-by
commitment either in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by either such Portfolio
will not exceed 1/2 of 1% of the value of such Portfolios total assets
calculated immediately after each stand-by commitment is acquired.
The Money Market Portfolio intends to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the investment adviser's
opinion, present minimal credit risks. The Portfolio's reliance upon the credit
of these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment.
-3-
<PAGE>
The Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where such Portfolio pays directly or
indirectly for a stand-by commitment, its cost will be reflected as an
unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
-4-
<PAGE>
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by the Portfolio
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). The financial institutions with which the Portfolio may enter into
repurchase agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed creditworthy by
the Portfolio's adviser or sub-adviser. A Portfolio's adviser or sub-adviser
will continue to monitor creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement to equal at least
the repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
including either (i) accrued premium provided in the repurchase agreement or
(ii) the daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-adviser will mark-to-market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by the Portfolio
under the 1940 Act.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
-5-
<PAGE>
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds that are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban 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
-6-
<PAGE>
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market Portfolio may invest in multiple class pass-through
securities, including collateralized mortgage obligations ("CMOs"). These
multiple class securities may be issued by U.S. Government agencies or
instrumentalities, including FNMA and FHLMC, or by trusts formed by private
originators of, or investors in, mortgage loans. In general, CMOs are debt
obligations of a legal entity that are collateralized by a pool of residential
or commercial mortgage loans or mortgage pass-through securities (the "Mortgage
Assets"), the payments on which are used to make payments on the CMOs. Investors
may purchase beneficial interests in CMOs, which are known as "regular"
interests or "residual" interests. The residual in a CMO structure generally
represents the interest in any excess cash flow remaining after making required
payments of principal of and interest on the CMOs, as well as the related
administrative expenses of the issuer. Residual interests generally are junior
to, and may be significantly more volatile than, "regular" CMO interests. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and 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.
-7-
<PAGE>
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
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 "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 subject to certain SEC
requirements; 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) subject to certain conditions imposed under SEC rules,
obligations guaranteed by persons which meet the requisite rating requirements.
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
-8-
<PAGE>
Directors. The Money Market Portfolio repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
The Portfolio may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolio's adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of restricted
securities in the Portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser may consider, among others,
the following factors: (1) the unregistered nature of the security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security and (5) the
nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Investment Limitations
The Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and for
reverse repurchase agreements, and then in amounts not in excess of 10% of
the value of the Portfolio's total assets at the time of such borrowing,
and only if after such borrowing there is asset coverage of at least 300%
for all borrowings of the Portfolio; or mortgage, pledge or hypothecate any
of its assets except in connection with such borrowing, and then in amounts
not in excess of 10% of the value of a Portfolio's total assets at the time
-9-
<PAGE>
of the borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Portfolio's total assets at the
time of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate
management of the Portfolio's securities by enabling the Portfolio to meet
redemption requests where the liquidation of portfolio securities is deemed
to be disadvantageous or inconvenient);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of the Portfolio's assets may be invested without
regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio
may be deemed an underwriter under federal securities laws and except to
the extent that the purchase of Municipal Obligations directly from the
issuer thereof in accordance with the Portfolio's investment objective,
policies and limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its 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
-10-
<PAGE>
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
With respect to limitation (b) above concerning industry concentration, the
Portfolio will consider wholly-owned finance companies to be in the industries
of their parents if their activities are primarily related to financing the
activities of the parents, and will divide utility companies according to their
services. For example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry. The policy and practices
stated in this paragraph may be changed without the affirmative vote of the
holders of a majority of the Money Market Portfolio's outstanding shares, but
any such change would be subject to any applicable requirements of the
Securities and Exchange Commission (the "SEC") and would be disclosed in the
Sansom Street Class Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
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<PAGE>
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization (as defined in the Prospectus), are rated (at the
time of purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization in its highest rating
category for such securities, (iii) have no short-term rating and are
comparable in priority and security to a class of short-term obligations of
the issuer of such securities that have been rated in accordance with (i)
or (ii) above, or (iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First Tier Securities
that come within categories (ii) and (iv) above will be approved or
ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
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<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ---------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund or
the Distributor, and Mr. Sablowsky, who is considered to be an affiliated
person, $12,000 annually and $1,250 per meeting of the Board or any committee
thereof that is not held in conjunction with a Board meeting. In addition, the
Chairman of the Board receives an additional fee of $6,000 per year for his
services in this capacity. Directors who are not affiliated persons of the Fund
and Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings
of the Board of Directors or any committee thereof. For the year ended August
31, 1998, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
-14-
<PAGE>
Directors' Compensation
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual
Name of Person/ Compensation Accrued as Part of Benefits Upon
Position from Registrant Fund Expenses Retirement
- --------------- --------------- ------------------- ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
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<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
the Fund will contribute on 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") (formerly
known as "PNC Institutional Management Corporation"), the Portfolio's 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" or "PDI"), the Fund's distributor, the
Fund itself requires only one part-time employee. 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 and Sub-Advisory Agreements. The Portfolio has an investment
advisory agreement with BIMC. Although BIMC in turn has a sub-advisory agreement
respecting the Portfolio with PNC Bank dated August 16, 1988, as of April 29,
1998, BIMC assumed these advisory responsibilities from PNC Bank. Pursuant to
the Sub-Advisory Agreement, PNC Bank would be entitled to receive a fee from
-16-
<PAGE>
BIMC for its sub-advisory services calculated at the annual rate of 75% of the
fees received by BIMC on behalf of the Portfolio. The advisory agreement
Portfolio is dated August 16, 1988. Such advisory and sub-advisory agreements
are hereinafter collectively referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC for administrative services obligated under the Advisory
Agreements) advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
</TABLE>
-17-
<PAGE>
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 Portfolios' investment adviser or Distributor;
(j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees;
(o) brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Sansom Street Classes of
the Fund pay their own distribution fees, and may pay a different share than the
other classes of the Fund of other expenses (excluding advisory and custodial
fees) if those expenses are actually incurred in a different amount by the
Sansom Street Classes or if they receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
-18-
<PAGE>
The Advisory Agreements were each 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 Agreements or "interested persons"
(as defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved by the shareholders of the Portfolio at a special meeting held December
22, 1989, as adjourned. Each Advisory Agreement is terminable by vote of the
Fund's Board of Directors or by the holders of a majority of the outstanding
voting securities of the Portfolio, at any time without penalty, on 60 days'
written notice to BIMC or PNC Bank. Each of the Advisory Agreements may also be
terminated by BIMC or PNC Bank respectively, on 60 days' written notice to the
Fund. Each of the Advisory Agreements terminates automatically in the event of
assignment thereof.
Administration Agreement. BIMC is obligated to render administrative
services to the Money Market Portfolio pursuant to the investment advisory
agreement. Pursuant to the terms of a Delegation Agreement, dated July 29, 1998,
between BIMC and PFPC, however, BIMC has delegated to PFPC its administrative
responsibilities to the Money Market Portfolio. The Fund pays administrative
fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and Reimburse-
Portfolio reimbursements) Waivers ments
- --------- ------------------ ------- ----------
<S> <C> <C> <C>
Money Market $0 $0 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Portfolio, (b) holds
and transfers portfolio securities on account of the Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of the Portfolio, (d)
collects and receives all income and other payments and distributions on account
of the Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning the Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
-19-
<PAGE>
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Sansom Street Shares pursuant to a Transfer
Agency Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under
which PFPC (a) issues and redeems shares of the Sansom Street Class, (b)
addresses and mails all communications by the Sansom Street Class to record
owners of shares of each such Class, including reports to shareholders, dividend
and distribution notices and proxy materials for its meetings of shareholders,
(c) maintains shareholder accounts and, if requested, sub-accounts and (d) makes
periodic reports to the Fund's Board of Directors concerning the operations of
the Sansom Street Class. PFPC may, on 30 days' notice to the Fund, assign its
duties as transfer and dividend disbursing agent to any other affiliate of PNC
Bank Corp. For its services to the Fund under the Transfer Agency Agreement,
PFPC receives a fee at the annual rate of $15.00 per account in the Portfolio
for orders placed via third parties and relayed electronically to PFPC, and
$17.00 per account in the Portfolio for all other orders, exclusive of
out-of-pocket expenses and also receives a fee for each redemption check cleared
and reimbursement of its out-of-pocket expenses.
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, entered into by the Distributor and the Fund on behalf
of the Sansom Street Class (the "Distribution Agreement"), and the Plan of
Distribution, as amended, for the Sansom Street Class (the "Plan"), both of
which were adopted by the Fund in the manner prescribed by Rule 12b-1 under the
1940 Act, the Distributor will use appropriate efforts to distribute shares of
the Sansom Street Class. As compensation for its distribution services, the
Distributor receives, pursuant to the terms of the Distribution Agreement, a
distribution fee, to be calculated daily and paid monthly, at the annual rate
set forth in the Prospectus.
The Plan as amended was approved by the Fund's Board of Directors,
including the directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan ("12b-1 Directors").
Among other things, the Plan provides that: (1) the Distributor shall be
required to submit quarterly reports to the directors of the Fund regarding all
amounts expended under the Plan and the purposes for which such expenditures
were made, including commissions, advertising, printing, interest, carrying
charges and any allocated overhead expenses; (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Sansom Street Class under the Plan shall not be materially
increased without the affirmative vote of the holders of a majority of the
Fund's shares of the affected Sansom Street Class; and (4) while the Plan
remains in effect, the selection and nomination of the 12b-1 Directors shall be
committed to the discretion of the directors who are not interested persons of
the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plans for the Robertson Stephens Money Market
-20-
<PAGE>
Portfolio in the aggregate amount of $86,796. Of that amount, $3,359 was
paid to dealers with whom PDI had entered into dealer agreements, and $83,437
was retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the Plans for the Robertson Stephens Money Market
Portfolio in the aggregate amount of $243,666. Of that amount, $17,290 was
paid to dealers with whom Counsellors had entered into dealer agreements and
$226,376 was retained by Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plan by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
As stated in the Prospectus for the Sansom Street Class, the Fund has
adopted a Shareholder Servicing Plan on behalf of the Sansom Street Classes
under which the Fund may enter into service agreements with banks that are
affiliated with PNC Bank Corp. (the "Banks"). The Plan provides that banks (the
"Banks") that are recordholders of Shares of the Sansom Street classes may
receive a fee of up to .20% under the Plan for services to their customers
("Customers") who are beneficial owners of Shares. The Fund has entered into
agreements with the Banks pertaining to the provision of support services to the
Banks' Customers in consideration of the Fund's payment of .10% (on an
annualized basis) of the net asset value of such Customers' Shares. Such
services include: (i) aggregating and processing purchase and redemption
requests from their Customers and placing net purchase and redemption orders
with the PFPC; (ii) periodically providing their Customers information showing
their positions in shares; (iii) processing dividend payments from the Fund on
behalf of their Customers; (iv) arranging for bank wires; (v) responding to
their Customer inquiries relating to the services performed by the service
organization; (vi) providing sub-accounting with respect to Shares beneficially
owned by their Customers or the information necessary for sub-accounting; (vii)
forwarding shareholder communications from the Fund (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to their customers, if required by law; and (viii)
other similar services if requested by the Fund. The Banks also agree to
maintain records relating to transactions in Shares, and to provide the Fund
with such statistical and factual information as the Fund may request.
Agreements between the Fund and the Banks are terminable at any time by the Fund
without penalty. The Distributor will monitor the support services provided by
the Banks under such agreements.
During the year ended August 31, 1998, the Fund paid fees to Banks under
the relevant agreement for the Sansom Street Class of the Money Market Portfolio
-21-
<PAGE>
in the amount of 531,358. During the year ended August 31, 1997, the Fund paid
fees to Banks under the relevant agreement for the Sansom Street Class of the
Money Market Portfolio in the amount of $535,524. During the year ended August
31, 1996, the Fund paid fees to Banks under the relevant agreement for the
Sansom Street Class of the Money Market Portfolio in the amount of $471,499.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase only securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less), and except
that the Money Market Portfolio may purchase variable rate securities with
remaining maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because the Portfolio intends to
purchase only securities with remaining maturities of 13 months or less, its
portfolio turnover rate will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by the
Portfolio, the turnover rate should not adversely affect such Portfolio's net
asset value or net income. The Portfolio does not intend to seek profits through
short term trading.
Purchases of portfolio securities by the Portfolio are made from dealers,
underwriters and issuers; sales are made to dealers and issuers. The Portfolio
does not currently expect to incur any brokerage commission expense on such
transactions because money market instruments are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission. The price of the security, however, usually includes a profit to the
dealer. Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased directly from or sold
directly to an issuer, no commissions or discounts are paid. It is the policy of
the Portfolio to give primary consideration to obtaining the most favorable
price and efficient execution of transactions. In seeking to implement the
policies of the Portfolio, 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.
-22-
<PAGE>
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 a 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 the member except pursuant to procedures adopted by the Fund's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Fund's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to a Portfolio.
The Fund is required to identify any securities of RBB's regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
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.
-23-
<PAGE>
Under the 1940 Act, the Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
A shareholder of record may be required by the Fund's Board of Directors to
redeem shares in the Class if the balance in such shareholder's account drops
below $500 and the shareholder does not increase its balance to at least $500
upon 30 days' written notice. If a Customer has agreed with a particular Bank to
maintain a minimum balance in his account, and the balance in the Bank account
falls below that minimum, the Customer may be obliged to redeem all or part of
his shares in the Portfolio to the extent necessary to maintain the minimum
balance required.
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolio at $1.00 per share. Net asset value per share, the
value of an individual share in the Portfolio, is computed by adding the value
of the proportionate interest of the class in a Portfolio's cash, securities,
and other assets, subtracting the actual and accrued liabilities of the class
and dividing the result by the number of outstanding shares of the class. The
net asset value of each class of the Fund is determined independently of each
other class. The Portfolio's "net assets" equal the value of the Portfolio's
investments and other securities less its liabilities. The Portfolio's net asset
value per share is computed twice each day, as of 12:00 noon (Eastern Time) and
as of the close of 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 on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and the preceding Friday and
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays as the NYSE as well as
Veterans' Day and Columbus Day.
The Fund calculates the value of the portfolio securities of the Portfolio
by using the amortized cost method of valuation. Under this method the market
value of an instrument is approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on a straight-line
basis over the remaining life of the instrument. The effect of changes in the
market value of a security as a result of fluctuating interest rates is not
taken into account. The market value of debt securities usually reflects yields
generally available on securities of similar quality. When such yields decline,
market values can be expected to increase, and when yields increase, market
values can be expected to decline. In addition, if a large number of redemptions
take place at a time when interest rates have increased, the Portfolio may have
to sell portfolio securities prior to maturity and at a price which might not be
as desirable.
-24-
<PAGE>
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for the Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio maturity of
90 days or less, will not purchase any instrument with a deemed maturity greater
than 13 months under Rule 2a-7 of the 1940 Act, will limit portfolio
investments, including repurchase agreements (where permitted), to those United
States dollar-denominated instruments that 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.
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.
-25-
<PAGE>
The annualized yield for the seven-day period ended August 31, 1998 for the
Sansom Street Class of the Money Market Portfolio before waivers was as follows:
<TABLE>
<CAPTION>
Tax Equivalent Yield
(assumes a federal)
Effective income
Portfolio Yield Yield tax rate of 28%)
- --------- ----- --------- ------------------
<S> <C> <C> <C>
Money Market 5.05% 5.18% N/A
</TABLE>
The annualized yield for the seven-day period ended August 31, 1998 for the
Sansom Street Class of the Money Market Portfolio after waivers was as follows:
<TABLE>
<CAPTION>
Tax Equivalent Yield
(assumes a federal
Effective income
Portfolio Yield Yield tax rate of 28%)
- --------- ----- --------- ------------------
<S> <C> <C> <C>
Money Market 5.18% 5.31% N/A
</TABLE>
Total return and yield may fluctuate daily and do not provide a basis for
determining future returns and yields. Because the return and yield of the
Portfolio will fluctuate, it cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of a
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which the Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether the Portfolio should continue to hold the obligation.
-26-
<PAGE>
From time to time, in advertisements or in reports to shareholders, the
return and/or yield of the Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of the Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
TAXES
The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its income to
shareholders each year, to that the Portfolio generally will be relieved of
federal income and excise taxes. If the Portfolio were to fail to so qualify:
(1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.
-27-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class J Common Stock constitute the
Sansom Street Class, described herein. Under RBB's charter, the Board of
Directors has the power to classify or reclassify any unissued shares of
Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
-29-
<PAGE>
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).
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 LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
-30-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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, 1998 (the "1998
-31-
<PAGE>
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-32-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
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The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
SANSOM STREET FAMILY
Money Market Portfolio,
Municipal Money Market Portfolio and
Government Obligations Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of three classes (the "Sansom Street Shares") representing
interests in three investment portfolios (the "Portfolios") of The RBB Fund,
Inc. (the "Fund"): the Money Market Portfolio, the Municipal Money Market
Portfolio and the Government Obligations Money Market Portfolio. This Statement
of Additional Information is not a prospectus, and should be read only in
conjunction with the Sansom Street Family Prospectus of the Fund, dated
December 29, 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 29, 1998.
CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
General................................................................................2
Investment Objectives and Policies.....................................................2
Directors and Officers................................................................13
Investment Advisory, Distribution and Servicing Arrangements..........................16
Portfolio Transactions................................................................22
Purchase and Redemption Information...................................................23
Valuation of Shares...................................................................24
Performance Information...............................................................25
Taxes.................................................................................27
Additional Information Concerning Fund Shares.........................................27
Miscellaneous.........................................................................30
Financial Statements..................................................................31
Appendix A...........................................................................A-1
</TABLE>
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.
-1-
<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
three classes of shares (the "Sansom Street Classes") each representing
interests in one of three investment portfolios (the "Portfolios") of the Fund:
the Money Market Portfolio, the Municipal Money Market Portfolio and the
Government Obligations Money Market Portfolio. The Sansom Street Classes are
offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market or the Municipal Money Market Portfolio may have maturities of
more than 13 months, provided: (i) the Portfolio is entitled to the payment of
principal at any time, or during specified intervals not exceeding 13 months,
upon giving the prescribed notice (which may not exceed 30 days), and (ii) the
rate of interest on such instruments is adjusted at periodic intervals which may
extend up to 13 months. In determining the average weighted maturity of the
Money Market Portfolio or the Municipal Money Market Portfolio and whether a
variable rate demand instrument has a remaining maturity of 13 months or less,
each long-term 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. The absence of an active secondary market with respect to
particular variable and floating rate instruments could make it difficult for a
Portfolio to dispose of variable floating rate notes if the issuer defaulted on
its payment obligations or during periods that the Portfolio is not entitled to
exercise its demand right, and the Portfolio could, for these or other reasons,
suffer a loss with respect to such instruments.
-2-
<PAGE>
When-Issued or Delayed Delivery Securities. The Money Market and Municipal
Money Market Portfolios may purchase "when- issued" and delayed delivery
securities purchased for delivery beyond the normal settlement date at a stated
price and yield. While the Money Market Portfolio or the Municipal Money Market
Portfolio has such commitments outstanding, they will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
the Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that a
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because a Portfolio's liquidity and ability to manage its portfolio might
be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it is expected that commitments to purchase "when issued"
securities will not exceed 25% of the value of a Portfolio's total assets absent
unusual market conditions. When either the Money Market Portfolio or the
Municipal Money Market Portfolio engages in when-issued transactions, it relies
on the seller to consummate the trade. Failure of the seller to do so may result
in such Portfolio incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio and the Municipal
Money Market Portfolio may enter into stand-by commitments with respect to
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities and authorities (collectively, "Municipal
Obligations") held in its portfolio. Under a stand-by commitment, a dealer would
agree to purchase at the Portfolio's option a specified Municipal Obligation at
its amortized cost value to the Portfolio plus accrued interest, if any.
Stand-by commitments may be exercisable by the Money Market Portfolio or the
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio and the Municipal Money Market Portfolio
expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, either of such Portfolio may pay for a stand-by commitment either in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities). The total amount paid in either manner for
outstanding stand-by commitments held by either such Portfolio will not exceed
1/2 of 1% of the value of the relevant Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
Each of the Money Market Portfolio and the Municipal Money Market Portfolio
intends to enter into stand-by commitments only with dealers, banks and
broker-dealers which, in the investment adviser's opinion, present minimal
credit risks. These Portfolios' reliance upon the credit of these dealers, banks
and broker-dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment.
-3-
<PAGE>
The Money Market Portfolio and the Municipal Money Market Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes. The acquisition
of a stand-by commitment will not affect the valuation or assumed maturity of
the underlying Municipal Obligation which will continue to be valued in
accordance with the amortized cost method. The actual stand-by commitment will
be valued at zero in determining net asset value. Accordingly, where either
Portfolio pays directly or indirectly for a stand-by commitment, its cost will
be reflected as an unrealized loss for the period during which the commitment is
held by such Portfolio and will be reflected in realized gain or loss when the
commitment is exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
Short Sales "Against the Box." In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for investment purposes. A Portfolio
may, however, make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Portfolio (or a security convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an attractive current price, but
also wishes possibly to defer recognition of gain or loss for federal income tax
purposes. (A short sale against the box will defer recognition of gain for
federal income tax purposes only if the Portfolio subsequently closes the short
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) In such case, any future losses in the
Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
-4-
<PAGE>
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales. The
dollar amount of short sales at any time will not exceed 25% of the net assets
of the Government Obligations Money Market Portfolio, and the value of
securities of any one issuer in which the Portfolio is short will not exceed the
lesser of 2% of net assets or 2% of the securities of any class of an issuer.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the Portfolio's
adviser or sub-adviser. A Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price including either (i)
accrued premium provided in the repurchase agreement or (ii) the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark-to-market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
-5-
<PAGE>
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Money Market Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMO interests. The Portfolios do not currently intend to purchase residual
interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
-6-
<PAGE>
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Lending of Securities. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements; 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) subject to certain conditions
-7-
<PAGE>
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Money Market Portfolio and the Government
Obligations Money Market Portfolio, repurchase agreements subject to demand are
deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
-8-
<PAGE>
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and
with respect to the Money Market Portfolio only, except for reverse
repurchase agreements) and then in amounts not in excess of 10% of the
value of the Portfolio's total assets at the time of such borrowing,
and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate any of its assets except in connection with such
borrowings and then, with respect to the Money Market Portfolio, in
amounts not in excess of 10% of the value of a Portfolio's total
assets at the time of such borrowing and, with respect to the
Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing; or purchase
portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, a
Portfolio may be deemed an underwriter under federal securities laws
and except to the extent that the purchase of Municipal Obligations
directly from the issuer thereof in accordance with a Portfolio's
investment objective, policies and limitations may be deemed to be an
underwriting;
(5) make short sales of securities or maintain a short position
or write or sell puts, calls, straddles, spreads or combinations
thereof;
(6) purchase or sell real estate, provided that a Portfolio may
invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
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<PAGE>
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may
enter into repurchase agreements;
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax; (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
-10-
<PAGE>
changed without the affirmative vote of the holders of a majority of the Money
Market Portfolio's outstanding shares, but any such would be subject to any
applicable requirements of the Securities and Exchange Commission ("SEC") and
would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days.
"First Tier Securities" include eligible securities that (i) if rated
by more than one Rating Organization (as defined in the Prospectus),
are rated (at the time of purchase) by two or more Rating
Organizations in the highest rating category for such securities, (ii)
if rated by only one Rating Organization, are rated by such Rating
Organization in its highest rating category for such securities, (iii)
have no short-term rating and are comparable in priority and security
to a class of short-term obligations of the issuer of such securities
that have been rated in accordance with (i) or (ii) above, or (iv) are
Unrated Securities that are determined to be of comparable quality to
such securities. Purchases of First Tier Securities that come within
categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second
Tier Securities, which are eligible securities other than First Tier
Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second
Tier Securities of one issuer to the greater of 1% of its total assets
or $1 million.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put
if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that
the foregoing condition shall only be applicable with respect to 75%
of the Municipal Money Market Portfolio's total assets. A "Put" means
a right to sell a specified underlying instrument within a specified
period of time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
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<PAGE>
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations. There is no limit on the amount of the Portfolio's
assets which may be invested in the securities of any one issuer of
obligations that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an amount not
exceeding 10% of the value of the Portfolio's total assets, and only
if after such borrowing there is asset coverage of at least 300% for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate
its assets except in connection with any such borrowing and in amounts
not in excess of 10% of the value of the Portfolio's assets at the
time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans, except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations, may enter into repurchase agreements for securities,
and may lend portfolio securities against collateral consisting of
cash or securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no investment restriction on the
amount of securities that may be loaned, except that payments received
on such loans, including amounts received during the loan on account
of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under federal income tax provisions applicable to regulated investment
companies.
The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
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<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
- -------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
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<PAGE>
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board 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 $1,250 per meeting of the Board or any committee thereof
that is not held in conjunction with a Board meeting. In addition, the Chairman
of the Board receives an additional fee of $6,000 per year for his services in
this capacity. Directors who are not affiliated persons and Mr. Sablowsky are
reimbursed for any expenses incurred in attending meetings of the Board of
Directors or any committee thereof. For the year ended August 31, 1998, each of
the following members of the Board of Directors received compensation from the
Fund in the following amounts:
-15-
<PAGE>
<TABLE>
<CAPTION>
Directors' Compensation
-----------------------
Pension or Retirement
Aggregate Compensation Benefits Accrued as Part of Estimated Annual Benefits
Name of Person/Position from Registrant Fund Expenses Upon Retirement
- ----------------------- ---------------------- --------------------------- -------------------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee) pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC")(formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the Municipal Money Market Portfolio's administrator and the Fund's
transfer and dividend disbursing agent, and Provident Distributors, Inc. (the
"Distributor" or "PDI"), the Fund's distributor, the Fund itself requires only
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<PAGE>
one part-time employee. 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 and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios with PNC Bank dated August 16, 1988, as of April 29,
1998, BIMC assumed these advisory responsibilities from PNC Bank. Pursuant to
the Sub-Advisory Agreements, PNC Bank would be entitled to receive a annual fee
from BIMC for its sub-advisory services calculated at the annual rate of 75% of
the fees received by BIMC on behalf of the Money Market, Municipal Money Market
and Government Obligations Portfolios. The advisory agreements relating to the
Money Market and Government Obligations Money Market Portfolios are each dated
August 16, 1988, and the advisory agreement relating to the Municipal Money
Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Money Market and Government Obligations
Portfolios, for administrative services obligated under the Advisory Agreements)
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money Market $1,649,453 $ 723,970 $392,949
</TABLE>
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<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market $ 5,366,431 $ 3,603,130 $ 469,986
Municipal Money Market $ 201,095 $ 1,269,553 $ 14,921
Government Obligations Money Market $ 1,774,123 $ 647,063 $ 404,193
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
</TABLE>
Each 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) expenses of
organizing the Fund that are not attributable to a class of the Fund; (d)
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<PAGE>
certain of the filing fees and expenses relating to the registration and
qualification of the Fund and a portfolio's shares under Federal and/or state
securities laws and maintaining such registrations and qualifications; (e) fees
and salaries payable to the Fund's directors and officers; (f) taxes (including
any income or franchise taxes) and governmental fees; (g) costs of any liability
and other insurance or fidelity bonds; (h) any costs, expenses or losses arising
out of a liability of or claim for damages or other relief asserted against the
Fund or a portfolio for violation of any law; (i) legal, accounting and auditing
expenses, including legal fees of special counsel for the independent directors;
(j) charges of custodians and other agents; (k) expenses of setting in type and
printing prospectuses, statements of additional information and supplements
thereto for existing shareholders, reports, statements, and confirmations to
shareholders and proxy material that are not attributable to a class; (l) costs
of mailing prospectuses, statements of additional information and supplements
thereto to existing shareholders, as well as reports to shareholders and proxy
material that are not attributable to a class; (m) any extraordinary expenses;
(n) fees, voluntary assessments and other expenses incurred in connection with
membership in investment company organizations; (o) costs of mailing and
tabulating proxies and costs of shareholders' and directors' meetings; (p) costs
of BIMC's use of independent pricing services to value a portfolio's securities;
and (q) the cost of investment company literature and other publications
provided by the Fund to its directors and officers. The Sansom Street classes of
the Fund pay their own distribution fees, and may pay a different share than
other classes of the Fund (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. The investment advisory agreement was
approved with respect to the Municipal Money Market Portfolio by shareholders at
a special meeting held June 10, 1992, as adjourned and the sub-advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held on December 22, 1989. Each Advisory
Agreement is terminable by vote of the Fund's Board of Directors or by the
holders of a majority of the outstanding voting securities of the relevant
Portfolio, at any time without penalty, on 60 days' written notice to BIMC or
PNC Bank. Each of the Advisory Agreements may also be terminated by BIMC or PNC
Bank respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminates automatically in the event of assignment thereof.
Administration Agreement. PFPC serves as the administrator to the Municipal
Money Market Portfolio pursuant to an Administration and Accounting Services
Agreement dated April 21, 1992 (the "Administration Agreement"). PFPC has agreed
to furnish to the Fund on behalf of the Municipal Money Market Portfolio,
statistical and research data, clerical, accounting, and bookkeeping services,
and certain other services required by the Fund. PFPC has also agreed to prepare
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<PAGE>
and file various reports with the appropriate regulatory agencies, and prepare
materials required by the SEC or any state securities commission having
jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or the
Portfolio in connection with the performance of the Agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreement, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market Portfolio.
BIMC is obligated to render administrative services to the Money Market and
Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of Delegation Agreements, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Portfolio Fees Paid Waivers Reimbursements
- --------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,513 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Portfolio Fees Paid Waivers Reimbursements
- --------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Portfolio Fees Paid Waivers Reimbursements
- --------- --------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
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<PAGE>
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Shares pursuant to a Transfer Agency Agreement dated
August 16, 1988 (the "Transfer Agency Agreement"), under which PFPC (a) issues
and redeems Shares, each such Portfolio, including reports to (b) addresses and
mails all communications by each Portfolio to record owners of Shares of
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Portfolio. PFPC may, on 30 days' notice to the
Fund, assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per account
in each Portfolio for orders which are placed via third parties and relayed
electronically to PFPC, and at an annual rate of $17.00 per account in each
Portfolio for all other orders, exclusive of out-of-pocket expenses and also
receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
Distribution and Servicing Agreements. Pursuant to the terms of a
distribution agreement, dated as of May 29, 1998 entered into by the Distributor
and the Fund on behalf of each of the Sansom Street Classes (the "Distribution
Agreement"), and separate Plans of Distribution, as amended, for each of the
Sansom Street Classes (collectively, the "Plans"), all of which were adopted by
the Fund in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use appropriate efforts to distribute shares of each of the
Sansom Street Classes. As compensation for its distribution services, the
Distributor receives, pursuant to the terms of the Distribution Agreements, a
distribution fee, to be calculated daily and paid monthly, at the annual rate
set forth in the Prospectus.
Each of the Plans was approved by the Fund's Board of Directors, including
the directors who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the operation of the Plans or any
agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plans and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
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<PAGE>
carrying charges and any allocated overhead expenses; (2) the Plans will
continue in effect only so long as they are approved at least annually, and any
material amendment thereto is approved, by the Fund's directors, including the
12b-1 Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Sansom Street Class under the Plans shall not be materially
increased without the affirmative vote of the holders of a majority of the
Fund's shares in the affected Sansom Street Class; and (4) while the Plans
remain in effect, the selection and nomination of the 12b-1 Directors shall be
committed to the discretion of the directors who are not interested persons of
the Fund.
During the period May 29, 1998 through August 31, 1998, the Fund paid
distribution fees to PDI under the Plans for the Sansom Street Classes of each
of the Money Market Portfolio, Municipal Money Market Portfolio and the
Government Obligations Money Market Portfolio in the aggregate amounts of
$86,796, $0, and $0, respectively. Of those amounts, $3,359, $0, and $0,
respectively, was paid to dealers with whom PDI had entered into dealer
agreements, and $83,437, $0, and $0, respectively, was retained by PDI.
During the period September 1, 1997, through May 29, 1998, the Fund paid
distribution fees to the Fund's previous distributor, Counsellors Securities,
Inc. ("Counsellors"), under the Plans for the Sansom Street Classes of each of
the Money Market Portfolio, the Municipal Money Market Portfolio and the
Government Obligations Money Market Portfolio in the aggregate amounts of
$243,666, $0, and $0, respectively. Of these amounts, $17,290, $0, and $0,
respectively, was paid to dealers with whom Counsellors had entered into dealer
agreements, and $226,376, $0, and $0, respectively, was retained by
Counsellors.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the Plans by virtue of his respective position with Fahnestock Co., Inc. and
Counsellors Securities, Inc., respectively, each a broker-dealer.
As stated in the Prospectus for the Sansom Street Classes, the Fund has
adopted a Shareholder Servicing Plan on behalf of the Sansom Street Classes
under which the Fund may enter into service agreements with banks that are
affiliated with PNC Bank Corp. (the "Banks"). The Plan provides that the Banks
that are recordholders of shares of the Sansom Street Classes may receive a fee
-22-
<PAGE>
of up to .20% under the Plan for services to their customers who are beneficial
owners of shares of the Sansom Street Classes ("Customers"). The Fund has
entered into agreements with the Banks pertaining to the provision of support
services to the Customers in consideration of the Fund's payment of .10% (on an
annualized basis) of the net asset value of such Shares. Such services include:
(i) aggregating and processing purchase and redemption requests from Customers
and placing net purchase and redemption orders with the PFPC; (ii) periodically
providing Customers information showing their positions in shares; (iii)
processing dividend payments from the Fund on behalf of Customers; (iv)
arranging for bank wires; (v) responding to Customer inquiries relating to the
services performed by the service organization; (vi) providing sub-accounting
with respect to shares of the Sansom Street Classes beneficially owned by
Customers or the information necessary for sub-accounting; (vii) forwarding
shareholder communications from the Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Customers, if required by law; and (viii) other similar services if
requested by the Fund. The Banks also agree to maintain records relating to
transactions in shares of the Sansom Street Classes, and to provide the Fund
with such statistical and factual information as the Fund may request.
Agreements between the Fund and the Banks are terminable at any time by the Fund
without penalty. The Distributor will monitor the support services provided by
the Banks under such agreements.
During the year ended August 31, 1998, the Fund paid fees to Banks under
the relevant agreements for the Sansom Street Classes of each of the Money
Market Portfolio, Municipal Money Market Portfolio and Government Obligations
Money Market Portfolio in the amount of $531,358, $0 and $0, respectively.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Money Market Portfolio and Municipal Money Market
Portfolio may purchase variable rate securities with remaining maturities of 13
months or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 13
months or less. Because all Portfolios intend to purchase only securities with
remaining maturities of 13 months or less, their portfolio turnover rates will
be relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by each such Portfolio, the turnover rate
should not adversely affect such Portfolio's net asset value or net income. The
Portfolios do not intend to seek profits through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
-23-
<PAGE>
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by 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 a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following Portfolios held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
-24-
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
A shareholder of record may be required by the Fund's Board of Directors to
redeem shares in any Class if the balance in such shareholder's account drops
below $500 and the shareholder does not increase its balance to at least $500
upon 30 days' written notice. If a Customer has agreed with a particular Bank to
maintain a minimum balance in his account, and the balance in the Bank account
falls below that minimum, the Customer may be obliged to redeem all or part of
his shares in each Portfolio to the extent necessary to maintain the minimum
balance required.
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of the class in a Portfolio's securities, cash and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of such class. The net
asset value of each class of the Fund is determined independently of the other
classes of the Fund. A Portfolio's "net assets" equal the value of a Portfolio's
investments and other securities less its liabilities. Each Portfolio's net
asset value per share is computed twice each day, as of 12:00 noon (Eastern
Time) and as of the close of 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 on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and the preceding Friday and
subsequent Monday, when one of the holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays the NYSE as well as
Veterans' Day and Columbus Day.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
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<PAGE>
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity greater than 13 months under Rule 2a-7 of the 1940 Act, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that 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.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
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<PAGE>
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1998 for the
Sansom Street Class of the Money Market Portfolio before waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent Yield
(assumes a federal income
Portfolio Yield Effective Yield tax rate of 28%)
- --------- ----- --------------- -------------------------
<S> <C> <C> <C>
Money Market 5.05% 5.18% N/A
</TABLE>
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<PAGE>
The annualized yield for the seven-day period ended August 31, 1998 for the
Sansom Street Class of the Money Market Portfolio after waivers was as follows:
<TABLE>
<CAPTION>
Tax-Equivalent Yield
(assumes a federal income
Portfolio Yield Effective Yield tax rate of 28%)
- --------- ----- --------------- ------------------------
<S> <C> <C> <C>
Money Market 5.18% 5.31% N/A
</TABLE>
During the foregoing time period, Shares of the Sansom Street Classes of
the Municipal Money Market and Government Obligations Money Market Portfolios
were not offered.
Total return and yield may fluctuate daily and do not provide a basis for
determining future returns and yields. Because the returns and yields of each
Portfolio will fluctuate, they cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
-28-
<PAGE>
TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio to pay tax-exempt dividends for any taxable year, at least 50% of the
aggregate value of the Portfolio's assets at the close of each quarter of the
Fund's taxable year must consist of exempt-interest obligations.
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class I Common Stock, Class J Common
Stock and Class K Common Stock constitute the Sansom Street Family, described
herein. UnderRBB's charter, the Board of Directors has the power to classify
or reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
-31-
<PAGE>
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
-32-
<PAGE>
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
-33-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory or sub-advisory agreement would
normally be subject to shareholder approval. It is not anticipated that any
change in the Fund's method of operations as a result of these occurrences would
affect its net asset value per share or result in a financial loss to any
shareholder.
Shareholder Approvals. As used in this Statement of Additional Information
and in the Prospectuses, "shareholder approval" and a "majority of the
outstanding shares" of a class, series or Portfolio means, with respect to the
approval of an investment advisory agreement, a distribution plan or a change in
a fundamental investment limitation, the lesser of (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
-34-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
-35-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
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The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<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 29, 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 29, 1998.
CONTENTS
<TABLE>
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Page
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<S> <C>
General............................................................................2
Investment Objectives and Policies.................................................2
Directors and Officers............................................................12
Investment Advisory, Distribution and Servicing Arrangements......................15
Portfolio Transactions............................................................18
Purchase and Redemption Information...............................................19
Valuation of Shares...............................................................20
Performance Information...........................................................21
Taxes.............................................................................22
Additional Information Concerning Fund Shares.....................................23
Miscellaneous.....................................................................26
Financial Statements..............................................................39
Appendix A.......................................................................A-1
</TABLE>
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 of the Fund. The Principal Class is offered by the Prospectus dated
December 29, 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 objectives and policies of the Portfolio. A
description of ratings of Municipal Obligations (defined below) and commercial
paper is set forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by the Portfolio pursuant to the Portfolio's agreement
to repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding,
the Portfolio will maintain in a segregated account with the Fund's custodian or
a qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the 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 long-term 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.
-3-
<PAGE>
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.
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, it will maintain in a segregated account with the
Fund's custodian or a qualified sub-custodian, cash or liquid securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the Portfolio will set aside portfolio securities to
satisfy a purchase commitment and, in such a case, the Portfolio may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the
Portfolio's commitment. It may be expected that the Portfolio's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. Because the Portfolio's
liquidity and ability to manage its portfolio might be affected when it sets
aside cash or portfolio securities to cover such purchase commitments, it 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
such Portfolio incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. The Portfolio may enter into stand-by commitments
with respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Portfolio at any time
before the maturity of the underlying Municipal Obligations and may be sold,
transferred or assigned only with the instruments involved.
The Portfolio expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Portfolio may pay for a stand-by commitment either
in cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield to maturity otherwise
available for the same securities). The total amount paid in either manner for
outstanding stand-by commitments held by the Portfolio will not exceed 1/2 of 1%
of the value of the Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
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,
-4-
<PAGE>
banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment.
The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
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, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
-5-
<PAGE>
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by the Portfolio
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). The financial institutions with which the Portfolio may enter into
repurchase agreements will be banks and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed creditworthy by
the Portfolio's adviser or sub-advisor. A Portfolio's adviser or sub-advisor
will continue to monitor creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement to equal at least
the repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-advisor 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 either (i) accrued premium provided in the repurchase agreement or
(ii) the daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-advisor will mark-to-market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by the Portfolio
under the 1940 Act.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by the Portfolio, the Portfolio may, upon
the notice specified in the note, demand payment of the principal of the note at
any time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
-6-
<PAGE>
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds that are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban 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.
-7-
<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 Portfolios do not
currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
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.
-8-
<PAGE>
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 (or, in certain cases, whose guarantor is 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 "Prime-1" or "Prime-2" by Moody's), or (b) are rated
(or, in certain cases, whose guarantor is 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) securities that have no short term rating
(or securities with a guarantee with no such rating), but which are (or whose
guarantee is) in priority and security to a class of short-term obligations of
the issuer or provider that has been rated in accordance with 2(a) or (b) above
("comparable obligations"); and (4) securities that are not (or whose guarantor
is not) rated and are issued that do not have comparable obligations rated by a
Rating Organization ("Unrated Securities"), provided that such securities are
(or their guarantee is) determined to be of comparable quality to a security
satisfying (2) or (3) above.
Illiquid Securities. The Portfolio may not invest more than 10% of its net
assets in illiquid securities (including repurchase agreements that have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. The Portfolio's 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
-9-
<PAGE>
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
The Portfolio may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolio's adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of restricted
securities in the Portfolio under the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser may consider, among others,
the following factors: (1) the unregistered nature of the security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security and (5) the
nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Investment Limitations
The Portfolio may not:
(1) borrow money, except from banks for temporary purposes and
for reverse repurchase agreements, and then in amounts not in excess
of 10% of the value of the Portfolio's total assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge or hypothecate any of its assets except in connection
with such borrowing and then in amounts not in excess of 10% of the
value of the Portfolio's total assets at the time of the borrowing and
in amounts not in excess of the lesser of the dollar amounts borrowed
or; 10% of the value of the Portfolio's total assets at the time of
such borrowing; or purchase portfolio securities while borrowings 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;
-10-
<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;
(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
-11-
<PAGE>
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without 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
would be subject to any applicable requirements of the Securities and Exchange
Commission (the "SEC") and would be disclosed in the Principal Class Prospectus
prior to being made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the 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
(other than securities with certain guarantees) 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" generally include
eligible securities that (i) if rated (or guaranteed by a person which
has been 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 (or guaranteed by a person which has been
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) (or have a
guarantee which satisfies this standard) above, or (iv) are Unrated
Securities that are determined to be of comparable quality to such
securities (or have a guarantee which satisfies this standard). The
Portfolio's compliance with this diversification requirement is deemed
to be in compliance with the fundamental diversification limit in
paragraph 2 above.
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.
-12-
<PAGE>
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>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
- -------------------
-14-
<PAGE>
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities Inc., respectively, each a
registered broker-dealers.
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, $12,000 annually and $1,250 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
$6,000 per year for his services in this capacity. Directors and Mr. 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, 1998, each of
the following members of the Board of Directors received compensation from the
Fund in the following amounts:
-15-
<PAGE>
<TABLE>
<CAPTION>
Directors' Compensation
-----------------------
Pension or
Retirement
Aggregate Benefits Estimated Annual
Compensation from Accrued as Part Benefits Upon
Name of Person/ Position Registrant of Fund Expenses Retirement
- ------------------------ ----------------- ---------------- ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
-16-
<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee) pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by BlackRock Institutional Management Corporation ("BIMC")(formerly
known as "PNC Institutional Management Corporation"), 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" or "PDI"), the Fund's distributor, the
Fund itself requires only one part-time employee. 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 and Sub-Advisory Agreements. The Portfolio has an
investment advisory agreement with BIMC. Although BIMC in turn has a
sub-advisory agreement respecting the Portfolio with PNC Bank dated August 16,
1988, as of April 29, 1998, BIMC assumed these advisory responsibilities from
PNC Bank. Pursuant to the Sub-Advisory Agreement, PNC Bank would be entitled to
receive an annual fee from BIMC for its sub-advisory services calculated at the
annual rate of 75% of the fees received by BIMC on behalf of the Portfolio. The
advisory agreement relating to the Portfolio is dated August 16, 1988. Such
advisory and sub-advisory agreements are hereinafter collectively referred to as
the "Advisory Agreements".
For the period ended August 31, 1998, the Fund paid BIMC (excluding fees to
PFPC, for administrative services obligated under the Advisory Agreements)
advisory fees as follows:
-17-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and Reimburse-
Fiscal Year Ended reimbursements) Waivers ments
- ----------------- --------------- ------- ----------
<S> <C> <C> <C>
August 31, 1998 $6,283,705 $3,334,990 $692,630
August 31, 1997 $5,366,431 $3,603,130 $469,986
August 31, 1996 $4,174,375 $3,527,715 $342,158
</TABLE>
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 Portfolios' investment adviser or Distributor;
(j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees;
(o) brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Fund; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Principal Class of the Fund
pays its own distribution fees, and may pay a different share than the other
classes of the Fund of other expenses (excluding advisory and custodial fees) if
those expenses are actually incurred in a different amount by the Principal
Class or if it receives different services.
Under the Advisory Agreement, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of its respective duties or from
reckless disregard of its duties and obligations thereunder.
-18-
<PAGE>
The Advisory Agreements were 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were approved
by the shareholders of the Portfolio at a special meeting held December 22,
1989, as adjourned. The Advisory Agreements are 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 or PNC Bank. The Advisory Agreement may also be terminated by
BIMC or PNC Bank on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminate automatically in the event of assignment thereof.
Administrative Services. BIMC is obligated to render administrative
services to the Money Market Portfolio pursuant to the investment advisory
agreement. Pursuant to the terms of a Delegation Agreement, dated July 29, 1998,
between BIMC and PFPC, however, BIMC has delegated to PFPC its administrative
responsibilities to this Portfolio. The Fund pays administrative fees directly
to PFPC.
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998 (the "Distribution Agreement"), the Distributor will
use appropriate efforts to distribute shares of the Fund. As compensation for
its distribution services, the Distributor receives, pursuant to the terms of
the Distribution Agreement, a distribution fee of 0.01%, to be calculated daily
and paid monthly. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of each of the
Portfolios based on a percentage of the amounts invested by their customers.
The amounts retained by PDI will be used to pay certain advertising and
promotion, printing, postage, legal fees, travel, entertainment sales, marketing
and administrative expenses. The Fund believes that the Portfolio's 12b-1 Plan
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the 12b-1 Plan by virtue of his position with Fahnestock Co., Inc. and
Counsellors Securities, Inc., respectively, each a broker-dealer.
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
-19-
<PAGE>
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Principal Shares pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under
which PFPC (a) issues and redeems shares of the Principal Class, (b) addresses
and mails all communications by the Principal Class to record owners of shares
of each such Class, including reports to shareholders, dividend and distribution
notices and proxy materials for its meetings of shareholders, (c) maintains
shareholder accounts and, if requested, sub-accounts and (d) makes periodic
reports to the Fund's Board of Directors concerning the operations of the
Principal Class. PFPC may, on 30 days' notice to the Fund, assign its duties as
transfer and dividend disbursing agent to any other affiliate of PNC Bank Corp.
For its services to the Fund under the Transfer Agency Agreement, PFPC receives
a fee at the annual rate of $15.00 per account in the Portfolio for orders
placed via third parties and relayed electronically to PFPC, and $17.00 per
account in the Portfolio for all other orders, exclusive of out-of-pocket
expenses and also receives a fee for each redemption check cleared and
reimbursement of its out-of-pocket expenses.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase only securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less), and except
that the Portfolio may purchase variable rate securities with remaining
maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because the Portfolio intents to
purchase only securities with remaining maturities of 13 months or less, its
portfolio turnover rate will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by the
Portfolio, the turnover rate should not adversely affect such Portfolio's net
asset value or net income. The Portfolio does not intend to seek profits through
short-term trading.
Purchases of portfolio securities by the Portfolio are made from dealers,
underwriters and issuers; sales are made to dealers and issuers. The Portfolio
does not currently expect to incur any brokerage commission expense on such
transactions because money market instruments are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission. The price of the security, however, usually includes a profit to the
dealer. Securities purchased in underwritten offerings include a fixed amount of
-20-
<PAGE>
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 a 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 the member except pursuant to procedures adopted by the Fund's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Fund's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to a Portfolio.
The Fund is required to identify any securities of its regular broker
dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held by
the Fund as of the end of its most recent fiscal year. As of August 31, 1998,
the following portfolios held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
-21-
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that the Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of the Portfolio.
Under the 1940 Act, the Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
A shareholder of record may be required by the Fund's Board of Directors to
redeem shares in the Class if the balance in such shareholder's account drops
below $500 and the shareholder does not increase its balance to at least $500
upon 30 days' written notice. If a Customer has agreed with a particular PNC
Bank to maintain a minimum balance in his account, and the balance in the PNC
Bank account falls below that minimum, the Customer may be obliged to redeem all
or part of his shares in the Portfolio to the extent necessary to maintain the
minimum balance required.
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolio at $1.00 per share. Net asset value per share, the
value of an individual share in the Portfolio, is computed by adding the value
of the proportionate interest of the class in a Portfolio's cash, securities and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class of the Fund is determined independently of each other
class. The Portfolio's "net assets" equal the value of the Portfolio's
investments and other securities less its liabilities. The Portfolio's net asset
value per share is computed twice each day, as of 12:00 noon (Eastern Time) and
as of the close of regular trading on the NYSE (generally 4:00 p.m. Eastern
Time), on each Business Day. "Business Day" means each weekday when both the
-22-
<PAGE>
NYSE and the Federal Reserve Bank of Philadelphia (the "FRB") are open.
Currently, the NYSE is closed weekends and on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day and the preceding Friday and
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays as the NYSE as well as
Veterans' Day and Columbus Day.
The Fund calculates the value of the portfolio securities of the Portfolio
by using the amortized cost method of valuation. Under this method the market
value of an instrument is approximated by amortizing the difference between the
acquisition cost and value at maturity of the instrument on a straight-line
basis over the remaining life of the instrument. The effect of changes in the
market value of a security as a result of fluctuating interest rates is not
taken into account. The market value of debt securities usually reflects yields
generally available on securities of similar quality. When such yields decline,
market values can be expected to increase, and when yields increase, market
values can be expected to decline. In addition, if a large number of redemptions
take place at a time when interest rates have increased, the Portfolio may have
to sell portfolio securities prior to maturity and at a price which might not be
as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for the Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio maturity of
90 days or less, will not purchase any instrument with a deemed maturity greater
than 13 months under Rule 2a-7 of the 1940 Act, will limit portfolio
investments, including repurchase agreements (where permitted), to those United
States dollar-denominated instruments that 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.
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
-23-
<PAGE>
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.
Performance may fluctuate daily and does not provide a basis for
determining future performance. Because the performance of the Portfolio will
fluctuate, they cannot be compared with performance on savings accounts or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. However, performance information may be useful to an
investor considering temporary investments in money market instruments. In
comparing the performance of one money market fund to another, consideration
should be given to each fund's investment policies, including the types of
investments made, lengths of maturities of a portfolio's securities, the method
used by each fund to compute the performance (methods may differ) and whether
there are any special account charges which may reduce the effective
performance.
The yields and returns 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.
From time to time, in advertisements or in reports to shareholders, the
yield and returns 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
-24-
<PAGE>
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 Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its income to
shareholders each year, so that the Portfolio generally will be relieved of
federal income and excise taxes. If the Portfolio were to fail to so qualify:
(1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.
-25-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Class Principal Common Stock, constitute
the Principal Class, described herein. Under RBB's charter, the Board of
Directors has the power to classify or reclassify any unissued shares of Common
Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
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<PAGE>
outstanding voting securities of an investment company such as the Fund shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding voting securities of each portfolio affected by
the matter. Rule 18f-2 further provides that a portfolio shall be deemed to be
affected by a matter unless it is clear that the interests of each portfolio in
the matter are identical or that the matter does not affect any interest of the
portfolio. Under the Rule the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by the holders of a majority of the
outstanding voting securities of such portfolio. However, the Rule also provides
that the ratification of the selection of independent public accountants and the
election of directors are not subject to the separate voting requirements and
may be effectively acted upon by shareholders of an investment company voting
without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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 the Fund's Shares"
above. The Fund does not know whether such persons also beneficially own such
shares.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</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
-29-
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers are
incorporated herein by reference. Such financial statements have been
incorporated herein in reliance
-30-
<PAGE>
upon such reports given upon their authority as experts in accounting and
auditing. Copies of the 1998 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.
-31-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC," "CC," "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC" and "CC" - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BETA FAMILY
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of three classes (the "Beta Shares") representing interests
in three investment portfolios (the "Portfolios") of The RBB Fund, Inc. (the
"Fund"): the Municipal Money Market Portfolio, the Government Obligations Money
Market Portfolio and the New York Municipal Money Market Portfolio. This
Statement of Additional Information is not a prospectus, and should be read only
in conjunction with the Beta Family Prospectus of the Fund dated December 29,
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 29, 1998.
CONTENTS
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Page
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General........................................................................ 2
Investment Objectives and Policies............................................. 2
Directors and Officers......................................................... 29
Investment Advisory, Distribution and Servicing Arrangements................... 32
Portfolio Transactions ........................................................ 38
Purchase and Redemption Information............................................ 39
Valuation of Shares............................................................ 40
Performance Information........................................................ 41
Taxes.......................................................................... 42
Additional Information Concerning Fund Shares.................................. 42
Miscellaneous.................................................................. 45
Appendix A.....................................................................A-1
</TABLE>
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
three classes of shares (the "Beta Classes") representing interests in three
investment portfolios (the "Portfolios") of the Fund: the Municipal Money Market
Portfolio, the Government Obligations Money Market Portfolio and the New York
Municipal Money Market Portfolio. The Beta Classes are offered by the Prospectus
dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Municipal Money Market Portfolio may have maturities of more than 13 months,
provided: (i) the Portfolio is entitled to the payment of principal at any time,
or during specified intervals not exceeding 13 months, upon giving the
prescribed notice (which may not exceed 30 days), and (ii) the rate of interest
on such instruments is adjusted at periodic intervals which may extend up to 13
months. In determining the average weighted maturity of Municipal Money Market
or New York Municipal Money Market Portfolio and whether a variable rate demand
instrument has a remaining maturity of 13 months or less, each long-term
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. The
absence of an active secondary market with respect to particular variable
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and floating rate instruments could make it difficult for a Portfolio to dispose
of variable or floating rate notes if the issuer defaulted on its payment
obligations or during periods that the Portfolio is not entitled to exercise its
demand right and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Municipal Money Market and
New York Money Market Portfolios may purchase "when-issued" and delayed delivery
securities purchased for delivery beyond the normal settlement date at a stated
price and yield. While the Municipal Money Market or New York Municipal Money
Market Portfolios have such commitments outstanding, such Portfolio will
maintain in a segregated account with the Fund's custodian or a qualified
sub-custodian, cash, or liquid securities of an amount at least equal to the
purchase price of the securities to be purchased. Normally, the custodian for
the relevant Portfolio will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, such Portfolio may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of such Portfolio's commitment.
It may be expected that such Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because such Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, such Portfolio expects
that commitments to purchase "when-issued" securities will not exceed 25% of the
value of its total assets absent unusual market conditions. When any of the
Municipal Money Market Portfolio or the New York Municipal Money Market
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in such
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. Each of the Municipal Money Market Portfolio and New
York Municipal Money Market Portfolio may enter into stand-by commitments with
respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Municipal Money Market
Portfolio or New York Municipal Money Market Portfolio at any time before the
maturity of the underlying Municipal Obligations and may be sold, transferred or
assigned only with the instruments involved.
Each of the Municipal Money Market Portfolio and New York Municipal Money
Market Portfolio expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, either such Portfolio may pay for a stand-by commitment
either in cash or by paying a higher price for portfolio securities, which are
acquired subject to the commitment (thus
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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 Municipal Money Market Portfolio and New York Municipal Money Market
Portfolio will not exceed 1/2 of 1% of the value of the relevant Portfolio's
total assets calculated immediately after each stand-by commitment is acquired.
Each of the Municipal Money Market Portfolio and New York Municipal Money
Market Portfolio intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the investment adviser's opinion, present
minimal credit risks. Any such Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment.
The Municipal Money Market Portfolio and New York Municipal Money Market
Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the valuation
or assumed maturity of the underlying Municipal Obligation, which will continue
to be valued in accordance with the amortized cost method. The actual stand-by
commitment will be valued at zero in determining net asset value. Accordingly,
where either such Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by such Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
Short Sales "Against the Box." In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the
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<PAGE>
securities sold and is said to have a short position in those securities until
delivery occurs. If the Portfolio engages in a short sale, the collateral for
the short position will be maintained by the Portfolio's custodian or a
qualified sub-custodian. While the short sale is open, the Portfolio will
maintain in a segregated account an amount of securities equal in kind and
amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Portfolio's long position. The Portfolio will not engage in short sales against
the box for investment purposes. A Portfolio may, however, make a short sale as
a hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes possibly to
defer recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of
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<PAGE>
private activity bonds applies to many types of bonds, including those, which
were industrial development bonds under prior law. Interest on private activity
bonds issued after August 15, 1986 is tax-exempt only if the bonds fall within
certain defined categories of qualified private activity bonds and meet the
requirements specified in those respective categories. In addition, interest on
Alternative Minimum Tax Securities that is received by taxpayers subject to
alternative minimum tax is taxable. The Act has generally not changed the tax
treatment of bonds issued to finance governmental operations. As used in this
Prospectus, the term "private activity bonds" also includes industrial
development revenue bonds issued prior to the effective date of the provisions
of the Tax Reform Act of 1986. Investors should also be aware of the possibility
of state and local alternative minimum or minimum income tax liability on
interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government Securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the portfolio's
adviser or sub-adviser. A Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
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<PAGE>
default, be equal to or greater than the repurchase price including either (i)
accrued premium provided in the repurchase agreement or (ii) the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Government Obligations 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,
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which are known as "regular" interests or "residual" interests. The residual in
a CMO structure generally represents the interest in any excess cash flow
remaining after making required payments of principal of and interest on the
CMOs, as well as the related administrative expenses of the issuer. Residual
interests generally are junior to, and may be significantly more volatile than,
"regular" CMOs. The Portfolios do not currently intend to purchase residual
interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Lending of Securities. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money
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Market Portfolio of its portfolio's securities will be fully collateralized and
marked to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements; 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) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Government Obligations Money Market Portfolio
and the New York Municipal Money Market Portfolio, repurchase agreements subject
to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of
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1933, as amended (the "Securities Act"), securities which are otherwise not
readily marketable and, except as to the Municipal Money Market Portfolio,
repurchase agreements having a maturity of longer than seven days. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal Obligations. Some of
the significant financial considerations relating to the Fund's investments in
New York Municipal Obligations are summarized below. This summary information
is not intended to be a complete description and is principally derived from
official statements relating to issues of New York Municipal Obligations that
were available prior to the date of this Statement of Additional Information.
The accuracy and completeness of the information contained in those official
statements have not been independently verified.
State Economy. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
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The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region, State personal
income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the enacted
budget forecast. Continued growth is projected in 1998 and 1999 for employment,
wages, and personal income, although the growth rates of personal income and
wages are expected to be lower than those in 1997. The growth of personal income
is projected to decline from 5.7 percent in 1997 to 4.8 percent in 1998 and 4.2
percent in 1999, in part because growth in bonus payments is expected to slow
down, a distinct shift from the torrid rate of the last few years. Overall
employment growth is expected to be 1.9 percent in 1998, the strongest in a
decade, but will drop to 1.0 percent in 1999, reflecting the slowing growth in
the national economy, continued restraint in governmental spending, and
restructuring in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
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State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The School Tax Relief Program ("STAR")
program, which dedicates a portion of personal income tax receipts to fund
school tax reductions, has a significant impact on General Fund receipts. STAR
is projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99 base,
scheduled reductions to estate and gift, sales and other taxes, reflecting tax
cuts enacted in 1997-98 and 1998-99, will lower General Fund taxes and fees by
an estimated $1.8 billion in 2000-01. Disbursement projections for the outyears
currently assume additional outlays for school aid, Medicaid, welfare reform,
mental health community reinvestment, and other multi-year spending commitments
in law.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring
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spending reductions produce savings in earlier years. The State Comptroller has
also stated that if Wall Street earnings moderate and the State experiences a
moderate recession, the gap for the 2001-2002 State fiscal year could grow to
nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on March
31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under STAR expansion of the child care income-tax
credit for middle-income families, a phased-in reduction of the general business
tax, and reduction of several other taxes and fees, including an accelerated
phase-out of assessments on medical providers. The enacted budget also provides
for significant increases in spending for public schools, special education
programs, and for the State and City university systems. It also allocates $50
million for a new Debt Reduction Reserve Fund ("DRRF") that may eventually be
used to pay debt service costs on or to prepay outstanding State-supported
bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resource to help finance any extraordinary litigation costs during the
fiscal year.
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The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $62 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
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In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur in its
projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its first-ever,
accumulated positive balance in its General Fund. This "accumulated surplus" was
$567 million. The improvement in the State's GAAP position is attributable, in
part, to the cash surplus recorded at the end of the State's 1997-98 fiscal
year. Much of that surplus is reserved for future requirements, but a portion is
being used to meet spending needs in 1998-99. Thus, the State expects some
deterioration in its GAAP position, but expects to maintain a positive GAAP
balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined
Governmental Funds operating surplus of $1.80 billion, which included an
operating surplus in the General Fund of $1.56 billion, in Capital Projects
Funds of $232 million and in Special Revenue Funds of $49 million, offset in
part by an operating deficit of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56 billion for
the 1997-98 fiscal year, as compared to an operating surplus of $1.93 billion
for the 1996-97 fiscal year. As a result, the State reported an accumulated
surplus of $567 million in the General Fund for the first time since it began
reporting its operations on a GAAP-basis. The 1997-98 fiscal year operating
surplus reflects several major factors, including the cash-basis operating
surplus resulting from the higher-than-anticipated personal income tax receipts,
an increase in taxes receivable of $681 million, an increase in other assets of
$195 million and a decrease in pension liabilities of $144 million. This was
partially offset by an increase in payables to local governments of $270 million
and tax refunds payable of $147 million.
Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e.,
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borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved by
the voters. There is no limitation on the amount of long-term general obligation
debt that may be so authorized and subsequently incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
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On January 13, 1992, Standard & Poor's Ratings Services ("S&P") reduced its
ratings on the State's general obligation bonds from A to A- and, in addition,
reduced its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On August 28, 1997, S&P revised its ratings on
the State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On March 2, 1998, S&P affirmed its A rating on the State's outstanding
bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget, will be released on or before July 30, 1998. The
projection of State borrowings for the 1998-99 fiscal year is subject to change
as market conditions, interest rates and other factors vary throughout the
fiscal year.
The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency
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equipment acquisitions, including amounts to address Statewide technology issues
related to Year 2000 compliance. Approximately $228 million will also be issued
to finance equipment acquisitions for welfare reform-related information
technology systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates;
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(6) challenges to the constitutionality of Public Health Law 2807-d, which
imposes a gross receipts tax from certain patient care services; (7) action
seeking enforcement of certain sales and excise taxes and tobacco products and
motor fuel sold to non-Indian consumers on Indian reservations; (8) a challenge
to the constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge
to the Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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Authorities. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned on A3 rating to the City's general
obligations and stated that its outlook was stable.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City. As of June
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year in
the event the City fails to provide such financing.
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Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of
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the 1997-98 cash surplus. In 1998-99, the General Fund GAAP Financial Plan shows
total revenues of $34.68 billion, total expenditures of $35.94 billion, and net
other financing sources and uses of $42 million.
Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
24
<PAGE>
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's current financial plan projects $2.4
billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional
25
<PAGE>
$21 million will be dispersed among all cities, towns and villages, a 3.97%
increase in General Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
26
<PAGE>
Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after
such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate any of its assets except
in connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with respect to
the Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Portfolio's
total assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of a Portfolio's assets may be invested without regard
to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may
be deemed an underwriter under federal securities laws and except to the
extent that the purchase of Municipal Obligations directly from the issuer
thereof in accordance with a Portfolio's investment objective, policies and
limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
27
<PAGE>
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter
into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management. In addition to the foregoing enumerated investment limitations,
the Municipal Money Market Portfolio may not (i) under normal market
conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular federal income tax, although
the interest on such securities may constitute an item of tax preference
for purposes of the federal alternative minimum tax, (ii) invest in private
activity bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with less than
three years of continuous operations; and (iii) purchase any securities
which would cause, at the time of purchase, more than 25% of the value of
the total assets of the Portfolio to be invested in the obligations of the
issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal conditions invest
less than 80% of its net assets in securities the interest on which is exempt
from the regular federal income tax, although the interest on such securities
may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the
payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuouse
operations; and (iii) purchase any securities which would cause, at the time
of purchase, more than 25% of the value of the total assets of the Portfolio to
be invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
28
<PAGE>
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Money Market Portfolio's outstanding shares, but any such change would
be subject to any applicable requirements of the Securities and Exchange
Commission (the "SEC") and would be disclosed in the Prospectus prior to being
made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization (as defined in the Prospectus) in its highest rating category
for such securities, (iii) have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer of
such securities that have been rated in accordance with (i) or (ii) above,
or (iv) are Unrated Securities that are determined to be of comparable
quality to such securities. Purchases of First Tier Securities that come
within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market
29
<PAGE>
Portfolio will meet the following limitation on its investments in addition to
the fundamental investment limitations described above. This limitation may be
changed without a vote of shareholders of the Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if after
the acquisition of the put the Municipal Money Market Portfolio has more than 5%
of its total assets invested in instruments issued by or subject to puts from
the same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the Municipal Money Market Portfolio's total
assets. A "put" means a right to sell a specified underlying instrument within a
specified period of time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations. There
is no limit on the amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is permitted to
purchase.
2. Borrow money, except from banks for temporary purposes, and except for
reverse repurchase agreements, and then in an amount not exceeding 10% of the
value of the Portfolio's total assets, and only if after such borrowing there is
asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate management of
the Portfolio by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
30
<PAGE>
The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York Municipal Money
Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10% of
the value of the Portfolio's total assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for all
borrowings of the Portfolio; or mortgage, pledge, hypothecate any of its assets
except in connection with such borrowings and then in amounts not in excess of
10% of the value of 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 on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio may be
deemed an underwriter under federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(4) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development programs;
(8) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
31
<PAGE>
(9) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the New
York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest"), (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this limitation
only, private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without shareholder
approval.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
put if after the acquisition of the put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
In order to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, the Portfolio will not purchase the
32
<PAGE>
securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ------------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively,
each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
35
<PAGE>
The Fund pays directors who are not "affiliated persons" (as the term is
defined in the 1940 Act) of any investment adviser or sub-adviser of the Fund or
the Distributor and Mr. Sablowsky, who is considered to be an affiliated person,
$12,000 annually and $1,250 per meeting of the Board or any committee thereof
that is not held in conjunction with a Board meeting. In addition, the Chairman
of the Board receives an additional fee of $6,000 per year for his services in
this capacity. Directors who are not affiliated persons of the Fund and Mr.
Sablowsky are reimbursed for any expenses incurred in attending meetings of the
Board of Directors or any committee thereof. For the year ended August 31, 1998,
each of the following members of the Board of Directors received compensation
from the Fund in the following amounts:
Directors' Compensation
-----------------------
<TABLE>
<CAPTION>
Pension or Retirement
Aggregate Benefits Accrued as Estimated Annual
Compensation Part of Fund Benefits Upon
Name of Person/ Position from Registrant Expenses Retirement
- ------------------------ ---------------- --------------------- ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
36
<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach 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") (formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the administrator to the Municipal Money Market and New York Municipal
Money Market Portfolios and the Fund's transfer and dividend disbursing agent,
and Provident Distributors, Inc. (the "Distributor" or "PDI"), the Fund's
distributor, the Fund itself requires only one part-time employee. 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 and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios (except the New York Municipal Money Market Portfolio)
with PNC Bank dated August 16, 1988, as of March, 1998, BIMC assumed these
advisory responsibilities from PNC Bank. Pursuant to the Sub-Advisory
Agreements, PNC Bank would be entitled to receive a annual fee from BIMC for its
sub-advisory services calculated at the annual rate of 75% of the fees received
by BIMC on behalf of the Municipal Money Market and Government Obligations
Portfolios. The advisory agreement relating to the Government Obligations Money
Market Portfolio is dated August 16, 1988, the advisory agreement relating to
the New York Municipal Money Market Portfolio is dated November 5, 1991 and the
advisory agreement relating to the Municipal Money Market Portfolio is dated
April 21, 1992. Such advisory and sub-advisory agreements are hereinafter
collectively referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Government Obligations Portfolio, for
administrative services obligated under the Advisory Agreements) advisory fees
as follows:
37
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $ 238,721 $822,533 $ 55,085
Government Obligations Money $1,649,453 $723,970 $392,949
Market
New York Municipal Money $ 60,758 $267,374 $ 0
Market
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money $1,774,123 $ 647,063 $404,193
Market
New York Municipal Money $ 21,831 $ 324,917 $ 0
Market
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
38
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
New York Municipal Money Market $ 2,709 $ 268,017 $0
</TABLE>
Each 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; and
(f) the cost of investment company literature and other publications provided by
the Fund to its directors and officers. The Beta classes of the Fund pay their
own distribution fees, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Beta classes or if they receive different
services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in
39
<PAGE>
connection with the performance of the Advisory Agreements, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
BIMC or PNC Bank in the performance of their respective duties or from reckless
disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Contracts or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Government Obligations Money Market Portfolio by
the shareholders of the Portfolio at a special meeting held on December 22,
1989, as adjourned. The investment advisory agreement was approved with respect
to the Municipal Money Market Portfolio by shareholders at a special meeting
held June 10, 1992, as adjourned and the sub-advisory agreement was approved
with respect to the Municipal Money Market Portfolio by shareholders at a
special meeting held on December 22, 1989. The Advisory Agreement was approved
with respect to the New York Municipal Money Market Portfolio by the Portfolio's
shareholders at a special meeting of shareholders held November 21, 1991, as
adjourned. Each Advisory Agreement is terminable by vote of the Fund's Board of
Directors or by the holders of a majority of the outstanding voting securities
of the relevant Portfolio, at any time without penalty, on 60 days' written
notice to BIMC or PNC Bank. Each of the Advisory Agreements may also be
terminated by BIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Agreements terminates automatically in the event of
assignment thereof.
Administration Agreements. PFPC serves as the administrator to the New York
Municipal Money Market Portfolio pursuant to an Administration Agreement dated
November 5, 1991 and as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (together, the "Administration Agreements"). PFPC has agreed to
furnish to the Fund on behalf of the Municipal Money Market and New York
Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market and New York
Municipal Money Market Portfolios.
BIMC is obligated to render administrative services to the Government
Obligations Money Market Portfolio pursuant to the investment advisory
agreements. Pursuant to the
40
<PAGE>
terms of a Delegation Agreement, dated July 29, 1998, between BIMC and PFPC,
however, BMIC has delegated to PFPC its administrative responsibilities to these
Portfolios. The Fund pays administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money Market $ 85,926 $7,826 $0
Government Obligations Money Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money Market $ 99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
New York Municipal Money Market $ 67,204 $10,146 $0
</TABLE>
e
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes
41
<PAGE>
disbursements of money on behalf of each Portfolio, (d) collects and receives
all income and other payments and distributions on account of each Portfolio's
portfolio securities and (e) makes periodic reports to the Fund's Board of
Directors concerning each Portfolio's operations. PNC Bank is authorized to
select one or more banks or trust companies to serve as sub-custodian on behalf
of the Fund, provided that PNC Bank remains responsible for the performance of
all its duties under the Custodian Agreement and holds the Fund harmless from
the acts and omissions of any sub-custodian. For its services to the Fund under
the Custodian Agreement, PNC Bank receives a fee which is calculated based upon
each Portfolio's average daily gross assets as follows: $.25 per $1,000 on the
first $50 million of average daily gross assets; $.20 per $1,000 on the next $50
million of average daily gross assets; and $.15 per $1,000 on average daily
gross assets over $100 million, with a minimum monthly fee of $1,000 per
Portfolio, exclusive of transaction charges and out-of-pocket expenses, which
are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Beta Classes pursuant to a Transfer Agency
Agreement dated November 5, 1991 and supplements dated November 5, 1991 (the
"Transfer Agency Agreement"), under which PFPC (a) issues and redeems shares of
each of the Beta Classes, (b) addresses and mails all communications by each
Portfolio to record owners of shares of each such Class, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Beta Class. PFPC may, on 30 days' notice to
the Fund, assign its duties as transfer and dividend disbursing agent to any
other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998 entered into by the Distributor and the Fund on behalf
of each of the Beta Classes, (the
42
<PAGE>
"Distribution Agreement") and separate Plans of Distribution, as amended, for
each of the Beta Classes (collectively, the "Plans"), all of which were adopted
by the Fund in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use appropriate efforts to distribute shares of each of the
Beta Classes. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreements, a distribution
fee, to be calculated daily and paid monthly, at the annual rate set forth in
the Prospectus. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of each of the
Portfolios based on a percentage of the amounts invested by their customers.
Each of the Plans relating to the Beta Classes of the Municipal Money
Market, Government Obligations Money Market and New York Municipal Money Market
Portfolios were approved by the Fund's Board of Directors, including the
directors who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the operation of the Plans or any agreements
related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Beta Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Beta Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
43
<PAGE>
The amounts, if any, retained by Counsellors and PDI were used to pay
certain advertising and promotion, printing, postage, legal fees, travel,
entertainment, sales, marketing and administrative expenses. The Fund believes
that such Plans may benefit the Fund by increasing sales of Shares. Each of Mr.
Sablowsky and Mr. Reichman, Directors of the Fund, had an indirect interest in
the operation of the Plans by virtue of his position with Fahnestock Co., Inc.
and Counsellors Securities, Inc., respectively, each a registered broker-dealer.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio may purchase variable rate securities with
remaining maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because all Portfolios intend to
purchase only securities with remaining maturities of 13 months or less, their
portfolio turnover rates will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by each
such Portfolio, the turnover rate should not adversely affect such Portfolio's
net asset value or net income. The Portfolios do not intend to seek profits
through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need
44
<PAGE>
for liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that the Portfolio would incur a capital loss in
liquidating commercial paper (for which there is no established market),
especially if interest rates have risen since acquisition of the particular
commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by BIMC are made independently of each other in the light of differing
conditions. However, the same investment decision may occasionally be made for
two or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
<TABLE>
<CAPTION>
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
<S> <C> <C>
</TABLE>
45
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of a class in the Portfolio's cash, securities and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class of the Fund is calculated independently of the other
classes of the Fund. A Portfolio's "net assets" equal the value of a Portfolio's
investments and other securities less its liabilities. The net asset value per
share of each class is computed twice each day, as of 12:00 noon (Eastern Time)
and as of the close of regular trading on the NYSE (generally 4:00 p.m. Eastern
Time), on each Business Day. "Business Day" means each day, Monday through
Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia (the
"FRB") are open. Currently, the NYSE is closed weekends and on New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value
46
<PAGE>
at maturity of the instrument on a straight-line basis over the remaining life
of the instrument. The effect of changes in the market value of a security as a
result of fluctuating interest rates is not taken into account. The market value
of debt securities usually reflects yields generally available on securities of
similar quality. When such yields decline, market values can be expected to
increase, and when yields increase, market values can be expected to decline. In
addition, if a large number of redemptions take place at a time when interest
rates have increased, a Portfolio may have to sell portfolio securities prior to
maturity and at a price which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that 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.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing
47
<PAGE>
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.
Total return and yield and may fluctuate daily and do not provide a basis
for determining future returns and yields. Because the returns and yields of
each Portfolio will fluctuate, they cannot be compared with returns and yields
on savings account or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
48
<PAGE>
TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio's generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of each such
Portfolio's assets at the close of each quarter of the Fund's taxable year must
consist of exempt-interest obligations.
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class Beta 2 Common Stock, Beta 3
Common Stock and Beta 4 Common Stock constitute the Beta Classes, described
herein. Under RBB's charter, the Board of Directors has the power to classify
or reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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.
51
<PAGE>
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 shares of each portfolio affected by the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a
matter unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if approved by the holders of a majority of the outstanding
voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, and the
election of directors are not subject to the separate voting requirements and
may be effectively acted upon by shareholders of an investment company voting
without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
56
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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, 1998 (the "1998
Annual Report") are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by the Fund's independent accountants, PricewaterhouseCoopers
LLP ("PricewaterhouseCoopers"). The reports of PricewaterhouseCoopers 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 1998 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.
57
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
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The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are 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
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A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
GAMMA FAMILY
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of three classes (the "Gamma Shares") representing
interests in three investment portfolios (the "Portfolios") of The RBB Fund,
Inc. (the "Fund"): the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the Gamma Family Prospectus of the Fund
dated December 29, 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 29, 1998.
CONTENTS
<TABLE>
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Page
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<S> <C>
General...........................................................2
Investment Objectives and Policies................................2
Directors and Officers............................................27
Investment Advisory, Distribution and Servicing Arrangements......30
Portfolio Transactions ...........................................36
Purchase and Redemption Information...............................37
Valuation of Shares...............................................38
Performance Information...........................................39
Taxes.............................................................40
Additional Information Concerning Fund Shares.....................40
Miscellaneous.....................................................43
Appendix A........................................................A-1
</TABLE>
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
three classes of shares (the "Gamma Classes") representing interests in three
investment portfolios (the "Portfolios") of the Fund: the Municipal Money Market
Portfolio, the Government Obligations Money Market Portfolio and the New York
Municipal Money Market Portfolio. The Gamma Classes are offered by the
Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Municipal Money Market Portfolio may have maturities of more than 13 months,
provided: (i) the Portfolio is entitled to the payment of principal at any time,
or during specified intervals not exceeding 13 months, upon giving the
prescribed notice (which may not exceed 30 days), and (ii) the rate of interest
on such instruments is adjusted at periodic intervals which may extend up to 13
months. In determining the average weighted maturity of the Municipal Money
Market or New York Municipal Money Market Portfolio and whether a variable rate
demand instrument has a remaining maturity of 13 months or less, each long-term
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.
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<PAGE>
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for a Portfolio to dispose
of variable or floating rate notes if the issuer defaulted on its payment
obligations or during periods that the Portfolio is not entitled to exercise its
demand right and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Municipal Money Market and
New York Money Market Portfolios may purchase "when-issued" and delayed delivery
securities purchased for delivery beyond the normal settlement date at a stated
price and yield. While the Municipal Money Market or New York Municipal Money
Market Portfolios have such commitments outstanding, such Portfolio will
maintain in a segregated account with the Fund's custodian or a qualified
sub-custodian, cash, or liquid securities of an amount at least equal to the
purchase price of the securities to be purchased. Normally, the custodian for
the relevant Portfolio will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, such Portfolio may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of such Portfolio's commitment.
It may be expected that such Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because such Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, such Portfolio expects
that commitments to purchase "when-issued" securities will not exceed 25% of the
value of its total assets absent unusual market conditions. When any of the
Municipal Money Market Portfolio or the New York Municipal Money Market
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in such
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. Each of the Municipal Money Market Portfolio and New
York Municipal Money Market Portfolio may enter into stand-by commitments with
respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Municipal Money Market
Portfolio or New York Municipal Money Market Portfolio at any time before the
maturity of the underlying Municipal Obligations and may be sold, transferred or
assigned only with the instruments involved.
Each of the Municipal Money Market Portfolio and New York Municipal Money
Market Portfolio expects that stand-by commitments will generally
-3-
<PAGE>
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, either such Portfolio may pay for a stand-by
commitment either in cash or by paying a higher price for portfolio securities,
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio will not exceed
1/2 of 1% of the value of the relevant Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
Each of the Municipal Money Market Portfolio and New York Municipal Money
Market Portfolio intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the investment adviser's opinion, present
minimal credit risks. Any such Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment.
The Municipal Money Market Portfolio and New York Municipal Money Market
Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the valuation
or assumed maturity of the underlying Municipal Obligation, which will continue
to be valued in accordance with the amortized cost method. The actual stand-by
commitment will be valued at zero in determining net asset value. Accordingly,
where either such Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by such Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
-4-
<PAGE>
Short Sales "Against the Box." In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for investment purposes. A Portfolio
may, however, make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Portfolio (or a security convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an attractive current price, but
also wishes possibly to defer recognition of gain or loss for federal income tax
purposes. (A short sale against the box will defer recognition of gain for
federal income tax purposes only if the Portfolio subsequently closes the short
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) In such case, any future losses in the
Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales. The
dollar amount of short sales at any time will not exceed 25% of the net assets
of the Government Obligations Money Market Portfolio, and the value of
securities of any one issuer in which the Portfolio is short will not exceed the
lesser of 2% of net assets or 2% of the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the
-5-
<PAGE>
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those, which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government
-6-
<PAGE>
Securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed creditworthy by
the portfolio's adviser or sub-adviser. A Portfolio's adviser or sub-adviser
will continue to monitor creditworthiness of the seller under a repurchase
agreement, and will require the seller to maintain during the term of the
agreement the value of the securities subject to the agreement to equal at least
the repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
including either (i) accrued premium provided in the repurchase agreement or
(ii) the daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
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The Government Obligations 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" CMOs. The Portfolios
do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when
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interest rates decline, the value of an asset-backed security with prepayment
features may not increase as much as that of other fixed-income securities.
Lending of Securities. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements; 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) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on
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resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Government Obligations Money Market Portfolio
and the New York Municipal Money Market Portfolio, repurchase agreements subject
to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal Obligations. Some of
the significant financial considerations relating to the Fund's investments in
New York Municipal Obligations are summarized below. This summary information is
not intended to be a complete description and is principally derived from
official statements relating to issues of New York Municipal Obligations that
were available prior to the date of this Statement of Additional
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Information. The accuracy and completeness of the information contained in those
official statements have not been independently verified.
State Economy. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region, State personal
income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the enacted
budget forecast. Continued growth is projected in 1998 and 1999 for employment,
wages, and personal income, although the growth rates of personal income and
wages are expected to be lower than those in 1997. The growth of personal income
is projected to decline from 5.7 percent in 1997 to 4.8 percent in 1998 and 4.2
percent in 1999, in part because growth in bonus payments is expected to slow
down, a distinct shift from the torrid rate of the last few years. Overall
employment growth is expected to be 1.9 percent in 1998, the strongest in a
decade, but will drop to 1.0 percent in 1999, reflecting the slowing growth in
the national economy, continued restraint in governmental spending, and
restructuring in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations
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or reappropriations and any new or modified revenue measures to be enacted in
connection with the executive budget. The entire plan constitutes the proposed
State financial plan for that fiscal year. The Governor is required to submit to
the Legislature quarterly budget updates which include a revised cash-basis
state financial plan, and an explanation of any changes from the previous state
financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
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The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The School Tax Relief Program ("STAR")
program, which dedicates a portion of personal income tax receipts to fund
school tax reductions, has a significant impact on General Fund receipts. STAR
is projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99 base,
scheduled reductions to estate and gift, sales and other taxes, reflecting tax
cuts enacted in 1997-98 and 1998-99, will lower General Fund taxes and fees by
an estimated $1.8 billion in 2000-01. Disbursement projections for the outyears
currently assume additional outlays for school aid, Medicaid, welfare reform,
mental health community reinvestment, and other multi-year spending commitments
in law.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on March
31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
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General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under STAR expansion of the child care income-tax
credit for middle-income families, aphased-in reduction of the general business
tax, and reduction of several other taxes and fees, including an accelerated
phase-out of assessments on medical providers. The enacted budget also provides
for significant increases in spending for public schools, special education
programs, and for the State and City university systems. It also allocates
$50 million for a new Debt Reduction Reserve Fund ("DRRF") that may eventually
be used to pay debt service costs on or to prepay outstanding State-supported
bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million avai lable
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resource to help finance any extraordinary litigation costs during the
fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $62 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for
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correctional services; $228 million for the State University of New York
("SUNY") and the City University of New York ("CUNY"); $290 million for mental
hygiene projects; and $375 million for CEFAP. Approximately 28 percent of
capital projects are proposed to be financed by "pay-as-you-go" resources.
State-supported bond issuances finance 46 percent of capital projects, with
federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence
the State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur
in its projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its
first-ever, accumulated positive balance in its General Fund. This "accumulated
surplus" was $567 million. The improvement in the State's GAAP position is
attributable, in part, to the cash surplus recorded at the end of the State's
1997-98 fiscal year. Much of that surplus is reserved for future requirements,
but a portion is being used to meet spending needs in 1998-99. Thus, the State
expects some deterioration in its GAAP position, but expects to maintain a
positive GAAP balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined
Governmental Funds operating surplus of $1.80 billion, which included an
operating surplus in the General Fund of $1.56 billion, in Capital Projects
Funds of $232 million and in Special Revenue Funds of $49 million, offset in
part by an operating deficit of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56
billion for the 1997-98 fiscal year, as compared to an operating surplus of
$1.93 billion for the 1996-97 fiscal year. As a result, the State reported an
accumulated surplus of $567 million in the General Fund for the first time since
it began reporting its operations on a GAAP-basis. The 1997-98 fiscal year
operating surplus reflects several major factors, including the cash-basis
operating surplus resulting from the higher-than-anticipated personal income tax
receipts, an increase in taxes receivable of $681 million, an increase in other
assets of $195 million and a decrease in pension liabilities of $144 million.
This was partially offset by an increase in payables to local governments of
$270 million and tax refunds payable of $147 million.
Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
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In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
On January 13, 1992, Standard & Poor's Ratings Services ("S&P") reduced its
ratings on the State's general obligation bonds from A to Aand, in addition,
reduced its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On August 28, 1997, S&P revised its ratings on
the State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On March 2, 1998, S&P affirmed its A rating on the State's outstanding
bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget, will be released on or before July 30, 1998. The
projection of State borrowings for the 1998-99 fiscal year is subject to change
as market conditions, interest rates and other factors vary throughout the
fiscal year.
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The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
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The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
Authorities. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
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New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned on A3 rating to the City's general
obligations and stated that its outlook was stable.
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New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City. As of June
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year in
the event the City fails to provide such financing.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
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The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
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The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's current financial plan projects $2.4
billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The
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City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those
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local government units othe r than New York City that are authorized by State
law to issue debt to finance deficits during the period that such deficit
financing is outstanding. Twenty-one localities had outstanding indebtedness for
deficit financing at the close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
Investment Limitations
Municipal Money Market Portfolio. The Municipal Money Market Portfolio may
not:
(1) borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's total assets
at the time of such borrowing, and only if after such borrowing there is
asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate any of its assets except in connection with
such borrowings and then, in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Portfolio's total assets
at the time of such borrowing;
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or purchase portfolio securities while borrowings are in excess of 5% of
the Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio's securities
by enabling the Portfolio to meet redemption requests where the liquidation
of portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of the Portfolio's assets may be invested without
regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio
may be deemed an underwriter under federal securities laws and except to
the extent that the purchase of Municipal Obligations directly from the
issuer thereof in accordance with the Portfolio's investment objective,
policies and limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
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(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
The foregoing investment limitations cannot be changed without shareholder
approval.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
The Municipal Money Market Portfolio will not purchase any put if after the
acquisition of the put the Municipal Money Market Portfolio has more than 5% of
its total assets invested in instruments issued by or subject to puts from the
same institution, except that the foregoing condition shall only be applicable
with respect to 75% of the Municipal Money Market Portfolio's total assets. A
"put" means a right to sell a specified underlying instrument within a specified
period of time and at a specified exercise price that may be sold, transferred
or assigned only with the underlying instrument.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
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1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations. There
is no limit on the amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is permitted to
purchase.
2. Borrow money, except from banks for temporary purposes, and except for
reverse repurchase agreements, and then in an amount not exceeding 10% of the
value of the Portfolio's total assets, and only if after such borrowing there is
asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate management of
the Portfolio by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
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The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York Municipal Money
Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and except for
reverse repurchase agreements, and then in amounts not in excess of 10% of the
value of the Portfolio's total assets at the time of such borrowing, and only if
after such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then in amounts not in excess of 10% of the
value of 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 on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed an underwriter under federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(4) make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development programs;
(8) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
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(9) purchase any securities issued by any other investment company except
in connection with the merger, consolidation, acquisition or reorganization of
all the securities or assets of such an issuer; or
(10) make investments for the purpose of exercising control or management.
In addition to the foregoing enumerated investment limitations, the New
York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest"), (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this limitation
only, private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without shareholder
approval.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
put if after the acquisition of the put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
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In order to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, the Portfolio will not purchase the securities
of any issuer if as a result more than 5% of the value of the Portfolio's assets
would be invested in the securities of such issuer, except that (a) up to 50% of
the value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any one issuer and (b) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
-31-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
-32-
<PAGE>
- ------------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively,
each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
-33-
<PAGE>
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of the Fund.
The Fund pays directors $12,000 annually and $1,250 per meeting of the
Board or any committee thereof that is not held in conjunction with a Board
meeting. In addition, the Chairman of the Board receives an additional fee of
$6,000 per year for his services in this capacity. Directors are reimbursed for
any expenses incurred in attending meetings of the Board of Directors or any
committee thereof. For the year ended August 31, 1998, each of the following
members of the Board of Directors received compensation from the Fund in the
following amounts:
Directors' Compensation
<TABLE>
<CAPTION>
Pension or Retirement
Aggregate Benefits Accrued as Estimated Annual
Compensation Part of Fund Benefits Upon
Name of Person/Position from Registrant Expenses Retirement
- ------------------------------ ---------------- ------------- ----------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
-34-
<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the administrator to the Municipal Money Market and New York Municipal
Money Market Portfolios and the Fund's transfer and dividend disbursing agent,
and Provident Distributors, Inc. (the "Distributor" or "PDI"), the Fund's
distributor, the Fund itself requires only one part-time employee. 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.
-35-
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios (except the New York Municipal Money Market Portfolio)
with PNC Bank dated August 16, 1988, as of March, 1998, BIMC assumed these
advisory responsibilities from PNC Bank. Pursuant to the Sub-Advisory
Agreements, PNC Bank would be entitled to receive an annual fee from BIMC for
its sub-advisory services calculated at the annual rate of 75% of the fees
received by BIMC on behalf of the Municipal Money Market and Government
Obligations Portfolios. The advisory agreement relating to the Government
Obligations Money Market Portfolio is dated August 16, 1988, the advisory
agreement relating to the New York Municipal Money Market Portfolio is dated
November 5, 1991 and the advisory agreement relating to the Municipal Money
Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Government Obligations Portfolio, for
administrative services obligated under the Advisory Agreements) advisory fees
as follows:
-36-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money
Market $1,649,453 $ 723,970 $392,949
New York Municipal Money
Market $ 60,758 $ 267,374 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money $1,774,123 $ 647,063 $404,193
Market
New York Municipal Money $ 21,831 $ 324,917 $0
Market
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
-37-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
New York Municipal Money Market $ 2,709 $ 268,017 $0
</TABLE>
Each 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; and
(f) the cost of investment company literature and other publications provided by
the Fund to its directors and officers. The Gamma classes of the Fund pay their
own distribution fees, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Gamma classes or if they receive different
services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Contracts or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Government Obligations Money Market Portfolio by
the shareholders of the Portfolio at a special meeting held on December 22,
1989, as adjourned. The investment advisory agreement was approved with respect
to the Municipal Money Market Portfolio by shareholders at a special meeting
held June 10, 1992,
-38-
<PAGE>
as adjourned and the sub-advisory agreement was approved with respect to the
Municipal Money Market Portfolio by shareholders at a special meeting held on
December 22, 1989. The Advisory Agreement was approved with respect to the New
York Municipal Money Market Portfolio by the Portfolio's shareholders at a
special meeting of shareholders held November 21, 1991, as adjourned. Each
Advisory Agreement is terminable by vote of the Fund's Board of Directors or by
the holders of a majority of the outstanding voting securities of the relevant
Portfolio, at any time without penalty, on 60 days' written notice to BIMC or
PNC Bank. Each of the Advisory Agreements may also be terminated by BIMC or PNC
Bank, respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminates automatically in the event of assignment thereof.
Administration Agreements. PFPC serves as the administrator to the New York
Municipal Money Market Portfolio pursuant to an Administration Agreement dated
November 5, 1991 and as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (together, the "Administration Agreements"). PFPC has agreed to
furnish to the Fund on behalf of the Municipal Money Market and New York
Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market and New York
Municipal Money Market Portfolios.
BIMC is obligated to render administrative services to the Government
Obligations Money Market Portfolio pursuant to the investment advisory
agreements. Pursuant to the terms of a Delegation Agreement, dated July 29,
1998, between BIMC and PFPC, however, BMIC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
-39-
<PAGE>
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money
Market $ 85,926 $7,826 $0
Government Obligations Money
Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money Market $ 99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
New York Municipal Money Market $ 67,204 $10,146 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC
-40-
<PAGE>
Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Gamma Classes pursuant to a Transfer Agency
Agreement dated November 5, 1991 and supplements dated November 5, 1991 (the
"Transfer Agency Agreement"), under which PFPC (a) issues and redeems shares of
each of the Gamma Classes, (b) addresses and mails all communications by each
Portfolio to record owners of shares of each such Class, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Gamma Class. PFPC may, on 30 days' notice to
the Fund, assign its duties as transfer and dividend disbursing agent to any
other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
-41-
<PAGE>
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998 entered into by the Distributor and the Fund on behalf
of each of the Gamma Classes, (the "Distribution Agreement") and separate Plans
of Distribution, as amended, for each of the Gamma Classes (collectively, the
"Plans"), all of which were adopted by the Fund in the manner prescribed by Rule
12b-1 under the 1940 Act, the Distributor will use appropriate efforts to
distribute shares of each of the Gamma Classes. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreements, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Gamma Classes of the Municipal Money
Market, Government Obligations Money Market and New York Municipal Money Market
Portfolios were approved by the Fund's Board of Directors, including the
directors who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the operation of the Plans or any agreements
related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Gamma Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Gamma Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
The Fund believes that such Plans may benefit the Fund by increasing sales
of Shares. Each of Mr. Sablowsky and Mr. Reichman, Directors of the Fund, had an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
-42-
<PAGE>
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio may purchase variable rate securities with
remaining maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because all Portfolios intend to
purchase only securities with remaining maturities of 13 months or less, their
portfolio turnover rates will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by each
such Portfolio, the turnover rate should not adversely affect such Portfolio's
net asset value or net income. The Portfolios do not intend to seek profits
through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by BIMC are made independently of each other in the light of differing
conditions. However, the same investment decision may occasionally be made for
two or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or
-43-
<PAGE>
sales are then averaged as to price and allocated as to amount according to
a formula deemed equitable to each such account. While in some cases this
practice could have a detrimental effect upon the price or value of the security
as far as a Portfolio is concerned, in other cases it is believed to be
beneficial to a Portfolio. A Portfolio will not purchase securities during the
existence of any underwriting or selling group relating to such security of
which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday
-44-
<PAGE>
closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of a class in the Portfolio's cash, securities and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class of the Fund is calculated independently of the other
classes of the Fund. A Portfolio's "net assets" equal the value of a Portfolio's
investments and other securities less its liabilities. The net asset value per
share of each class is computed twice each day, as of 12:00 noon (Eastern Time)
and as of the close of regular trading on the NYSE (generally 4:00 p.m. Eastern
Time), on each Business Day. "Business Day" means each day, Monday through
Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia (the
"FRB") are open. Currently, the NYSE is closed weekends and on New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
-45-
<PAGE>
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that 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.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
Total return and yield and may fluctuate daily and do not provide a basis
for determining future returns and yields. Because the returns and yields of
each Portfolio will fluctuate, they cannot be compared with returns and yields
on savings account or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one
-46-
<PAGE>
money market fund to another, consideration should be given to each fund's
investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio's generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of each such
Portfolio's assets at the close of each quarter of the Fund's taxable year must
consist of exempt-interest obligations.
-47-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Gamma 2 Common Stock, Gamma 3 Common Stock
and Gamma 4 Common Stock constitute the Gamma Classes, described herein. Under
RBB's charter, the Board of Directors has the power to classify or reclassify
any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interest in the Money Market,
Municipal Money Market Funds; the Sansom Street Family represents interests in
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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 shares of each portfolio
affected by the matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of each
portfolio in the matter are identical or that the matter does not affect any
interest of the portfolio. Under the Rule the approval of an investment advisory
agreement or any change in a fundamental investment policy
-50-
<PAGE>
would be effectively acted upon with respect to a portfolio only if
approved by the holders of a majority of the outstanding voting securities of
such portfolio. However, the Rule also provides that the ratification of the
selection of independent public accountants, and the election of directors are
not subject to the separate voting requirements and may be effectively acted
upon by shareholders of an investment company voting without regard to
portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
-51-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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
-66-
<PAGE>
purchasing shares of such a company as agent for and upon the order of
customers. BIMC, PNC Bank and other institutions that are banks or bank
affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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.
-67-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
DELTA FAMILY
Money Market Portfolio,
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Delta
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Delta Family Prospectus of the Fund dated December 29, 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 29, 1998.
<TABLE>
<CAPTION>
CONTENTS
Page
<S> <C>
General........................................................................2
Investment Objectives and Policies.............................................2
Directors and Officers.........................................................29
Investment Advisory, Distribution and Servicing Arrangements...................32
Portfolio Transactions.........................................................38
Purchase and Redemption Information............................................39
Valuation of Shares............................................................40
Performance Information........................................................41
Taxes..........................................................................42
Additional Information Concerning Fund Shares..................................42
Miscellaneous..................................................................46
Appendix A.....................................................................A-1
</TABLE>
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 four classes of shares (the "Delta Classes") representing interests
in four investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Delta Classes are offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the
Prospectus concerning the investment objectives and policies of the Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940, as amended (the "1940 Act"), and may be entered into only
for temporary or emergency purposes. While reverse repurchase transactions are
outstanding, a Portfolio will maintain in a segregated account with the Fund's
custodian or a qualified sub-custodian, cash, or liquid securities of an amount
at least equal to the market value of the securities, plus accrued interest,
subject to the agreement.
Variable Rate Demand Instruments. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, upon giving the prescribed notice
(which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 13 months.
In determining the average weighted maturity of the Money Market, Municipal
Money Market or New York Municipal Money Market Portfolio and whether a variable
rate demand instrument has a remaining maturity of 13 months or less, each
long-term 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.
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for a Portfolio to dispose
of variable or floating rate notes if the issuer defaulted on its payment
obligations or during periods that the Portfolio is not entitled to exercise its
demand right and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
2
<PAGE>
When-Issued or Delayed Delivery Securities. The Money Market,
Municipal Money Market and New York Money Market Portfolios may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolios have such
commitments outstanding, such Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash, or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
such Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of such Portfolio's commitment. It may be expected that such
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because such Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, such Portfolio expects that commitments to purchase
"when-issued" securities will not exceed 25% of the value of its total assets
absent unusual market conditions. When any of the Money Market Portfolio,
Municipal Money Market Portfolio or the New York Municipal Money Market
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in such
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
Portfolio may pay for a stand-by commitment either in cash or by paying a higher
3
<PAGE>
price for portfolio securities, which are acquired subject to the commitment
(thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation, which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign
Branches of U.S. Banks. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
Short Sales "Against the Box." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
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the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include
variable rate demand notes. Such notes are frequently not rated by credit rating
agencies, but unrated notes purchased by the Portfolio will have been determined
by the Portfolio's investment adviser to be of comparable quality at the time of
the purchase to rated instruments purchasable by the Portfolio. Where necessary
to ensure that a note is of eligible quality, the Portfolio will require that
the issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
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The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those, which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S.
Government obligations include U.S. Treasury Bills, Treasury Notes and Treasury
Bonds and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the Maritime Administration,
International Bank for Reconstruction and Development (the "World Bank"), the
Asian-American Development Bank and the Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper
which is issued in reliance on the "private placement" exemption from
registration which is afforded by Section 4(2) of the Securities Act of 1933, as
amended. Section 4(2) paper is restricted as to disposition under the federal
securities laws and is generally sold to institutional investors such as the
Fund which agree that they are purchasing the paper for investment and not with
a view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in the Section 4(2) paper, thereby providing liquidity. See "Illiquid
Securities" below.
Repurchase Agreements. The repurchase price under the
repurchase agreements described in the Prospectus generally equals the price
paid by a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks and non-bank dealers of U.S.
Government Securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to equal at
least the repurchase price (including accrued interest). In addition, the
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Portfolio's adviser or sub-adviser will require that the value of this
collateral, after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to or greater than the repurchase
price including either (i) accrued premium provided in the repurchase agreement
or (ii) the daily amortization of the difference between the purchase price and
the repurchase price specified in the repurchase agreement. The Portfolio's
adviser or sub-adviser will mark to market daily the value of the securities.
Securities subject to repurchase agreements will be held by the Fund's custodian
in the Federal Reserve/Treasury book-entry system or by another authorized
securities depository. Repurchase agreements are considered to be loans by a
Portfolio under the 1940 Act.
Mortgage-Related Securities. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
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securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMOs. The Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
Asset-Backed Securities. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income securities.
Lending of Securities. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
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Eligible Securities. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("Rating Organizations")
in the two highest rating categories for such securities (e.g., commercial paper
rated "A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and subject to certain SEC requirements; 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) subject to
certain conditions imposed under SEC rules, obligations guaranteed by persons
which meet the requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements that have a maturity of longer than seven days), including securities
that are illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Each Portfolio's investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. With respect to the Money Market
Portfolio, the Government Obligations Money Market Portfolio, and the New York
Municipal Money Market Portfolio, repurchase agreements subject to demand are
deemed to have a maturity equal to the notice period.
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Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal
Obligations. Some of the significant financial considerations relating to the
Fund's investments in New York Municipal Obligations are summarized below. This
summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
State Economy. New York is the third most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a very
small share of the nation's farming and mining activity. The State's location
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and its excellent air transport facilities and natural harbors have made it an
important link in international commerce. Travel and tourism constitute an
important part of the economy. Like the rest of the nation, New York has a
declining proportion of its workforce engaged in manufacturing, and an
increasing proportion engaged in service industries.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic position. State per
capita personal income has historically been significantly higher than the
national average, although the ratio has varied substantially. Because New York
City (the "City") is a regional employment center for a multi-state region,
State personal income measured on a residence basis understates the relative
importance of the State to the national economy and the size of the base to
which State taxation applies.
The State economic forecast has been raised slightly from the
enacted budget forecast. Continued growth is projected in 1998 and 1999 for
employment, wages, and personal income, although the growth rates of personal
income and wages are expected to be lower than those in 1997. The growth of
personal income is projected to decline from 5.7 percent in 1997 to 4.8 percent
in 1998 and 4.2 percent in 1999, in part because growth in bonus payments is
expected to slow down, a distinct shift from the torrid rate of the last few
years. Overall employment growth is expected to be 1.9 percent in 1998, the
strongest in a decade, but will drop to 1.0 percent in 1999, reflecting the
slowing growth in the national economy, continued restraint in governmental
spending, and restructuring in the health care, social service, and banking
sectors.
There can be no assurance that the State economy will not
experience worse-than-predicted results, with corresponding material and adverse
effects on the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all moneys and revenues estimated to be available
therefor, accompanied by bills containing all proposed appropriations or
reappropriations and any new or modified revenue measures to be enacted in
connection with the executive budget. The entire plan constitutes the proposed
State financial plan for that fiscal year. The Governor is required to submit to
the Legislature quarterly budget updates which include a revised cash-basis
state financial plan, and an explanation of any changes from the previous state
financial plan.
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State law requires the Governor to propose a balanced budget
each year. In recent years, the State has closed projected budget gaps of $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to
closing projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
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The State will formally update its outyear projections of
receipts and disbursements for the 2000-01 and 2001-02 fiscal years as a part of
the 1999-00 Executive Budget process, as required by law. The revised
expectations for years 2000-01 and 2001-02 will reflect the cumulative impact of
tax reductions and spending commitments enacted over the last several years as
well as new 1999-00 Executive Budget recommendations. The School Tax Relief
Program ("STAR") program, which dedicates a portion of personal income tax
receipts to fund school tax reductions, has a significant impact on General Fund
receipts. STAR is projected to reduce personal income tax revenues available to
the General Fund by an estimated $1.3 billion in 2000-01. Measured from the
1998-99 base, scheduled reductions to estate and gift, sales and other taxes,
reflecting tax cuts enacted in 1997-98 and 1998-99, will lower General Fund
taxes and fees by an estimated $1.8 billion in 2000-01. Disbursement projections
for the outyears currently assume additional outlays for school aid, Medicaid,
welfare reform, mental health community reinvestment, and other multi-year
spending commitments in law.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
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The State's current fiscal year began on April 1, 1998 and
ends on March 31, 1999 and is referred to herein as the State's 1998-99 fiscal
year. The Legislature adopted the debt service component of the State budget for
the 1998-99 fiscal year on March 30, 1998 and the remainder of the budget on
April 18, 1998. In the period prior to adoption of the budget for the current
fiscal year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to
grow by $2.43 billion over 1997-98 levels, or $690 million more than proposed in
the Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax
reduction initiatives, including acceleration of State-funded property and local
income tax relief for senior citizens under STAR expansion of the child care
income-tax credit for middle-income families, a phased-in reduction of the
general business tax, and reduction of several other taxes and fees,
including an accelerated phase-out of assessmentson medical providers.
The enacted budget also provides for significant increases in spending for
public schools, special education programs, and for the State and City
university systems. It also allocates $50 million for a new Debt
Reduction Reserve Fund ("DRRF") that may eventually be used to pay debt service
costs on or to prepay outstanding State-supported bonds.
The 1998-99 State Financial Plan projects a closing balance in
the General Fund of $1.42 billion that is comprised of a reserve of $761 million
available for future needs, a balance of $400 million in the Tax Stabilization
Reserve Fund ("TSRF"), a balance of $158 million in the Community Projects Fund
("CPF"), and a balance of $100 million in the Contingency Reserve Fund ("CRF").
The TSRF can be used in the event of an unanticipated General Fund cash
operating deficit, as provided under the State Constitution and State Finance
Law. The CPF is used to finance various legislative and executive initiatives.
The CRF provides resource to help finance any extraordinary litigation costs
during the fiscal year.
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The forecast of General Fund receipts in 1998-99 incorporates
several Executive Budget tax proposals that, if enacted, would further reduce
receipts otherwise available to the General Fund by approximately $700 million
during 1998-99. The Executive Budget proposes accelerating school tax relief for
senior citizens under STAR, which is projected to reduce General Fund receipts
by $537 million in 1998-99. The proposed reduction supplements STAR tax
reductions already scheduled in law, which are projected at $187 million in
1998-99. The Budget also proposes several new tax-cut initiatives and other
funding changes that are projected to further reduce receipts available to the
General Fund by over $200 million. These initiatives include reducing the fee to
register passenger motor vehicles and earmarking a larger portion of such fees
to dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1998 to 1999. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99
Financial Plan includes approximately $62 million in non-recurring resources,
comprising less than two-tenths of one percent of General Fund disbursements.
The non-recurring resources projected for use in 1998-99 consist of $27 million
in retroactive federal welfare reimbursements for family assistance recipients
with HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are
estimated at $4.82 billion, or $1.07 billion higher than 1997-98. The proposed
spending plan includes: $2.51 billion in disbursements for transportation
purposes, including the State and local highway and bridge program; $815 million
for environmental activities; $379 million for correctional services; $228
million for the State University of New York ("SUNY") and the City University of
New York ("CUNY"); $290 million for mental hygiene projects; and $375 million
for CEFAP. Approximately 28 percent of capital projects are proposed to be
financed by "pay-as-you-go" resources. State-supported bond issuances finance 46
percent of capital projects, with federal grants financing the remaining 26
percent.
Many complex political, social and economic forces influence
the State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
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In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the DOB believes it could take similar actions should
variances occur in its projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal
operating fund of the State and is used to account for all financial
transactions, except those required to be accounted for in another fund. It is
the State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its
first-ever, accumulated positive balance in its General Fund. This "accumulated
surplus" was $567 million. The improvement in the State's GAAP position is
attributable, in part, to the cash surplus recorded at the end of the State's
1997-98 fiscal year. Much of that surplus is reserved for future requirements,
but a portion is being used to meet spending needs in 1998-99. Thus, the State
expects some deterioration in its GAAP position, but expects to maintain a
positive GAAP balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined
Governmental Funds operating surplus of $1.80 billion, which included an
operating surplus in the General Fund of $1.56 billion, in Capital Projects
Funds of $232 million and in Special Revenue Funds of $49 million, offset in
part by an operating deficit of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56
billion for the 1997-98 fiscal year, as compared to an operating surplus of
$1.93 billion for the 1996-97 fiscal year. As a result, the State reported an
accumulated surplus of $567 million in the General Fund for the first time since
it began reporting its operations on a GAAP-basis. The 1997-98 fiscal year
operating surplus reflects several major factors, including the cash-basis
operating surplus resulting from the higher-than-anticipated personal income tax
receipts, an increase in taxes receivable of $681 million, an increase in other
assets of $195 million and a decrease in pension liabilities of $144 million.
This was partially offset by an increase in payables to local governments of
$270 million and tax refunds payable of $147 million.
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Debt Limits and Outstanding Debt. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term general obligation borrowing (i.e., borrowing for more than
one year) unless the borrowing is authorized in a specific amount for a single
work or purpose by the Legislature and approved by the voters. There is no
limitation on the amount of long-term general obligation debt that may be so
authorized and subsequently incurred by the State.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
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On January 13, 1992, Standard & Poor's Ratings Services
("S&P") reduced its ratings on the State's general obligation bonds from A to A-
and, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. On August 28, 1997, S&P
revised its ratings on the State's general obligation bonds from A- to A and
revised its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On March 2, 1998, S&P affirmed its A rating on
the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
The State anticipates that its capital programs will be
financed, in part, through borrowings by the State and its public authorities in
the 1998-99 fiscal year. Information on the State's five-year Capital Program
and Financing Plan for the 1998-99 through 2002-03 fiscal years, updated to
reflect actions taken in the 1998-99 State budget, will be released on or before
July 30, 1998. The projection of State borrowings for the 1998-99 fiscal year is
subject to change as market conditions, interest rates and other factors vary
throughout the fiscal year.
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The State expects to issue $528 million in general obligation
bonds (including $154 million for purposes of redeeming outstanding BANs) and
$154 million in general obligation commercial paper. The State also anticipates
the issuance of up to a total of $419 million in Certificates of Participation
to finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and
Financing Plan was released with the 1998-99 Executive Budget on January 20,
1998. As a part of that Plan, changes were proposed to the State's 1997-98
borrowing plan, including: the delay in the issuance of COPs to finance welfare
information systems until 1998-99 to permit a thorough assessment of needs; and
the elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
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to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of
legislation enacted during the 1990 legislative session which changed actuarial
funding methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision in
the case of State of Delaware v. State of New York, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan.
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Although other litigation is pending against New York State,
except as described herein, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
Authorities. The fiscal stability of New York State is
related, in part, to the fiscal stability of its Authorities, which generally
have responsibility for financing, constructing and operating revenue-producing
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the
State may also be impacted by the fiscal health of its localities, particularly
the City, which has required and continues to require significant financial
assistance from the State. The City depends on State aid both to enable the City
to balance its budget and to meet its cash requirements. There can be no
assurance that there will not be reductions in State aid to the City from
amounts currently projected or that State budgets will be adopted by the April 1
statutory deadline or that any such reductions or delays will not have adverse
effects on the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979. In 1975, S&P suspended its A
rating of City bonds. This suspension remained in effect until March 1981, at
which time the City received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward
to BBB+ and on November 19, 1987, to A-. On February 3, 1998 and again on May
27, 1998, S&P assigned a BBB+ rating to the City's general obligation debt and
placed the ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981
from B (in effect since 1977) to Ba1, in November 1983 to Baa, in December 1985
to Baa1, in May 1988 to A and again in February 1991 to Baa1. On February 25,
1998, Moody's upgraded nearly $28 billion of the City's general obligations from
Baa1 to A3. On June 9, 1998, Moody's again assigned on A3 rating to the City's
general obligations and stated that its outlook was stable.
New York City is heavily dependent on New York State and
federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future federal and State assistance will enable the City
to make up its budget deficits. To help alleviate the City's financial
difficulties, the Legislature created the Municipal Assistance Corporation
("MAC") in 1975. Since its creation, MAC has provided, among other things,
financing assistance to the City by refunding maturing City short-term debt and
transferring to the City funds received from sales of MAC bonds and notes. MAC
is authorized to issue bonds and notes payable from certain stock transfer tax
revenues, from the City's portion of the State sales tax derived in the City
and, subject to certain prior claims, from State per capita aid otherwise
payable by the State to the City. Failure by the State to continue the
imposition of such taxes, the reduction of the rate of such taxes to rates less
than those in effect on July 2, 1975, failure by the State to pay such aid
revenues and the reduction of such aid revenues below a specified level are
included among the events of default in the resolutions authorizing MAC's
long-term debt. The occurrence of an event of default may result in the
acceleration of the maturity of all or a portion of MAC's debt. MAC bonds and
notes constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. As of June 30, 1997, MAC had
outstanding an aggregate of approximately $4.267 billion of its bonds. MAC is
authorized to issue bonds and notes to refund its outstanding bonds and notes
and to fund certain reserves, without limitation as to principal amount, and to
finance certain capital commitments to the Transit Authority and the New York
City School Construction Authority through the 1997 fiscal year in the event the
City fails to provide such financing.
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Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and CUNY and
reflected the City's expense and capital budgets for the 1998 fiscal year, which
were adopted on June 6, 1997. The 1998-2001 Financial Plan projected revenues
and expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the
impact of scheduled tax reductions that will lower receipts by $38 million, as
well as the impact of two Executive Budget proposals that are projected to lower
receipts by an additional $79 million. The first proposal would divert $30
million in motor vehicle registration fees from the General Fund to the
Dedicated Highway and Bridge Trust Fund; the second would reduce fees for motor
vehicle registrations, which would further lower receipts by $49 million. The
underlying growth of receipts in this category is projected at 4 percent, after
adjusting for these scheduled and recommended changes.
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In comparison to the current fiscal year, business tax
receipts are projected to decline slightly in 1998-99, falling from $4.98
million to $4.96 billion. The decline in this category is largely attributable
to scheduled tax reductions. In total, collections for corporation and utility
taxes and the petroleum business tax are projected to fall by $107 million from
1997-98. The decline in receipts in these categories is partially offset by
growth in the corporation franchise, insurance and bank taxes, which are
projected to grow by $88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus
of $131 million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99
in the General Fund, primarily as a result of the use of the 1997-98 cash
surplus. In 1998-99, the General Fund GAAP Financial Plan shows total revenues
of $34.68 billion, total expenditures of $35.94 billion, and net other financing
sources and uses of $42 million.
Although the City has maintained balanced budgets in each of
its last seventeen fiscal years and is projected to achieve balanced operating
results for the 1998 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998-2001 Financial Plan can be successfully implemented
or that the City will maintain a balanced budget in future years without
additional State aid, revenue increases or expenditure reductions. Additional
tax increases and reductions in essential City services could adversely affect
the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general obligation bonds and $5.7 billion of bonds
to be issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority,
was created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
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amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment of the Financial Control Board for
the City of Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers
Board is charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the State to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
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Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in
unrestricted aid targeted to 57 municipalities across the State. Other
assistance for municipalities with special needs totals more than $25.6 million.
Twelve upstate cities will receive $24.2 million in one-time assistance from a
cash flow acceleration of State aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1996, the total indebtedness
of all localities in the State other than New York City was approximately $20.0
billion. A small portion (approximately $77.2 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling State legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
other than New York City that are authorized by State law to issue debt to
finance deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could
reduce, or in some cases eliminate, federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If the State, the City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing the State assistance in
the future.
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Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio.
Neither the money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary
purposes (and with respect to the Money Market Portfolio only, except for
reverse repurchase agreements) and then in amounts not in excess of 10% of
the value of the Portfolio's total assets at the time of such borrowing,
and only if after such borrowing there is asset coverage of at least 300%
for all borrowings of the Portfolio; or mortgage, pledge, hypothecate any
of its assets except in connection with such borrowings and then, with
respect to the Money Market Portfolio, in amounts not in excess of 10% of
the value of a Portfolio's total assets at the time of such borrowing and,
with respect to the Municipal Money Market Portfolio, in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of
a Portfolio's total assets at the time of such borrowing; or purchase
portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio's securities
by enabling the Portfolio to meet redemption requests where the liquidation
of portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other
than securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such purchase
more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of a Portfolio's assets may be invested without regard
to this 5% limitation;
(3) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers,
except to the extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with a
Portfolio's investment objective, policies and limitations may be deemed to
be an underwriting;
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(5) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(7) purchase or sell commodities or commodity
contracts;
(8) invest in oil, gas or mineral exploration or
development programs;
(9) make loans except that a Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and (except for the Municipal Money Market
Portfolio) may enter into repurchase agreements;
(10) purchase any securities issued by any other
investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such an
issuer; or
(11) make investments for the purpose of
exercising control or management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in
excess of 5% of the value of the Portfolio's assets and may make time
deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
28
<PAGE>
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
shareholder approval.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities of the
parents, and will divide utility companies according to their services. For
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry. The policy and practices stated in this
paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change would be subject to any applicable requirements of the Securities
and Exchange Commission (the "SEC") and would be disclosed in the Prospectus
prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Money Market Portfolio will meet the following limitations on its
investments in addition to the fundamental investment limitations described
above. These limitations may be changed without a vote of shareholders of the
Money Market Portfolio.
1. The Money Market Portfolio will limit its
purchases of the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that the Money
Market Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization (as defined in the Prospectus) in its highest rating category
for such securities, (iii) have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer of
such securities that have been rated in accordance with (i) or (ii) above,
or (iv) are Unrated Securities that are determined to be of comparable
quality to such securities. Purchases of First Tier Securities that come
within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its
purchases of Second Tier Securities, which are eligible securities other than
First Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its
purchases of Second Tier Securities of one issuer to the greater of 1% of its
total assets or $1 million.
29
<PAGE>
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will
not purchase any put if after the acquisition of the put the Municipal Money
Market Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only with the
underlying instrument.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S.
Treasury bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements
relating to such obligations. There is no limit on the amount of the Portfolio's
assets which may be invested in the securities of any one issuer of obligations
that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for
temporary purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets, and only
if after such borrowing there is asset coverage of at least 300% for all
borrowings of the Portfolio; or mortgage, pledge, hypothecate its assets except
in connection with any such borrowing and in amounts not in excess of 10% of the
value of the Portfolio's assets at the time of such borrowing; or purchase
portfolio securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio by enabling the Portfolio to meet
redemption requests where the liquidation of portfolio securities is deemed to
be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may
purchase or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for securities,
and may lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that may
be loaned, except that payments received on such loans, including amounts
received during the loan on account of interest on the securities loaned, may
not (together with all non-qualifying income) exceed 10% of the Portfolio's
annual gross income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income under federal
income tax provisions applicable to regulated investment companies.
30
<PAGE>
The foregoing investment limitations cannot be changed without
shareholder approval.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for
temporary purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's total assets at the
time of such borrowing, and only if after such borrowing there is asset coverage
of at least 300% for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate any of its assets except in connection with such borrowings and then
in amounts not in excess of 10% of the value of 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 on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers,
except to the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under federal securities
laws and except to the extent that the purchase of Municipal Obligations
directly from the issuer thereof in accordance with the Portfolio's investment
objective, policies and limitations may be deemed to be an underwriting;
(4) make short sales of securities or
maintain a short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided
that the Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests therein;
(6)purchase or sell commodities or commodity
contracts;
(7)invest in oil, gas or mineral exploration
or development programs;
31
<PAGE>
(8) make loans except that the Portfolio may
purchase or hold debt obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any
other investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such an issuer;
or
(10) make investments for the purpose of
exercising control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular federal income tax and does not
constitute an item of tax preference for purposes of the federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
shareholder approval.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market
Portfolio will not purchase any put if after the acquisition of the put the New
York Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to puts from the same institution,
except that the foregoing condition shall only be applicable with respect to 75%
of the New York Municipal Money Market Portfolio's total assets. A "put" means a
right to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
32
<PAGE>
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
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>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ------------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc.,
respectively, each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
35
<PAGE>
The Fund pays directors $12,000 annually and $1,250 per
meeting of the Board or any committee thereof that is not held in conjunction
with a Board meeting. In addition, the Chairman of the Board receives an
additional fee of $6,000 per year for his services in this capacity. Directors
are reimbursed for any expenses incurred in attending meetings of the Board of
Directors or any committee thereof. For the year ended August 31, 1998, each of
the following members of the Board of Directors received compensation from the
Fund in the following amounts:
<TABLE>
<CAPTION>
Directors' Compensation
-----------------------
Pension or Retirement
Aggregate Benefits Accrued as Estimated Annual
Compensation Part of Fund Benefits Upon
Name of Person/Position from Registrant Expenses Retirement
- ------------------------------ ---------------- --------------------- ---------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 the Fund adopted, as a participating
employer, the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a
retirement plan for employees (currently Edward J. Roach and one other
employee), pursuant to which the Fund will contribute on a quarterly basis
amounts equal to 10% of the quarterly compensation of each eligible employee. By
virtue of the services performed by Blackrock Institutional Management
Corporation ("BIMC") (formerly known as "PNC Institutional Management
Corporation"), the Portfolios' adviser, PNC Bank, National Association ("PNC
Bank"), the Fund's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market and New York Municipal Money Market Portfolios and the
Fund's transfer and dividend disbursing agent, and Provident Distributors, Inc.
(the "Distributor" or "PDI"), the Fund's distributor, the Fund itself requires
only one part-time employee. 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.
36
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The Portfolios have
investment advisory agreements with BIMC. Although BIMC in turn has sub-advisory
agreements respecting the Portfolios (except the New York Municipal Money Market
Portfolio) with PNC Bank dated August 16, 1988, as of April 29, 1998, BIMC
assumed these advisory responsibilities from PNC Bank. Pursuant to the
Sub-Advisory Agreements, PNC Bank would be entitled to receive a annual fee from
BIMC for its sub-advisory services calculated at the annual rate of 75% of the
fees received by BIMC on behalf of the Money Market, Municipal Money Market and
Government Obligations Portfolios. The advisory agreements relating to the Money
Market and Government Obligations Money Market Portfolios are each dated
August 16, 1988,the advisory agreement relating to the New York Municipal Money
Market Portfolio is dated November 5, 1991 and the advisory agreement relating
to the Municipal Money Market Portfolio is dated April 21, 1992. Such advisory
and sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC
(excluding fees to PFPC, with respect to the Money Market and Government
Obligations Portfolios, for administrative services obligated under the Advisory
Agreements) advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,532 $ 55,085
Government Obligations Money
Market $1,649,453 $ 723,970 $392,949
New York Municipal Money
Market $ 60,758 $ 267,374 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money $1,774,123 $ 647,063 $404,193
Market
New York Municipal Money $ 21,831 $ 324,917 $0
Market
</TABLE>
37
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
Portfolios waivers and reimbursements) Waivers Reimbursements
- ---------- --------------------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
New York Municipal Money Market $ 2,709 $ 268,017 $0
</TABLE>
Each 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; and (f) the cost of investment company
literature and other publications provided by the Fund to its directors and
officers. The Delta classes of the Fund pay their own distribution fees, and may
pay a different share than other classes of other expenses (excluding advisory
and custodial fees) if those expenses are actually incurred in a different
amount by the Delta classes or if they receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or a Portfolio in connection with the performance of the Advisory
Agreements, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of BIMC or PNC Bank in the performance of their
respective duties or from reckless disregard of their duties and obligations
thereunder.
38
<PAGE>
The Advisory Agreements were each most recently approved 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 Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
were each approved with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by shareholders at a special meeting held on December 22, 1989. The
Advisory Agreement was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Agreement is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to BIMC or PNC Bank. Each of
the Advisory Agreements may also be terminated by BIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminates automatically in the event of assignment thereof.
Administration Agreements. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
BIMC is obligated to render administrative services to the
Money Market and Government Obligations Money Market Portfolio pursuant to the
investment advisory agreements. Pursuant to the terms of Delegation Agreements,
dated July 29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC
its administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
39
<PAGE>
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money Market $ 85,926 $7,826 $0
Money Market $0 $0 $0
Government Obligations Money Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money Market $ 99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
New York Municipal Money Market $ 67,204 $10,146 $0
</TABLE>
40
<PAGE>
Custodian and Transfer Agency Agreements. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Delta Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Delta Classes, (b) addresses and mails all communications
by each Portfolio to record owners of shares of each such Class, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic reports to the Fund's Board of
Directors concerning the operations of each Delta Class. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
41
<PAGE>
Distribution Agreements. Pursuant to the terms of a
distribution agreement, dated as of May 29, 1998 entered into by the Distributor
and the Fund on behalf of each of the Delta Classes, (the "Distribution
Agreement") and separate Plans of Distribution, as amended, for each of the
Delta Classes (collectively, the "Plans"), all of which were adopted by the Fund
in the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor will
use appropriate efforts to distribute shares of each of the Delta Classes. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution 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 each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Delta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios were approved by the Fund's Board of
Directors, including the directors who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in the operation of the
Plans or any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Delta Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Delta Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Each of Mr. Sablowsky and Mr. Reichman, Directors of
the Fund, had an indirect interest in the operation of the Plans by virtue of
his position with Fahnestock Co., Inc. and Counsellors Securities, Inc.,
respectively, each a registered broker-dealer.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
or less), and except that each of the Money Market Portfolio, Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio may purchase
variable rate securities with remaining maturities of 13 months or more so long
as such securities comply with conditions established by the SEC under which
they may be considered to have remaining maturities of 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months or less, their portfolio turnover rates will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by each such Portfolio, the turnover rate
should not adversely affect such Portfolio's net asset value or net income. The
Portfolios do not intend to seek profits through short term trading.
42
<PAGE>
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by 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 a Portfolio is
concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which 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 a Portfolio.
43
<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,
1998, the following portfolios held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each class of the Portfolios at $1.00 per share. Net asset value
per share, the value of an individual share in a Portfolio, is computed by
adding the value of the proportionate interest of a class in the Portfolio's
cash, securities and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value of each class of the Fund is calculated
independently of the other classes of the Fund. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
liabilities. The net asset value per share of each class is computed twice each
day, as of 12:00 noon (Eastern Time) and as of the close of regular trading on
the NYSE (generally 4:00 p.m. Eastern Time), on each Business Day. "Business
44
<PAGE>
Day" means each day, Monday through Friday, when both the NYSE and the Federal
Reserve Bank of Philadelphia (the "FRB") are open. Currently, the NYSE is closed
weekends and on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day and the preceding Friday and subsequent Monday when one of
these holidays falls on a Saturday or Sunday. The FRB is currently closed on
weekends and the same holidays as the NYSE as well as Columbus Day and Veterans'
Day.
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will
limit portfolio investments, including repurchase agreements (where permitted),
to those 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.
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
45
<PAGE>
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are
computed using standardized methods required by the SEC. The annualized yields
for a Portfolio are computed by: (a) determining the net change in the value of
a hypothetical account having a balance of one share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
Total return and yield may fluctuate daily and do not provide
a basis for determining future returns and yields. Because the returns and
yields of each Portfolio will fluctuate, they cannot be compared with returns
and yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, return
and yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the return and yield of
one money market fund to another, consideration should be given to each fund's
investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the returns and/or yields of a Portfolio may be quoted and
compared to those of other mutual funds with similar investment objectives and
to stock or other relevant indices. For example, the yield of a Portfolio may be
compared to the Donoghue's Money Fund Average, which is an average compiled by
IBC Money Fund Report(R), a widely recognized independent publication that
46
<PAGE>
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
Each Portfolio intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that each Portfolio generally
will be relieved of federal income and excise taxes. If a Portfolio were to fail
to so qualify: (1) the Portfolio would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction. For the
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
to pay tax-exempt dividends for any taxable year, at least 50% of the aggregate
value of each such Portfolio's assets at the close of each quarter of the Fund's
taxable year must consist of exempt-interest obligations.
47
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Delta 1 Common Stock, Delta 2 Common Stock,
Delta 3 Common Stock and Delta 4 Common Stock constitute the Delta Classes,
described herein. Under RBB's charter, the Board of Directors has the power to
classify or reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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.
49
<PAGE>
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise, to the holders of the
outstanding voting securities of an investment company such as the Fund shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding voting securities shares of each portfolio
affected by the matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of each
portfolio in the matter are identical or that the matter does not affect any
interest of the portfolio. Under the Rule the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a portfolio only if approved by the holders of a
majority of the outstanding voting securities of such portfolio. However, the
Rule also provides that the ratification of the selection of independent public
accountants, and the election of directors are not subject to the separate
voting requirements and may be effectively acted upon by shareholders of an
investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
Control Persons. As of November 16, 1998, 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.
50
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<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory 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.
62
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are 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
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A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
EPSILON FAMILY
Money Market Portfolio,
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of four classes (the "Epsilon Shares") representing
interests in four investment portfolios (the "Portfolios") of The RBB Fund, Inc.
(the "Fund"): the Money Market Portfolio, the Municipal Money Market Portfolio,
the Government Obligations Money Market Portfolio and the New York Municipal
Money Market Portfolio. This Statement of Additional Information is not a
prospectus, and should be read only in conjunction with the Epsilon Family
Prospectus of the Fund dated December 29, 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 29, 1998.
CONTENTS
<TABLE>
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Page
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<S> <C>
General............................................................2
Investment Objectives and Policies.................................2
Directors and Officers.............................................29
Investment Advisory, Distribution and Servicing Arrangements.......32
Portfolio Transactions.............................................38
Purchase and Redemption Information................................39
Valuation of Shares................................................40
Performance Information............................................41
Taxes..............................................................42
Additional Information Concerning Fund Shares......................42
Miscellaneous......................................................45
Appendix A.........................................................A-1
</TABLE>
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 four
classes of shares (the "Epsilon Classes") representing interests in four
investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Epsilon Classes are offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio or the Municipal Money Market Portfolio may have
maturities of more than 13 months, provided: (i) the Portfolio is entitled to
the payment of principal at any time, or during specified intervals not
exceeding 13 months, upon giving the prescribed notice (which may not exceed 30
days), and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 13 months. In determining the average weighted
maturity of the Money Market, Municipal Money Market or New York Municipal Money
Market Portfolio and whether a variable rate demand instrument has a remaining
maturity of 13 months or less, each long-term 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. The absence of an active secondary
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market with respect to particular variable and floating rate instruments could
make it difficult for a Portfolio to dispose of variable or floating rate notes
if the issuer defaulted on its payment obligations or during periods that the
Portfolio is not entitled to exercise its demand right and the Portfolio could,
for these or other reasons, suffer a loss with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Money Market, Municipal
Money Market and New York Money Market Portfolios may purchase "when-issued" and
delayed delivery securities purchased for delivery beyond the normal settlement
date at a stated price and yield. While the Money Market, Municipal Money Market
or New York Municipal Money Market Portfolios have such commitments outstanding,
such Portfolio will maintain in a segregated account with the Fund's custodian
or a qualified sub-custodian, cash, or liquid securities of an amount at least
equal to the purchase price of the securities to be purchased. Normally, the
custodian for the relevant Portfolio will set aside portfolio securities to
satisfy a purchase commitment and, in such a case, such Portfolio may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when-issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio, Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio may enter into
stand-by commitments with respect to obligations issued by or on behalf of
states, territories, and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instrumentalities and
authorities (collectively, "Municipal Obligations") held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option a specified Municipal Obligation at its amortized cost value to the
Portfolio plus accrued interest, if any. Stand-by commitments may be exercisable
by the Money Market Portfolio, Municipal Money Market Portfolio or New York
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio expects that stand-by commitments will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, either such Portfolio may pay
for a stand-by commitment either in cash or by paying a higher price for
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portfolio securities, which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
total amount paid in either manner for outstanding stand-by commitments held by
the Money Market Portfolio, Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio will not exceed 1/2 of 1% of the value of the
relevant Portfolio's total assets calculated immediately after each stand-by
commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the investment
adviser's opinion, present minimal credit risks. Any such Portfolio's reliance
upon the credit of these dealers, banks and broker-dealers will be secured by
the value of the underlying Municipal Obligations that are subject to the
commitment.
The Money Market Portfolio, Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation, which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
Short Sales "Against the Box." In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
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a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for investment purposes. A Portfolio
may, however, make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Portfolio (or a security convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an attractive current price, but
also wishes possibly to defer recognition of gain or loss for federal income tax
purposes. (A short sale against the box will defer recognition of gain for
federal income tax purposes only if the Portfolio subsequently closes the short
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) In such case, any future losses in the
Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales. The
dollar amount of short sales at any time will not exceed 25% of the net assets
of the Government Obligations Money Market Portfolio, and the value of
securities of any one issuer in which the Portfolio is short will not exceed the
lesser of 2% of net assets or 2% of the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
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<PAGE>
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those, which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government Securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the portfolio's
adviser or sub-adviser. A Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
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sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price including either (i)
accrued premium provided in the repurchase agreement or (ii) the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may invest in
multiple class pass-through securities, including collateralized mortgage
obligations ("CMOs"). These multiple class securities may be issued by U.S.
Government agencies or instrumentalities, including FNMA and FHLMC, or by trusts
formed by private originators of, or investors in, mortgage loans. In general,
CMOs are debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
(the "Mortgage Assets"), the payments on which are used to make payments on the
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CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMOs. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Lending of Securities. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
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Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements; 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) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Money Market Portfolio, the Government
Obligations Money Market Portfolio, and the New York Municipal Money Market
Portfolio, repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
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securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal Obligations.
Some of the significant financial considerations relating to the Fund's
investments in New York Municipal Obligations are summarized below. This summary
information is not intended to be a complete description and is principally
derived from official statements relating to issues of New York Municipal
Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
State Economy. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
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of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region, State personal
income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the enacted
budget forecast. Continued growth is projected in 1998 and 1999 for employment,
wages, and personal income, although the growth rates of personal income and
wages are expected to be lower than those in 1997. The growth of personal income
is projected to decline from 5.7 percent in 1997 to 4.8 percent in 1998 and 4.2
percent in 1999, in part because growth in bonus payments is expected to slow
down, a distinct shift from the torrid rate of the last few years. Overall
employment growth is expected to be 1.9 percent in 1998, the strongest in a
decade, but will drop to 1.0 percent in 1999, reflecting the slowing growth in
the national economy, continued restraint in governmental spending, and
restructuring in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
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State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The School Tax Relief Program ("STAR")
program, which dedicates a portion of personal income tax receipts to fund
school tax reductions, has a significant impact on General Fund receipts. STAR
is projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99 base,
scheduled reductions to estate and gift, sales and other taxes, reflecting tax
cuts enacted in 1997-98 and 1998-99, will lower General Fund taxes and fees by
an estimated $1.8 billion in 2000-01. Disbursement projections for the outyears
currently assume additional outlays for school aid, Medicaid, welfare reform,
mental health community reinvestment, and other multi-year spending commitments
in law.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
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in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on March
31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under STAR expansion of the child care income-tax
credit for middle-income families, a phased-in reduction of the general
business tax, and reduction of several other taxes and fees, including an
accelerated phase-out of assessments on medical providers. The enacted budget
also provides for significant increases in spending for public schools,
special education programs, and for the State and City university systems.
It also allocates $50 million for a new Debt Reduction Reserve Fund
("DRRF") that may eventually be used to pay debt service costs on
or to prepay outstanding State-supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
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provides resource to help finance any extraordinary litigation costs during the
fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $62 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
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In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur in its
projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its first-ever,
accumulated positive balance in its General Fund. This "accumulated surplus" was
$567 million. The improvement in the State's GAAP position is attributable, in
part, to the cash surplus recorded at the end of the State's 1997-98 fiscal
year. Much of that surplus is reserved for future requirements, but a portion is
being used to meet spending needs in 1998-99. Thus, the State expects some
deterioration in its GAAP position, but expects to maintain a positive GAAP
balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating surplus in
the General Fund of $1.56 billion, in Capital Projects Funds of $232 million and
in Special Revenue Funds of $49 million, offset in part by an operating deficit
of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56 billion for
the 1997-98 fiscal year, as compared to an operating surplus of $1.93 billion
for the 1996-97 fiscal year. As a result, the State reported an accumulated
surplus of $567 million in the General Fund for the first time since it began
reporting its operations on a GAAP-basis. The 1997-98 fiscal year operating
surplus reflects several major factors, including the cash-basis operating
surplus resulting from the higher-than-anticipated personal income tax receipts,
an increase in taxes receivable of $681 million, an increase in other assets of
$195 million and a decrease in pension liabilities of $144 million. This was
partially offset by an increase in payables to local governments of $270 million
and tax refunds payable of $147 million.
Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
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obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
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On January 13, 1992, Standard & Poor's Ratings Services ("S&P") reduced its
ratings on the State's general obligation bonds from A to A- and, in addition,
reduced its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On August 28, 1997, S&P revised its ratings on
the State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On March 2, 1998, S&P affirmed its A rating on the State's outstanding
bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget, will be released on or before July 30, 1998. The
projection of State borrowings for the 1998-99 fiscal year is subject to change
as market conditions, interest rates and other factors vary throughout the
fiscal year.
The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
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that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
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constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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Authorities. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned on A3 rating to the City's general
obligations and stated that its outlook was stable.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City. As of June
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year in
the event the City fails to provide such financing.
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<PAGE>
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
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<PAGE>
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
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<PAGE>
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
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<PAGE>
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's current financial plan projects $2.4
billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
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<PAGE>
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
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<PAGE>
Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after
such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate any of its assets except
in connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with respect to
the Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Portfolio's
total assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of a Portfolio's assets may be invested without regard
to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may
be deemed an underwriter under federal securities laws and except to the
extent that the purchase of Municipal Obligations directly from the issuer
thereof in accordance with a Portfolio's investment objective, policies and
limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
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<PAGE>
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter
into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
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<PAGE>
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Money Market Portfolio's outstanding shares, but any such change would
be subject to any applicable requirements of the Securities and Exchange
Commission (the "SEC") and would be disclosed in the Prospectus prior to being
made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization (as defined in the Prospectus) in its highest rating category
for such securities, (iii) have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer of
such securities that have been rated in accordance with (i) or (ii) above,
or (iv) are Unrated Securities that are determined to be of comparable
quality to such securities. Purchases of First Tier Securities that come
within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
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<PAGE>
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if after
the acquisition of the put the Municipal Money Market Portfolio has more than 5%
of its total assets invested in instruments issued by or subject to puts from
the same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the Municipal Money Market Portfolio's total
assets. A "put" means a right to sell a specified underlying instrument within a
specified period of time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations. There
is no limit on the amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is permitted to
purchase.
2. Borrow money, except from banks for temporary purposes, and except for
reverse repurchase agreements, and then in an amount not exceeding 10% of the
value of the Portfolio's total assets, and only if after such borrowing there is
asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate management of
the Portfolio by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
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<PAGE>
The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York Municipal Money
Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and except for
reverse repurchase agreements, and then in amounts not in excess of 10% of the
value of the Portfolio's total assets at the time of such borrowing, and only if
after such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then in amounts not in excess of 10% of the
value of 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 on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed an underwriter under federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(4) make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development programs;
(8) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
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<PAGE>
(9) purchase any securities issued by any other investment company except
in connection with the merger, consolidation, acquisition or reorganization of
all the securities or assets of such an issuer; or
(10) make investments for the purpose of exercising control or management.
In addition to the foregoing enumerated investment limitations, the New
York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest"), (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this limitation
only, private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without shareholder
approval.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
put if after the acquisition of the put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
In order to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, the Portfolio will not purchase the securities
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of any issuer if as a result more than 5% of the value of the Portfolio's assets
would be invested in the securities of such issuer, except that (a) up to 50% of
the value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any one issuer and (b) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
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- ----------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively,
each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors $12,000 annually and $1,250 per meeting of the
Board or any committee thereof that is not held in conjunction with a Board
meeting. In addition, the Chairman of the Board receives an additional fee of
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<PAGE>
$6,000 per year for his services in this capacity. Directors are reimbursed for
any expenses incurred in attending meetings of the Board of Directors or any
committee thereof. For the year ended August 31, 1998, each of the following
members of the Board of Directors received compensation from the Fund in the
following amounts:
Directors' Compensation
-----------------------
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual
Compensation as Part of Fund Benefits Upon
Name of Person/Position from Registrant Expenses Retirement
- ------------------------ ---------------- -------- ----------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
-36-
<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach 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") (formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the administrator to the Municipal Money Market and New York Municipal
Money Market Portfolios and the Fund's transfer and dividend disbursing agent,
and Provident Distributors, Inc. (the "Distributor" or "PDI"), the Fund's
distributor, the Fund itself requires only one part-time employee. 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.
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<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios (except the New York Municipal Money Market Portfolio)
with PNC Bank dated August 16, 1988, as of April 29, 1998, BIMC assumed these
advisory responsibilities from PNC Bank. Pursuant to the Sub-Advisory
Agreements, PNC Bank would be entitled to receive a annual fee from BIMC for its
sub-advisory services calculated at the annual rate of 75% of the fees received
by BIMC on behalf of the Money Market, Municipal Money Market and Government
Obligations Portfolios. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Money Market and Government Obligations
Portfolios, for administrative services obligated under the Advisory Agreements)
advisory fees as follows:
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<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations
Money Market $1,649,453 $ 723,970 $392,949
New York Municipal Money
Market $ 60,758 $ 267,374 $0
</TABLE>
-39-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money $ 201,095 $1,269,553 $ 14,921
Market
Government Obligations $1,774,123 $ 647,063 $404,193
Money Market
New York Municipal $ 21,831 $ 324,917 $0
Money Market
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
-40-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations
Money Market $1,638,622 $ 671,811 $406,954
New York Municipal Money
Market $ 2,709 $ 268,017 $0
</TABLE>
Each 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; and
(f) the cost of investment company literature and other publications provided by
-41-
<PAGE>
the Fund to its directors and officers. The Epsilon classes of the Fund pay
their own distribution fees, and may pay a different share than other classes of
other expenses (excluding advisory and custodial fees) if those expenses are
actually incurred in a different amount by the Epsilon classes or if they
receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. The investment advisory agreement was
approved with respect to the Municipal Money Market Portfolio by shareholders at
a special meeting held June 10, 1992, as adjourned and the sub-advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held on December 22, 1989. The Advisory
Agreement was approved with respect to the New York Municipal Money Market
Portfolio by the Portfolio's shareholders at a special meeting of shareholders
held November 21, 1991, as adjourned. Each Advisory Agreement is terminable by
vote of the Fund's Board of Directors or by the holders of a majority of the
outstanding voting securities of the relevant Portfolio, at any time without
penalty, on 60 days' written notice to BIMC or PNC Bank. Each of the Advisory
Agreements may also be terminated by BIMC or PNC Bank, respectively, on 60 days'
written notice to the Fund. Each of the Advisory Agreements terminates
automatically in the event of assignment thereof.
Administration Agreements. PFPC serves as the administrator to the New York
Municipal Money Market Portfolio pursuant to an Administration Agreement dated
November 5, 1991 and as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (together, the "Administration Agreements"). PFPC has agreed to
furnish to the Fund on behalf of the Municipal Money Market and New York
Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market and New York
Municipal Money Market Portfolios.
-42-
<PAGE>
BIMC is obligated to render administrative services to the Money Market and
Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of Delegation Agreements, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money Market $ 85,926 $7,826 $0
Money Market $0 $0 $0
Government Obligations Money
Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money Market $ 99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
New York Municipal Money Market $ 67,204 $10,146 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Epsilon Classes pursuant to a Transfer Agency
Agreement dated November 5, 1991 and supplements dated November 5, 1991 (the
"Transfer Agency Agreement"), under which PFPC (a) issues and redeems shares of
each of the Epsilon Classes, (b) addresses and mails all communications by each
Portfolio to record owners of shares of each such Class, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Epsilon Class. PFPC may, on 30 days' notice to
the Fund, assign its duties as transfer and dividend disbursing agent to any
other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
-44-
<PAGE>
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998 entered into by the Distributor and the Fund on behalf
of each of the Epsilon Classes, (the "Distribution Agreement") and separate
Plans of Distribution, as amended, for each of the Epsilon Classes
(collectively, the "Plans"), all of which were adopted by the Fund in the manner
prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute shares of each of the Epsilon Classes. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution 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 each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Epsilon Classes of the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios were approved by the Fund's Board of
Directors, including the directors who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in the operation of the
Plans or any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Epsilon Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Epsilon Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
The amounts, if any, retained by Counsellors and PDI were used to pay
certain advertising and promotion, printing, postage, legal fees, travel,
entertainment, sales, marketing and administrative expenses. The Fund believes
that such Plans may benefit the Fund by increasing sales of Shares. Each of
Mr. Sablowsky and Mr. Reichman, Directors of the Fund, had an indirect interest
in the operation of the Plans by virtue of his position with Fahnestock Co.,
Inc. and Counsellors Securities, Inc., respectively, each a registered
broker-dealer.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may purchase variable
rate securities with remaining maturities of 13 months or more so long as such
securities comply with conditions established by the SEC under which they may be
considered to have remaining maturities of 13 months or less. Because all
Portfolios intend to purchase only securities with remaining maturities of 13
months or less, their portfolio turnover rates will be relatively high. However,
because brokerage commissions will not normally be paid with respect to
investments made by each such Portfolio, the turnover rate should not adversely
affect such Portfolio's net asset value or net income. The Portfolios do not
intend to seek profits through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
-46-
<PAGE>
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by 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 a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
-47-
<PAGE>
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of a class in the Portfolio's cash, securities and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class of the Fund is calculated independently of the other
classes of the Fund. A Portfolio's "net assets" equal the value of a Portfolio's
investments and other securities less its liabilities. The net asset value per
share of each class is computed twice each day, as of 12:00 noon (Eastern Time)
and as of the close of regular trading on the NYSE (generally 4:00 p.m. Eastern
Time), on each Business Day. "Business Day" means each day, Monday through
Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia (the
"FRB") are open. Currently, the NYSE is closed weekends and on New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
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<PAGE>
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that 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.
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.
-49-
<PAGE>
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
Total return and yield may fluctuate daily and do not provide a basis for
determining future returns and yields. Because the returns and yields of each
Portfolio will fluctuate, they cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
-50-
<PAGE>
TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of each such
Portfolio's assets at the close of each quarter of the Fund's taxable year must
consist of exempt-interest obligations.
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Epsilon 1 Common Stock, Epsilon 2 Common
Stock, Epsilon 3 Common Stock and Epsilon 4 Common Stock constitute the
Epsilon Classes, described herein. Under RBB's charter, the Board of Directors
has the power to classify or reclassify any unissued shares of Common Stock
from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Funds; the Sansom Street Family represents interests
in the Money Market, Municipal Money Market and Government Obligations Money
Market Funds; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Funds; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
-53-
<PAGE>
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 shares of each portfolio
affected by the matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of each
portfolio in the matter are identical or that the matter does not affect any
interest of the portfolio. Under the Rule the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a portfolio only if approved by the holders of a
majority of the outstanding voting securities of such portfolio. However, the
Rule also provides that the ratification of the selection of independent public
accountants, and the election of directors are not subject to the separate
voting requirements and may be effectively acted upon by shareholders of an
investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, to the Fund's knowledge, the
following named persons at the addresses shown below owned of record
-54-
<PAGE>
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>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
-55-
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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 Fund's Annual Report for the fiscal period ended August 31, 1998 has
been filed with the Securities and Exchange Commission. The financial statements
in such Annual Report (the "Financial Statements") are incorporated herein by
reference into this Statement of Additional Information. The Financial
-56-
<PAGE>
Statements included in the Annual Report for the Fund for the fiscal period
ended August 31, 1998 have been audited by RBB's independent accountants,
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"), whose report thereon
also appears and is incorporated herein by reference. No other portions of the
Annual Report are incorporated herein by reference. The Financial Statements
in such Annual Report have been incorporated herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. Copies of the Annual Report may be obtained by calling toll-free
(800) 311-9783.
-57-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
ZETA FAMILY
Money Market Portfolio,
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of four classes (the "Zeta Shares") representing interests
in four investment portfolios (the "Portfolios") of The RBB Fund, Inc. (the
"Fund"): the Money Market Portfolio, the Municipal Money Market Portfolio, the
Government Obligations Money Market Portfolio and the New York Municipal Money
Market Portfolio. This Statement of Additional Information is not a prospectus,
and should be read only in conjunction with the Zeta Family Prospectus of the
Fund dated December 29, 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 29, 1998.
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General.............................................................2
Investment Objectives and Policies..................................2
Directors and Officers..............................................29
Investment Advisory, Distribution and Servicing Arrangements........32
Portfolio Transactions..............................................38
Purchase and Redemption Information.................................39
Valuation of Shares.................................................40
Performance Information.............................................41
Taxes ..............................................................42
Additional Information Concerning Fund Shares.......................42
Miscellaneous.......................................................46
Appendix A..........................................................A-1
</TABLE>
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 four
classes of shares (the "Zeta Classes") representing interests in four investment
portfolios (the "Portfolios") of the Fund: the Money Market Portfolio, the
Municipal Money Market Portfolio, the Government Obligations Money Market
Portfolio and the New York Municipal Money Market Portfolio. The Zeta Classes
are offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio or the Municipal Money Market Portfolio may have
maturities of more than 13 months, provided: (i) the Portfolio is entitled to
the payment of principal at any time, or during specified intervals not
exceeding 13 months, upon giving the prescribed notice (which may not exceed 30
days), and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 13 months. In determining the average weighted
maturity of the Money Market, Municipal Money Market or New York Municipal Money
Market Portfolio and whether a variable rate demand instrument has a remaining
maturity of 13 months or less, each long-term 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.
-2-
<PAGE>
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for a Portfolio to dispose
of variable or floating rate notes if the issuer defaulted on its payment
obligations or during periods that the Portfolio is not entitled to exercise its
demand right and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Money Market, Municipal
Money Market and New York Money Market Portfolios may purchase "when-issued" and
delayed delivery securities purchased for delivery beyond the normal settlement
date at a stated price and yield. While the Money Market, Municipal Money Market
or New York Municipal Money Market Portfolios have such commitments outstanding,
such Portfolio will maintain in a segregated account with the Fund's custodian
or a qualified sub-custodian, cash, or liquid securities of an amount at least
equal to the purchase price of the securities to be purchased. Normally, the
custodian for the relevant Portfolio will set aside portfolio securities to
satisfy a purchase commitment and, in such a case, such Portfolio may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when-issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio, Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio may enter into
stand-by commitments with respect to obligations issued by or on behalf of
states, territories, and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instrumentalities and
authorities (collectively, "Municipal Obligations") held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option a specified Municipal Obligation at its amortized cost value to the
Portfolio plus accrued interest, if any. Stand-by commitments may be exercisable
by the Money Market Portfolio, Municipal Money Market Portfolio or New York
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio expects that stand-by commitments will
generally
-3-
<PAGE>
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, either such Portfolio may pay for a stand-by
commitment either in cash or by paying a higher price for portfolio securities,
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by the Money Market
Portfolio, Municipal Money Market Portfolio and New York Municipal Money Market
Portfolio will not exceed 1/2 of 1% of the value of the relevant Portfolio's
total assets calculated immediately after each stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the investment
adviser's opinion, present minimal credit risks. Any such Portfolio's reliance
upon the credit of these dealers, banks and broker-dealers will be secured by
the value of the underlying Municipal Obligations that are subject to the
commitment.
The Money Market Portfolio, Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation, which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
Short Sales "Against the Box." In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
-4-
<PAGE>
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for investment purposes. A Portfolio
may, however, make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Portfolio (or a security convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an attractive current price, but
also wishes possibly to defer recognition of gain or loss for federal income tax
purposes. (A short sale against the box will defer recognition of gain for
federal income tax purposes only if the Portfolio subsequently closes the short
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) In such case, any future losses in the
Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales. The
dollar amount of short sales at any time will not exceed 25% of the net assets
of the Government Obligations Money Market Portfolio, and the value of
securities of any one issuer in which the Portfolio is short will not exceed the
lesser of 2% of net assets or 2% of the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
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Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those, which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government Securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the
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portfolio's adviser or sub-adviser. A Portfolio's adviser or sub-adviser will
continue to monitor creditworthiness of the seller under a repurchase agreement,
and will require the seller to maintain during the term of the agreement the
value of the securities subject to the agreement to equal at least the
repurchase price (including accrued interest). In addition, the Portfolio's
adviser or sub-adviser will require that the value of this collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, be equal to or greater than the repurchase price
including either (i) accrued premium provided in the repurchase agreement or
(ii) the daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may invest in
multiple class pass-through securities, including collateralized mortgage
obligations
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("CMOs"). These multiple class securities may be issued by U.S. Government
agencies or instrumentalities, including FNMA and FHLMC, or by trusts formed by
private originators of, or investors in, mortgage loans. In general, CMOs are
debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
(the "Mortgage Assets"), the payments on which are used to make payments on the
CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMOs. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
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Lending of Securities. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements; 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) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such
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restricted securities under the supervision of the Board of Directors. With
respect to the Money Market Portfolio, the Government Obligations Money Market
Portfolio, and the New York Municipal Money Market Portfolio, repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal Obligations. Some of
the significant financial considerations relating to the Fund's investments in
New York Municipal Obligations are summarized below. This summary information is
not intended to be a complete description and is principally derived from
official statements relating to issues of New York Municipal Obligations that
were available prior to the date of this Statement of Additional
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Information. The accuracy and completeness of the information contained in those
official statements have not been independently verified.
State Economy. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region, State personal
income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the enacted
budget forecast. Continued growth is projected in 1998 and 1999 for employment,
wages, and personal income, although the growth rates of personal income and
wages are expected to be lower than those in 1997. The growth of personal income
is projected to decline from 5.7 percent in 1997 to 4.8 percent in 1998 and 4.2
percent in 1999, in part because growth in bonus payments is expected to slow
down, a distinct shift from the torrid rate of the last few years. Overall
employment growth is expected to be 1.9 percent in 1998, the strongest in a
decade, but will drop to 1.0 percent in 1999, reflecting the slowing growth in
the national economy, continued restraint in governmental spending, and
restructuring in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations
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or reappropriations and any new or modified revenue measures to be enacted in
connection with the executive budget. The entire plan constitutes the proposed
State financial plan for that fiscal year. The Governor is required to submit to
the Legislature quarterly budget updates which include a revised cash-basis
state financial plan, and an explanation of any changes from the previous state
financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund
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spending offsets, and other actions necessary to bring projected disbursements
and receipts into balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The School Tax Relief Program ("STAR")
program, which dedicates a portion of personal income tax receipts to fund
school tax reductions, has a significant impact on General Fund receipts. STAR
is projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99 base,
scheduled reductions to estate and gift, sales and other taxes, reflecting tax
cuts enacted in 1997-98 and 1998-99, will lower General Fund taxes and fees by
an estimated $1.8 billion in 2000-01. Disbursement projections for the outyears
currently assume additional outlays for school aid, Medicaid, welfare reform,
mental health community reinvestment, and other multi-year spending commitments
in law.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on March
31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under STAR expansion of the child care income-tax
credit for middle-income families, a phased-in reduction of the general business
tax, and reduction of several other taxes and fees, including an accelerated
phase-out of assessments on medical providers. The enacted budget also provides
for significant increases in spending for public schools, special education
programs, and for the State and
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City university systems. It also allocates $50 million for a new Debt Reduction
Reserve Fund ("DRRF") that may eventually be used to pay debt service costs on
or to prepay outstanding State-supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resource to help finance any extraordinary litigation costs during the
fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $62 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for
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correctional services; $228 million for the State University of New York
("SUNY") and the City University of New York ("CUNY"); $290 million for mental
hygiene projects; and $375 million for CEFAP. Approximately 28 percent of
capital projects are proposed to be financed by "pay-as-you-go" resources.
State-supported bond issuances finance 46 percent of capital projects, with
federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur
in its projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its first-ever,
accumulated positive balance in its General Fund. This "accumulated surplus" was
$567 million. The improvement in the State's GAAP position is attributable, in
part, to the cash surplus recorded at the end of the State's 1997-98 fiscal
year. Much of that surplus is reserved for future requirements, but a portion is
being used to meet spending needs in 1998-99. Thus, the State expects some
deterioration in its GAAP position, but expects to maintain a positive GAAP
balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating surplus in
the General Fund of $1.56 billion, in Capital Projects Funds of $232 million and
in Special Revenue Funds of $49 million, offset in part by an operating deficit
of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56 billion for
the 1997-98 fiscal year, as compared to an operating surplus of $1.93 billion
for the 1996-97 fiscal year. As a result, the State reported an accumulated
surplus of $567 million in the General Fund for the first time since it began
reporting its operations on a GAAP-basis. The 1997-98 fiscal year operating
surplus reflects several major factors, including the cash-basis operating
surplus resulting from the higher-than-anticipated personal income tax receipts,
an increase in taxes receivable of $681 million, an increase in other assets of
$195 million and a decrease in pension liabilities of $144 million. This was
partially offset by an increase in payables to local governments of $270 million
and tax refunds payable of $147 million.
Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
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The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
On January 13, 1992, Standard & Poor's Ratings Services ("S&P") reduced its
ratings on the State's general obligation bonds from A to A- and, in addition,
reduced its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On August 28, 1997, S&P revised its ratings on
the State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On March 2, 1998, S&P affirmed its A rating on the State's outstanding
bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
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The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget, will be released on or before July 30, 1998. The
projection of State borrowings for the 1998-99 fiscal year is subject to change
as market conditions, interest rates and other factors vary throughout the
fiscal year.
The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including:
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the delay in the issuance of COPs to finance welfare information systems until
1998-99 to permit a thorough assessment of needs; and the elimination of
issuances for the CEFAP to reflect the proposed conversion of that bond-financed
program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a
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Supplemental Reserve Fund previously credited by the State against prior State
and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
Authorities. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under
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these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned on A3 rating to the City's general
obligations and stated that its outlook was stable.
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New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City. As of June
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year in
the event the City fails to provide such financing.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997.
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The 1998-2001 Financial Plan projected revenues and expenditures for the 1998
fiscal year balanced in accordance with GAAP. The 1998-99 Financial Plan
projects General Fund receipts (including transfers from other funds) of $36.22
billion, an increase of $1.02 billion over the estimated 1997-987 level.
Recurring growth in the State General Fund tax base is projected to be
approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions.
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Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's current financial plan projects $2.4
billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The
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City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those
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local government units other than New York City that are authorized by State law
to issue debt to finance deficits during the period that such deficit financing
is outstanding. Twenty-one localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after
such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate any of its assets except
in connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with respect to
the Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the
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dollar amounts borrowed or 10% of the value of a Portfolio's total assets
at the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of a Portfolio's assets may be invested without regard
to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may
be deemed an underwriter under federal securities laws and except to the
extent that the purchase of Municipal Obligations directly from the issuer
thereof in accordance with a Portfolio's investment objective, policies and
limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter
into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
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(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Money Market Portfolio's outstanding shares, but any such change would
be subject to any applicable requirements of the Securities and Exchange
Commission (the "SEC") and would be disclosed in the Prospectus prior to being
made.
-30-
<PAGE>
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization (as defined in the Prospectus) in its highest rating category
for such securities, (iii) have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer of
such securities that have been rated in accordance with (i) or (ii) above,
or (iv) are Unrated Securities that are determined to be of comparable
quality to such securities. Purchases of First Tier Securities that come
within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if
after the acquisition of the put the Municipal Money Market Portfolio has more
than 5% of its total assets invested in instruments issued by or subject to puts
from the same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the Municipal Money Market Portfolio's total
assets. A "put" means a right to
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<PAGE>
sell a specified underlying instrument within a specified period of time and at
a specified exercise price that may be sold, transferred or assigned only with
the underlying instrument.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations. There
is no limit on the amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is permitted to
purchase.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10% of
the value of the Portfolio's total assets, and only if after such borrowing
there is asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate management of
the Portfolio by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York Municipal Money
Market Portfolio may not:
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<PAGE>
(1) borrow money, except from banks for temporary purposes and except
for reverse repurchase agreements, and then in amounts not in excess of 10% of
the value of the Portfolio's total assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300% for all
borrowings of the Portfolio; or mortgage, pledge, hypothecate any of its assets
except in connection with such borrowings and then in amounts not in excess of
10% of the value of 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 on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Portfolio may be
deemed an underwriter under federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(4) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(5) purchase or sell real estate, provided that that the Portfolio may
invest in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development programs;
(8) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the New
York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income
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<PAGE>
tax and does not constitute an item of tax preference for purposes of the
federal alternative minimum tax ("Tax-Exempt Interest"), (ii) invest in private
activity bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with less than three
years of continuous operations; and (iii) purchase any securities which would
cause, at the time of purchase, more than 25% of the value of the total assets
of the Portfolio to be invested in the obligations of the issuers in the same
industry; provided that this limitation shall not apply to Municipal Obligations
or governmental guarantees of Municipal Obligations; and provided, further, that
for the purpose of this limitation only, private activity bonds that are
considered to be issued by non-governmental users (see the second investment
limitation above) shall not be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without shareholder
approval.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
put if after the acquisition of the put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
In order to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, the Portfolio will not purchase the securities
of any issuer if as a result more than 5% of the value of the Portfolio's assets
would be invested in the securities of such issuer, except that (a) up to 50% of
the value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any one issuer and (b) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In
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<PAGE>
certain circumstances, the guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee. This investment
policy is not fundamental and may be changed by the Board of Directors without
shareholder approval.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ------------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively,
each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors $12,000 annually and $1,250 per meeting of the
Board or any committee thereof that is not held in conjunction with a Board
meeting. In addition, the Chairman of the Board receives an additional fee of
$6,000 per year for his services in this capacity. Directors are reimbursed for
any expenses incurred in attending meetings of the Board of Directors or any
committee thereof. For the year ended August 31, 1998, each of the following
members of the Board of Directors received compensation from the Fund in the
following amounts:
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<PAGE>
Directors' Compensation
-----------------------
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual
Compensation Accrued as Part of Benefits Upon
Name of Person/Position from Registrant Fund Expenses Retirement
- ------------------------------ ---------------- ------------- ----------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
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<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the administrator to the Municipal Money Market and New York Municipal
Money Market Portfolios and the Fund's transfer and dividend disbursing agent,
and Provident Distributors, Inc. (the "Distributor" or "PDI"), the Fund's
distributor, the Fund itself requires only one part-time employee. 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.
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<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios (except the New York Municipal Money Market Portfolio)
with PNC Bank dated August 16, 1988, as of April 29, 1998, BIMC assumed these
advisory responsibilities from PNC Bank. Pursuant to the Sub-Advisory
Agreements, PNC Bank would be entitled to receive a annual fee from\ BIMC for
its sub-advisory services calculated at the annual rate of 75% of the fees
received by BIMC on behalf of the Money Market, Municipal Money Market and
Government Obligations Portfolios. The advisory agreements relating to the Money
Market and Government Obligations Money Market Portfolios are each dated August
16, 1988, the advisory agreement relating to the New York Municipal Money Market
Portfolio is dated November 5, 1991 and the advisory agreement relating to the
Municipal Money Market Portfolio is dated April 21, 1992. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Money Market and Government Obligations
Portfolios, for administrative services obligated under the Advisory Agreements)
advisory fees as follows:
-40-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money
Market $1,649,453 $ 723,970 $392,949
New York Municipal Money
Market $ 60,758 $ 267,374 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money $1,774,123 $ 647,063 $404,193
Market
New York Municipal Money $ 21,831 $ 324,917 $0
Market
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
-41-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
New York Municipal Money Market $ 2,709 $ 268,017 $0
</TABLE>
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<PAGE>
Each 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; and
(f) the cost of investment company literature and other publications provided by
the Fund to its directors and officers. The Zeta classes of the Fund pay their
own distribution fees, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Zeta classes or if they receive different
services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special
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<PAGE>
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by shareholders at a special meeting held on December 22, 1989. The
Advisory Agreement was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Agreement is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to BIMC or PNC Bank. Each of
the Advisory Agreements may also be terminated by BIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminates automatically in the event of assignment thereof.
Administration Agreements. PFPC serves as the administrator to the New York
Municipal Money Market Portfolio pursuant to an Administration Agreement dated
November 5, 1991 and as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (together, the "Administration Agreements"). PFPC has agreed to
furnish to the Fund on behalf of the Municipal Money Market and New York
Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market and New York
Municipal Money Market Portfolios.
BIMC is obligated to render administrative services to the Money Market and
Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of Delegation Agreements, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
-44-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- -------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money
Market $ 85,926 $7,826 $0
Money Market $0 $0 $0
Government Obligations Money Market $0 $0 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- -------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money Market $ 99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- -------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
New York Municipal Money Market $ 67,204 $10,146 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and
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<PAGE>
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Zeta Classes pursuant to a Transfer Agency
Agreement dated November 5, 1991 and supplements dated November 5, 1991 (the
"Transfer Agency Agreement"), under which PFPC (a) issues and redeems shares of
each of the Zeta Classes, (b) addresses and mails all communications by each
Portfolio to record owners of shares of each such Class, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Zeta Class. PFPC may, on 30 days' notice to
the Fund, assign its duties as transfer and dividend disbursing agent to any
other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998 entered into by the Distributor and the Fund on behalf
of each of the Zeta Classes, (the "Distribution Agreement") and separate Plans
of Distribution, as amended, for each of the Zeta Classes (collectively, the
"Plans"), all of which were adopted by the Fund in
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<PAGE>
the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute shares of each of the Zeta Classes. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution 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 each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Zeta Classes of the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios were approved by the Fund's Board of
Directors, including the directors who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in the operation of the
Plans or any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Zeta Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Zeta Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
The Fund believes that such Plans may benefit the Fund by increasing sales
of Shares. Each of Mr. Sablowsky and Mr. Reichman, Directors of the Fund, had an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
-47-
<PAGE>
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may purchase variable
rate securities with remaining maturities of 13 months or more so long as such
securities comply with conditions established by the SEC under which they may be
considered to have remaining maturities of 13 months or less. Because all
Portfolios intend to purchase only securities with remaining maturities of 13
months or less, their portfolio turnover rates will be relatively high. However,
because brokerage commissions will not normally be paid with respect to
investments made by each such Portfolio, the turnover rate should not adversely
affect such Portfolio's net asset value or net income. The Portfolios do not
intend to seek profits through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by 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
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<PAGE>
as to price and allocated as to amount according to a formula deemed equitable
to each such account. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Portfolio is
concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is
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<PAGE>
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of a class in the Portfolio's cash, securities and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class of the Fund is calculated independently of the other
classes of the Fund. A Portfolio's "net assets" equal the value of a Portfolio's
investments and other securities less its liabilities. The net asset value per
share of each class is computed twice each day, as of 12:00 noon (Eastern Time)
and as of the close of regular trading on the NYSE (generally 4:00 p.m. Eastern
Time), on each Business Day. "Business Day" means each day, Monday through
Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia (the
"FRB") are open. Currently, the NYSE is closed weekends and on New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
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<PAGE>
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that 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.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
Total return and yield may fluctuate daily and do not provide a basis for
determining future returns and yields. Because the returns and yields of each
Portfolio will fluctuate, they cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary
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<PAGE>
investments in money market instruments. In comparing the return and yield of
one money market fund to another, consideration should be given to each fund's
investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
Report(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
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<PAGE>
TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of each such
Portfolio's assets at the close of each quarter of the Fund's taxable year must
consist of exempt-interest obligations.
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Zeta 1 Common Stock, Zeta 2 Common Stock,
Zeta 3 Common Stock and Zeta 4 Common Stock constitute the Zeta Classes,
described herein. Under RBB's charter, the Board of Directors has the power to
classify or reclassify any unissued shares of Common Stock from time to time.
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The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interests in the Money Market
and Municipal Money Market Portfolios; the Sansom Street Family represents
interests in the Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios; the Bedford Family represents interests in the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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 shares of each portfolio
affected by the matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of each
portfolio in the matter are identical or that the matter does not affect any
interest of the portfolio. Under the Rule the approval of an investment advisory
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<PAGE>
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a portfolio only if approved by the holders of a
majority of the outstanding voting securities of such portfolio. However, the
Rule also provides that the ratification of the selection of independent public
accountants, and the election of directors are not subject to the separate
voting requirements and may be effectively acted upon by shareholders of an
investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, to the Fund's knowledge, the
following named persons at the addresses shown below owned of record
approximately 5% or more of the total outstanding shares of the class of the
Fund indicated below. See "Additional Information Concerning Fund Shares" above.
The Fund does not know whether such persons also beneficially own such shares.
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<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</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
-79-
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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.
-80-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are 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
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A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
ETA FAMILY
Money Market Portfolio,
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of four classes (the "Eta Shares") representing interests
in four investment portfolios (the "Portfolios") of The RBB Fund, Inc. (the
"Fund"): the Money Market Portfolio, the Municipal Money Market Portfolio, the
Government Obligations Money Market Portfolio and the New York Municipal Money
Market Portfolio. This Statement of Additional Information is not a prospectus,
and should be read only in conjunction with the Eta Family Prospectus of the
Fund dated December 29, 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 29, 1998.
CONTENTS
<TABLE>
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Page
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<S> <C>
General........................................................................2
Investment Objectives and Policies.............................................2
Directors and Officers.........................................................29
Investment Advisory, Distribution and Servicing Arrangements...................32
Portfolio Transactions.........................................................38
Purchase and Redemption Information............................................39
Valuation of Shares............................................................40
Performance Information........................................................41
Taxes..........................................................................42
Additional Information Concerning Fund Shares..................................42
Miscellaneous..................................................................46
Appendix A.....................................................................A-1
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or by the distributor in any jurisdiction in which such offering may
not lawfully be made.
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GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate seventeen separate
investment portfolios. This Statement of Additional Information pertains to four
classes of shares (the "Eta Classes") representing interests in four investment
portfolios (the "Portfolios") of the Fund: the Money Market Portfolio, the
Municipal Money Market Portfolio, the Government Obligations Money Market
Portfolio and the New York Municipal Money Market Portfolio. The Eta Classes are
offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940, as amended (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
Variable Rate Demand Instruments. Variable rate demand instruments held by
the Money Market Portfolio or the Municipal Money Market Portfolio may have
maturities of more than 13 months, provided: (i) the Portfolio is entitled to
the payment of principal at any time, or during specified intervals not
exceeding 13 months, upon giving the prescribed notice (which may not exceed 30
days), and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 13 months. In determining the average weighted
maturity of the Money Market, Municipal Money Market or New York Municipal Money
Market Portfolio and whether a variable rate demand instrument has a remaining
maturity of 13 months or less, each long-term 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
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amount can be recovered through demand. The absence of an active secondary
market with respect to particular variable and floating rate instruments could
make it difficult for a Portfolio to dispose of variable or floating rate notes
if the issuer defaulted on its payment obligations or during periods that the
Portfolio is not entitled to exercise its demand right and the Portfolio could,
for these or other reasons, suffer a loss with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Money Market, Municipal
Money Market and New York Money Market Portfolios may purchase "when-issued" and
delayed delivery securities purchased for delivery beyond the normal settlement
date at a stated price and yield. While the Money Market, Municipal Money Market
or New York Municipal Money Market Portfolios have such commitments outstanding,
such Portfolio will maintain in a segregated account with the Fund's custodian
or a qualified sub-custodian, cash, or liquid securities of an amount at least
equal to the purchase price of the securities to be purchased. Normally, the
custodian for the relevant Portfolio will set aside portfolio securities to
satisfy a purchase commitment and, in such a case, such Portfolio may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when-issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio, Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio may enter into
stand-by commitments with respect to obligations issued by or on behalf of
states, territories, and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instrumentalities and
authorities (collectively, "Municipal Obligations") held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option a specified Municipal Obligation at its amortized cost value to the
Portfolio plus accrued interest, if any. Stand-by commitments may be exercisable
by the Money Market Portfolio, Municipal Money Market Portfolio or New York
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio expects that stand-by commitments will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, either such Portfolio may pay
for a stand-by commitment either in cash or by paying a higher price for
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portfolio securities, which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
total amount paid in either manner for outstanding stand-by commitments held by
the Money Market Portfolio, Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio will not exceed 1/2 of 1% of the value of the
relevant Portfolio's total assets calculated immediately after each stand-by
commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market Portfolio and
New York Municipal Money Market Portfolio intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the investment
adviser's opinion, present minimal credit risks. Any such Portfolio's reliance
upon the credit of these dealers, banks and broker-dealers will be secured by
the value of the underlying Municipal Obligations that are subject to the
commitment.
The Money Market Portfolio, Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation, which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S.
Banks. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
Short Sales "Against the Box." In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
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a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for investment purposes. A Portfolio
may, however, make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Portfolio (or a security convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an attractive current price, but
also wishes possibly to defer recognition of gain or loss for federal income tax
purposes. (A short sale against the box will defer recognition of gain for
federal income tax purposes only if the Portfolio subsequently closes the short
position by making a purchase of the relevant securities no later than 30 days
after the end of the taxable year.) In such case, any future losses in the
Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales. The
dollar amount of short sales at any time will not exceed 25% of the net assets
of the Government Obligations Money Market Portfolio, and the value of
securities of any one issuer in which the Portfolio is short will not exceed the
lesser of 2% of net assets or 2% of the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
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<PAGE>
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those, which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, the Maritime Administration, International Bank for Reconstruction
and Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Fund which agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of investment dealers who make a market in the Section
4(2) paper, thereby providing liquidity. See "Illiquid Securities" below.
Repurchase Agreements. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
The financial institutions with which a Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government Securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the portfolio's
adviser or sub-adviser. A Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
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default, be equal to or greater than the repurchase price including either (i)
accrued premium provided in the repurchase agreement or (ii) the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may invest in
multiple class pass-through securities, including collateralized mortgage
obligations ("CMOs"). These multiple class securities may be issued by U.S.
Government agencies or instrumentalities, including FNMA and FHLMC, or by trusts
formed by private originators of, or investors in, mortgage loans. In general,
CMOs are debt obligations of a legal entity that are collateralized by a pool of
residential or commercial mortgage loans or mortgage pass-through securities
(the "Mortgage Assets"), the payments on which are used to make payments on the
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CMOs. Investors may purchase beneficial interests in CMOs, which are known as
"regular" interests or "residual" interests. The residual in a CMO structure
generally represents the interest in any excess cash flow remaining after making
required payments of principal of and interest on the CMOs, as well as the
related administrative expenses of the issuer. Residual interests generally are
junior to, and may be significantly more volatile than, "regular" CMOs. The
Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
Asset-Backed Securities. Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
Lending of Securities. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
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Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("Rating Organizations") in the two highest
rating categories for such securities (e.g., commercial paper rated "A-1" or
"A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at
the time of purchase) by the only Rating Organization rating the security in one
of its two highest rating categories for such securities; (3) short-term
obligations and subject to certain SEC requirements; 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) subject to certain conditions
imposed under SEC rules, obligations guaranteed by persons which meet the
requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements that have
a maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Money Market Portfolio, the Government
Obligations Money Market Portfolio, and the New York Municipal Money Market
Portfolio, repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
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registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Portfolios' adviser that
an adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal Obligations. Some of
the significant financial considerations relating to the Fund's investments in
New York Municipal Obligations are summarized below. This summary information is
not intended to be a complete description and is principally derived from
official statements relating to issues of New York Municipal Obligations that
were available prior to the date of this Statement of Additional Information.
The accuracy and completeness of the information contained in those official
statements have not been independently verified.
State Economy. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
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excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region, State personal
income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the enacted
budget forecast. Continued growth is projected in 1998 and 1999 for employment,
wages, and personal income, although the growth rates of personal income and
wages are expected to be lower than those in 1997. The growth of personal income
is projected to decline from 5.7 percent in 1997 to 4.8 percent in 1998 and 4.2
percent in 1999, in part because growth in bonus payments is expected to slow
down, a distinct shift from the torrid rate of the last few years. Overall
employment growth is expected to be 1.9 percent in 1998, the strongest in a
decade, but will drop to 1.0 percent in 1999, reflecting the slowing growth in
the national economy, continued restraint in governmental spending, and
restructuring in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
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State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
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The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The School Tax Relief Program ("STAR")
program, which dedicates a portion of personal income tax receipts to fund
school tax reductions, has a significant impact on General Fund receipts. STAR
is projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99 base,
scheduled reductions to estate and gift, sales and other taxes, reflecting tax
cuts enacted in 1997-98 and 1998-99, will lower General Fund taxes and fees by
an estimated $1.8 billion in 2000-01. Disbursement projections for the outyears
currently assume additional outlays for school aid, Medicaid, welfare reform,
mental health community reinvestment, and other multi-year spending commitments
in law.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
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2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on March
31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under STAR expansion of the child care income-tax
credit for middle-income families, a phased-in reduction of the general business
tax, and reduction of several other taxes and fees, including an accelerated
phase-out of assessments on medical providers. The enacted budget also provides
for significant increases in spending for public schools, special education
programs, and for the State and City university systems. It also allocates
$50 million for a new Debt Reduction Reserve Fund ("DRRF") that may eventually
be used to pay debt service costs on or to prepay outstanding State-supported
bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
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is used to finance various legislative and executive initiatives. The CRF
provides resource to help finance any extraordinary litigation costs during the
fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $62 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
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In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur in its
projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its first-ever,
accumulated positive balance in its General Fund. This "accumulated surplus" was
$567 million. The improvement in the State's GAAP position is attributable, in
part, to the cash surplus recorded at the end of the State's 1997-98 fiscal
year. Much of that surplus is reserved for future requirements, but a portion is
being used to meet spending needs in 1998-99. Thus, the State expects some
deterioration in its GAAP position, but expects to maintain a positive GAAP
balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating surplus in
the General Fund of $1.56 billion, in Capital Projects Funds of $232 million and
in Special Revenue Funds of $49 million, offset in part by an operating deficit
of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56 billion for
the 1997-98 fiscal year, as compared to an operating surplus of $1.93 billion
for the 1996-97 fiscal year. As a result, the State reported an accumulated
surplus of $567 million in the General Fund for the first time since it began
reporting its operations on a GAAP-basis. The 1997-98 fiscal year operating
surplus reflects several major factors, including the cash-basis operating
surplus resulting from the higher-than-anticipated personal income tax receipts,
an increase in taxes receivable of $681 million, an increase in other assets of
$195 million and a decrease in pension liabilities of $144 million. This was
partially offset by an increase in payables to local governments of $270 million
and tax refunds payable of $147 million.
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Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
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On January 13, 1992, Standard & Poor's Ratings Services ("S&P") reduced its
ratings on the State's general obligation bonds from A to A- and, in addition,
reduced its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On August 28, 1997, S&P revised its ratings on
the State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On March 2, 1998, S&P affirmed its A rating on the State's outstanding
bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget, will be released on or before July 30, 1998. The
projection of State borrowings for the 1998-99 fiscal year is subject to change
as market conditions, interest rates and other factors vary throughout the
fiscal year.
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The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
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to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
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Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
Authorities. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned on A3 rating to the City's general
obligations and stated that its outlook was stable.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City. As of June
30, 1997, MAC had outstanding an aggregate of approximately $4.267 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
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bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year in
the event the City fails to provide such financing.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
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<PAGE>
The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
-26-
<PAGE>
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's current financial plan projects $2.4
billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
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<PAGE>
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
-28-
<PAGE>
Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after
such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate any of its assets except
in connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with respect to
the Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Portfolio's
total assets at the time of such borrowing; or purchase portfolio
securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of a Portfolio's assets may be invested without regard
to this 5% limitation;
(3) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio may
be deemed an underwriter under federal securities laws and except to the
extent that the purchase of Municipal Obligations directly from the issuer
thereof in accordance with a Portfolio's investment objective, policies and
limitations may be deemed to be an underwriting;
-29-
<PAGE>
(5) make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
(7) purchase or
sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter
into repurchase agreements;
(10) purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
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<PAGE>
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without shareholder
approval.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Money Market Portfolio's outstanding shares, but any such change would
be subject to any applicable requirements of the Securities and Exchange
Commission (the "SEC") and would be disclosed in the Prospectus prior to being
made.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described above. These
limitations may be changed without a vote of shareholders of the Money Market
Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days. "First
Tier Securities" include eligible securities that (i) if rated by more than
one Rating Organization, are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such securities,
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization (as defined in the Prospectus) in its highest rating category
for such securities, (iii) have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer of
such securities that have been rated in accordance with (i) or (ii) above,
or (iv) are Unrated Securities that are determined to be of comparable
quality to such securities. Purchases of First Tier Securities that come
within categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier Securities,
to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or
$1 million
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<PAGE>
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any put if
after the acquisition of the put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Government Obligations Money Market Portfolio. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
There is no limit on the amount of the Portfolio's assets which may be
invested in the securities of any one issuer of obligations that the
Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge, hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 10% of
the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
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<PAGE>
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
The foregoing investment limitations cannot be changed without shareholder
approval.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York Municipal Money
Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and except for
reverse repurchase agreements, and then in amounts not in excess of 10% of the
value of the Portfolio's total assets at the time of such borrowing, and only if
after such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then in amounts not in excess of 10% of the
value of 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 on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed an underwriter under federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(4) make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development programs;
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<PAGE>
(8) make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other investment company except
in connection with the merger, consolidation, acquisition or reorganization of
all the securities or assets of such an issuer; or
(10) make investments for the purpose of exercising control or management.
In addition to the foregoing enumerated investment limitations, the New
York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest"), (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this limitation
only, private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without shareholder
approval.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the New York
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not purchase any
put if after the acquisition of the put the New York Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the New
York Municipal Money Market Portfolio's total assets. A "put" means a right
to sell a specified underlying instrument within a specified period of time
and at a specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
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<PAGE>
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
In order to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, the Portfolio will not purchase the securities
of any issuer if as a result more than 5% of the value of the Portfolio's assets
would be invested in the securities of such issuer, except that (a) up to 50% of
the value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any one issuer and (b) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
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<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning Communities,
1345 Chestnut Street Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ------------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to the Fund the firm to be selected as
independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
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<PAGE>
The Fund pays directors $12,000 annually and $1,250 per meeting of the
Board or any committee thereof that is not held in conjunction with a Board
meeting. In addition, the Chairman of the Board receives an additional fee of
$6,000 per year for his services in this capacity. Directors are reimbursed for
any expenses incurred in attending meetings of the Board of Directors or any
committee thereof. For the year ended August 31, 1998, each of the following
members of the Board of Directors received compensation from the Fund in the
following amounts:
Directors' Compensation
<TABLE>
<CAPTION>
Pension or Retirement
Aggregate Benefits Accrued as Estimated Annual
Compensation Part of Fund Benefits Upon
Name of Person/Position from Registrant Expenses Retirement
- ------------------------ ---------------- --------------------- ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
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<PAGE>
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
the Fund will contribute on a quarterly basis amounts equal to 10% of the
quarterly compensation of each eligible employee. By virtue of the services
performed by Blackrock Institutional Management Corporation ("BIMC") (formerly
known as "PNC Institutional Management Corporation"), the Portfolios' adviser,
PNC Bank, National Association ("PNC Bank"), the Fund's custodian, PFPC Inc.
("PFPC"), the administrator to the Municipal Money Market and New York Municipal
Money Market Portfolios and the Fund's transfer and dividend disbursing agent,
and Provident Distributors, Inc. (the "Distributor" or "PDI"), the Fund's
distributor, the Fund itself requires only one part-time employee. 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.
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<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The Portfolios have investment
advisory agreements with BIMC. Although BIMC in turn has sub-advisory agreements
respecting the Portfolios (except the New York Municipal Money Market Portfolio)
with PNC Bank dated August 16, 1988, as of April 29, 1998, BIMC assumed these
advisory responsibilities from PNC Bank. Pursuant to the Sub-Advisory
Agreements, PNC Bank would be entitled to receive a annual fee from BIMC for its
sub-advisory services calculated at the annual rate of 75% of the fees received
by BIMC on behalf of the Money Market, Municipal Money Market and Government
Obligations Portfolios. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC (excluding
fees to PFPC, with respect to the Money Market and Government Obligations
Portfolios, for administrative services obligated under the Advisory Agreements)
advisory fees as follows:
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<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money
Market $1,649,453 $ 723,970 $392,949
New York Municipal Money
Market $ 60,758 $ 267,374 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC advisory fees
as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money $1,774,123 $ 647,063 $404,193
Market
New York Municipal Money $ 21,831 $ 324,917 $0
Market
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC advisory fees
as follows:
-41-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After waivers
Portfolios and reimbursements) Waivers Reimbursements
- ---------- ------------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
New York Municipal Money Market $ 2,709 $ 268,017 $0
</TABLE>
-42-
<PAGE>
Each 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; and
(f) the cost of investment company literature and other publications provided by
the Fund to its directors and officers. The Eta classes of the Fund pay their
own distribution fees, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Eta classes or if they receive different
services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or a
Portfolio in connection with the performance of the Advisory Agreements, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 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 Agreements or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. The investment advisory agreement was
approved with respect to the Municipal Money Market Portfolio by shareholders at
a special meeting held June 10, 1992, as adjourned and the sub-advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held on December 22, 1989. The Advisory
Agreement was approved with respect to the New York Municipal Money Market
Portfolio by the Portfolio's shareholders at a special meeting of shareholders
-43-
<PAGE>
held November 21, 1991, as adjourned. Each Advisory Agreement is terminable by
vote of the Fund's Board of Directors or by the holders of a majority of the
outstanding voting securities of the relevant Portfolio, at any time without
penalty, on 60 days' written notice to BIMC or PNC Bank. Each of the Advisory
Agreements may also be terminated by BIMC or PNC Bank, respectively, on 60 days'
written notice to the Fund. Each of the Advisory Agreements terminates
automatically in the event of assignment thereof.
Administration Agreements. PFPC serves as the administrator to the New York
Municipal Money Market Portfolio pursuant to an Administration Agreement dated
November 5, 1991 and as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (together, the "Administration Agreements"). PFPC has agreed to
furnish to the Fund on behalf of the Municipal Money Market and New York
Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market and New York
Municipal Money Market Portfolios.
BIMC is obligated to render administrative services to the Money Market and
Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of Delegation Agreements, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money Market $ 85,926 $7,826 $0
Money Market $0 $0 $0
Government Obligations Money Market $0 $0 $0
</TABLE>
-44-
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market Portfolio $448,548 $0 $0
New York Municipal Money Market Portfolio $ 99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market Portfolio $428,209 $0 $0
New York Municipal Money Market Portfolio $ 67,204 $10,146 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
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<PAGE>
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Eta Classes pursuant to a Transfer Agency
Agreement dated November 5, 1991 and supplements dated November 5, 1991 (the
"Transfer Agency Agreement"), under which PFPC (a) issues and redeems shares of
each of the Eta Classes, (b) addresses and mails all communications by each
Portfolio to record owners of shares of each such Class, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Eta Class. PFPC may, on 30 days' notice to the
Fund, assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per account
in each Portfolio for orders which are placed via third parties and relayed
electronically to PFPC, and at an annual rate of $17.00 per account in each
Portfolio for all other orders, exclusive of out-of-pocket expenses and also
receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder servicing
agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998 entered into by the Distributor and the Fund on behalf
of each of the Eta Classes, (the "Distribution Agreement") and separate Plans of
Distribution, as amended, for each of the Eta Classes (collectively, the
"Plans"), all of which were adopted by the Fund in the manner prescribed by Rule
12b-1 under the 1940 Act, the Distributor will use appropriate efforts to
distribute shares of each of the Eta Classes. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution 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 each of the Portfolios based on a
percentage of the amounts invested by their customers.
-46-
<PAGE>
Each of the Plans relating to the Eta Classes of the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios were approved by the Fund's Board of
Directors, including the directors who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in the operation of the
Plans or any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Eta Class under the Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the Fund's shares in the
affected Eta Class; and (4) while the Plan remains in effect, the selection and
nomination of the 12b-1 Directors shall be committed to the discretion of the
directors who are not interested persons of the Fund.
The Fund believes that such Plans may benefit the Fund by increasing sales
of Shares. Each of Mr. Sablowsky and Mr. Reichman, Directors of the Fund, had an
indirect interest in the operation of the Plans by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may purchase variable
rate securities with remaining maturities of 13 months or more so long as such
securities comply with conditions established by the SEC under which they may be
considered to have remaining maturities of 13 months or less. Because all
Portfolios intend to purchase only securities with remaining maturities of 13
months or less, their portfolio turnover rates will be relatively high. However,
because brokerage commissions will not normally be paid with respect to
investments made by each such Portfolio, the turnover rate should not adversely
affect such Portfolio's net asset value or net income. The Portfolios do not
intend to seek profits through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
-47-
<PAGE>
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by 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 a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which 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 a Portfolio.
The Fund is required to identify any securities of its regular
broker-dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents
held by the Fund as of the end of its most recent fiscal year. As of August 31,
1998, the following portfolios held the following securities:
-48-
<PAGE>
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each class of the Portfolios at $1.00 per share. Net asset value per share, the
value of an individual share in a Portfolio, is computed by adding the value of
the proportionate interest of a class in the Portfolio's cash, securities and
other assets, subtracting the actual and accrued liabilities of the class and
dividing the result by the number of outstanding shares of the class. The net
asset value of each class of the Fund is calculated independently of the other
classes of the Fund. A Portfolio's "net assets" equal the value of a Portfolio's
investments and other securities less its liabilities. The net asset value per
share of each class is computed twice each day, as of 12:00 noon (Eastern Time)
and as of the close of regular trading on the NYSE (generally 4:00 p.m. Eastern
-49-
<PAGE>
Time), on each Business Day. "Business Day" means each day, Monday through
Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia (the
"FRB") are open. Currently, the NYSE is closed weekends and on New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and the
preceding Friday and subsequent Monday when one of these holidays falls on a
Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those 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.
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
-50-
<PAGE>
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
Total return and yield may fluctuate daily and do not provide a basis for
determining future returns and yields. Because the returns and yields of each
Portfolio will fluctuate, they cannot be compared with returns and yields on
savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, return and yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the return and yield of one money market
fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
returns and/or yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC Money Fund
-51-
<PAGE>
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
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute its respective
income to shareholders each year, so that each Portfolio generally will be
relieved of federal income and excise taxes. If a Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. For the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of each such
Portfolio's assets at the close of each quarter of the Fund's taxable year must
consist of exempt-interest obligations.
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<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Eta 1 Common Stock, Eta 2 Common Stock,
Eta 3 Common Stock and Eta 4 Common Stock constitute the Eta Classes, described
herein. Under RBB's charter, the Board of Directors has the power to classify
or reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interest in the Money Market,
Municipal Money Market Funds; the Sansom Street Family represents interests in
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
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
-55-
<PAGE>
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 shares of each portfolio
affected by the matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of each
portfolio in the matter are identical or that the matter does not affect any
interest of the portfolio. Under the Rule the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a portfolio only if approved by the holders of a
majority of the outstanding voting securities of such portfolio. However, the
Rule also provides that the ratification of the selection of independent public
accountants, and the election of directors are not subject to the separate
voting requirements and may be effectively acted upon by shareholders of an
investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to the Fund and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants.
Control Persons. As of November 16, 1998, 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.
-56-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for the Fund
contemplated by their respective agreements with the Fund without violation of
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether bank and non-bank subsidiaries of a
registered bank holding company may perform services comparable to those that
are to be performed by these companies, and future changes in either federal or
state statutes and regulations relating to permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent these companies from continuing to perform such services for the
Fund. If such were to occur, it is expected that the Board of Directors would
recommend that the Fund enter into new agreements or would consider the possible
termination of the Fund. Any new advisory 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,
-73-
<PAGE>
series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
-74-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
THETA FAMILY
Money Market Portfolio,
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Theta
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Theta Family Prospectus of the Fund dated December 29, 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 29, 1998.
<TABLE>
<CAPTION>
CONTENTS
Page
----
<S> <C>
General........................................................................2
Investment Objectives and Policies.............................................2
Directors and Officers.........................................................29
Investment Advisory, Distribution and Servicing Arrangements...................32
Portfolio Transactions ........................................................38
Purchase and Redemption Information............................................39
Valuation of Shares............................................................40
Performance Information........................................................41
Taxes..........................................................................42
Additional Information Concerning Fund Shares..................................42
Miscellaneous..................................................................46
Appendix A.....................................................................A-1
</TABLE>
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 four classes of shares (the "Theta Classes") representing interests
in four investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Theta Classes are offered by the Prospectus dated December 29, 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 OBJECTIVES AND POLICIES
The following supplements the information contained in the
Prospectus concerning the investment objectives and policies of the Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940, as amended (the "1940 Act"), and may be entered into only
for temporary or emergency purposes. While reverse repurchase transactions are
outstanding, a Portfolio will maintain in a segregated account with the Fund's
custodian or a qualified sub-custodian, cash, or liquid securities of an amount
at least equal to the market value of the securities, plus accrued interest,
subject to the agreement.
Variable Rate Demand Instruments. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 13 months, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 13 months, upon giving the prescribed notice
(which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 13 months.
In determining the average weighted maturity of the Money Market, Municipal
Money Market or New York Municipal Money Market Portfolio and whether a variable
rate demand instrument has a remaining maturity of 13 months or less, each
long-term 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.
2
<PAGE>
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for a Portfolio to dispose
of variable or floating rate notes if the issuer defaulted on its payment
obligations or during periods that the Portfolio is not entitled to exercise its
demand right and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments.
When-Issued or Delayed Delivery Securities. The Money Market,
Municipal Money Market and New York Money Market Portfolios may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolios have such
commitments outstanding, such Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash, or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
such Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of such Portfolio's commitment. It may be expected that such
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because such Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, such Portfolio expects that commitments to purchase
"when-issued" securities will not exceed 25% of the value of its total assets
absent unusual market conditions. When any of the Money Market Portfolio,
Municipal Money Market Portfolio or the New York Municipal Money Market
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in such
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitments. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
Portfolio may pay for a stand-by commitment either in cash or by paying a higher
3
<PAGE>
price for portfolio securities, which are acquired subject to the commitment
(thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation, which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Obligations of Domestic Banks, Foreign Banks and Foreign
Branches of U.S. Banks. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
Short Sales "Against the Box." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
4
<PAGE>
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
Municipal Obligations. Municipal Obligations may include
variable rate demand notes. Such notes are frequently not rated by credit rating
agencies, but unrated notes purchased by the Portfolio will have been determined
by the Portfolio's investment adviser to be of comparable quality at the time of
the purchase to rated instruments purchasable by the Portfolio. Where necessary
to ensure that a note is of eligible quality, the Portfolio will require that
the issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
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The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those, which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. Government Obligations. Examples of types of U.S.
Government obligations include U.S. Treasury Bills, Treasury Notes and Treasury
Bonds and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the Maritime Administration,
International Bank for Reconstruction and Development (the "World Bank"), the
Asian-American Development Bank and the Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper
which is issued in reliance on the "private placement" exemption from
registration which is afforded by Section 4(2) of the Securities Act of 1933, as
amended. Section 4(2) paper is restricted as to disposition under the federal
securities laws and is generally sold to institutional investors such as the
Fund which agree that they are purchasing the paper for investment and not with
a view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in the Section 4(2) paper, thereby providing liquidity. See "Illiquid
Securities" below.
Repurchase Agreements. The repurchase price under the
repurchase agreements described in the Prospectus generally equals the price
paid by a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). The financial institutions with which a Portfolio may
enter into repurchase agreements will be banks and non-bank dealers of U.S.
Government Securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to equal at
least the repurchase price (including accrued interest). In addition, the
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Portfolio's adviser or sub-adviser will require that the value of this
collateral, after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to or greater than the repurchase
price including either (i) accrued premium provided in the repurchase agreement
or (ii) the daily amortization of the difference between the purchase price and
the repurchase price specified in the repurchase agreement. The Portfolio's
adviser or sub-adviser will mark to market daily the value of the securities.
Securities subject to repurchase agreements will be held by the Fund's custodian
in the Federal Reserve/Treasury book-entry system or by another authorized
securities depository. Repurchase agreements are considered to be loans by a
Portfolio under the 1940 Act.
Mortgage-Related Securities. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
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payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMOs. The Portfolios do not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying the CMOs may cause some or all of the classes of CMOs to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
Asset-Backed Securities. Asset-backed securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in an underlying pool of assets, or as debt instruments,
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income securities.
Lending of Securities. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
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Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
Eligible Securities. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("Rating Organizations")
in the two highest rating categories for such securities (e.g., commercial paper
rated "A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and subject to certain SEC requirements; 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) subject to
certain conditions imposed under SEC rules, obligations guaranteed by persons
which meet the requisite rating requirements.
Illiquid Securities. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements that have a maturity of longer than seven days), including securities
that are illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Each Portfolio's investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. With respect to the Money Market
Portfolio, the Government Obligations Money Market Portfolio, and the New York
Municipal Money Market Portfolio, repurchase agreements subject to demand are
deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
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Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of securities.
The Portfolios may purchase securities which are not
registered under the Securities Act but which may be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
These securities will not be considered illiquid so long as it is determined by
the Portfolios' adviser that an adequate trading market exists for the
securities. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
among others, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Special Considerations Relating To New York Municipal
Obligations. Some of the significant financial considerations relating to the
Fund's investments in New York Municipal Obligations are summarized below. This
summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
State Economy. New York is the third most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a very
small share of the nation's farming and mining activity. The State's location
and its excellent air transport facilities and natural harbors have made it an
important link in international commerce. Travel and tourism constitute an
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important part of the economy. Like the rest of the nation, New York has a
declining proportion of its workforce engaged in manufacturing, and an
increasing proportion engaged in service industries.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic position. State per
capita personal income has historically been significantly higher than the
national average, although the ratio has varied substantially. Because New York
City (the "City") is a regional employment center for a multi-state region,
State personal income measured on a residence basis understates the relative
importance of the State to the national economy and the size of the base to
which State taxation applies.
The State economic forecast has been raised slightly from the
enacted budget forecast. Continued growth is projected in 1998 and 1999 for
employment, wages, and personal income, although the growth rates of personal
income and wages are expected to be lower than those in 1997. The growth of
personal income is projected to decline from 5.7 percent in 1997 to 4.8 percent
in 1998 and 4.2 percent in 1999, in part because growth in bonus payments is
expected to slow down, a distinct shift from the torrid rate of the last few
years. Overall employment growth is expected to be 1.9 percent in 1998, the
strongest in a decade, but will drop to 1.0 percent in 1999, reflecting the
slowing growth in the national economy, continued restraint in governmental
spending, and restructuring in the health care, social service, and banking
sectors.
There can be no assurance that the State economy will not
experience worse-than-predicted results, with corresponding material and adverse
effects on the State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor
(the "Governor") to submit to the State legislature (the "Legislature") a
balanced executive budget which contains a complete plan of expenditures for the
ensuing fiscal year and all moneys and revenues estimated to be available
therefor, accompanied by bills containing all proposed appropriations or
reappropriations and any new or modified revenue measures to be enacted in
connection with the executive budget. The entire plan constitutes the proposed
State financial plan for that fiscal year. The Governor is required to submit to
the Legislature quarterly budget updates which include a revised cash-basis
state financial plan, and an explanation of any changes from the previous state
financial plan.
State law requires the Governor to propose a balanced budget
each year. In recent years, the State has closed projected budget gaps of $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
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Sustained growth in the State's economy could contribute to
closing projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
The State will formally update its outyear projections of
receipts and disbursements for the 2000-01 and 2001-02 fiscal years as a part of
the 1999-00 Executive Budget process, as required by law. The revised
expectations for years 2000-01 and 2001-02 will reflect the cumulative impact of
tax reductions and spending commitments enacted over the last several years as
well as new 1999-00 Executive Budget recommendations. The School Tax Relief
Program ("STAR") program, which dedicates a portion of personal income tax
receipts to fund school tax reductions, has a significant impact on General Fund
receipts. STAR is projected to reduce personal income tax revenues available to
the General Fund by an estimated $1.3 billion in 2000-01. Measured from the
1998-99 base, scheduled reductions to estate and gift, sales and other taxes,
reflecting tax cuts enacted in 1997-98 and 1998-99, will lower General Fund
taxes and fees by an estimated $1.8 billion in 2000-01. Disbursement projections
for the outyears currently assume additional outlays for school aid, Medicaid,
welfare reform, mental health community reinvestment, and other multi-year
spending commitments in law.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
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The State's current fiscal year began on April 1, 1998 and
ends on March 31, 1999 and is referred to herein as the State's 1998-99 fiscal
year. The Legislature adopted the debt service component of the State budget for
the 1998-99 fiscal year on March 30, 1998 and the remainder of the budget on
April 18, 1998. In the period prior to adoption of the budget for the current
fiscal year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to
grow by $2.43 billion over 1997-98 levels, or $690 million more than proposed in
the Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax
reduction initiatives, including acceleration of State-funded property and local
income tax relief for senior citizens under STAR expansion of the child care
income-tax credit for middle-income families, a phased-in reduction of the
general business tax, and reduction of several other taxes and fees, including
an accelerated phase-out of assessments on medical providers. The enacted budget
also provides for significant increases in spending for public schools, special
education programs, and for the State and City university systems. It also
allocates $50 million for a new Debt Reduction Reserve Fund ("DRRF") that may
eventually be used to pay debt service costs on or to prepay outstanding
State-supported bonds.
The 1998-99 State Financial Plan projects a closing balance in
the General Fund of $1.42 billion that is comprised of a reserve of $761 million
available for future needs, a balance of $400 million in the Tax Stabilization
Reserve Fund ("TSRF"), a balance of $158 million in the Community Projects Fund
("CPF"), and a balance of $100 million in the Contingency Reserve Fund ("CRF").
The TSRF can be used in the event of an unanticipated General Fund cash
operating deficit, as provided under the State Constitution and State Finance
Law. The CPF is used to finance various legislative and executive initiatives.
The CRF provides resource to help finance any extraordinary litigation costs
during the fiscal year.
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The forecast of General Fund receipts in 1998-99 incorporates
several Executive Budget tax proposals that, if enacted, would further reduce
receipts otherwise available to the General Fund by approximately $700 million
during 1998-99. The Executive Budget proposes accelerating school tax relief for
senior citizens under STAR, which is projected to reduce General Fund receipts
by $537 million in 1998-99. The proposed reduction supplements STAR tax
reductions already scheduled in law, which are projected at $187 million in
1998-99. The Budget also proposes several new tax-cut initiatives and other
funding changes that are projected to further reduce receipts available to the
General Fund by over $200 million. These initiatives include reducing the fee to
register passenger motor vehicles and earmarking a larger portion of such fees
to dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99
Financial Plan includes approximately $62 million in non-recurring resources,
comprising less than two-tenths of one percent of General Fund disbursements.
The non-recurring resources projected for use in 1998-99 consist of $27 million
in retroactive federal welfare reimbursements for family assistance recipients
with HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are
estimated at $4.82 billion, or $1.07 billion higher than 1997-98. The proposed
spending plan includes: $2.51 billion in disbursements for transportation
purposes, including the State and local highway and bridge program; $815 million
for environmental activities; $379 million for correctional services; $228
million for the State University of New York ("SUNY") and the City University of
New York ("CUNY"); $290 million for mental hygiene projects; and $375 million
for CEFAP. Approximately 28 percent of capital projects are proposed to be
financed by "pay-as-you-go" resources. State-supported bond issuances finance 46
percent of capital projects, with federal grants financing the remaining 26
percent.
Many complex political, social and economic forces influence
the State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
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In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the DOB believes it could take similar actions should variances occur in its
projections for the current fiscal year.
Recent Financial Results. The General Fund is the principal
operating fund of the State and is used to account for all financial
transactions, except those required to be accounted for in another fund. It is
the State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its
first-ever, accumulated positive balance in its General Fund. This "accumulated
surplus" was $567 million. The improvement in the State's GAAP position is
attributable, in part, to the cash surplus recorded at the end of the State's
1997-98 fiscal year. Much of that surplus is reserved for future requirements,
but a portion is being used to meet spending needs in 1998-99. Thus, the State
expects some deterioration in its GAAP position, but expects to maintain a
positive GAAP balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined
Governmental Funds operating surplus of $1.80 billion, which included an
operating surplus in the General Fund of $1.56 billion, in Capital Projects
Funds of $232 million and in Special Revenue Funds of $49 million, offset in
part by an operating deficit of $43 million in Debt Service Funds.
The State reported a General Fund operating surplus of $1.56
billion for the 1997-98 fiscal year, as compared to an operating surplus of
$1.93 billion for the 1996-97 fiscal year. As a result, the State reported an
accumulated surplus of $567 million in the General Fund for the first time since
it began reporting its operations on a GAAP-basis. The 1997-98 fiscal year
operating surplus reflects several major factors, including the cash-basis
operating surplus resulting from the higher-than-anticipated personal income tax
receipts, an increase in taxes receivable of $681 million, an increase in other
assets of $195 million and a decrease in pension liabilities of $144 million.
This was partially offset by an increase in payables to local governments of
$270 million and tax refunds payable of $147 million.
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Debt Limits and Outstanding Debt. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term general obligation borrowing (i.e., borrowing for more than
one year) unless the borrowing is authorized in a specific amount for a single
work or purpose by the Legislature and approved by the voters. There is no
limitation on the amount of long-term general obligation debt that may be so
authorized and subsequently incurred by the State.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
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On January 13, 1992, Standard & Poor's Ratings Services
("S&P") reduced its ratings on the State's general obligation bonds from A to
Aand, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. On August 28, 1997, S&P
revised its ratings on the State's general obligation bonds from A- to A and
revised its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On March 2, 1998, S&P affirmed its A rating on
the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On July 6, 1998, Moody's assigned an A2 rating with a stable outlook to the
State's general obligations.
The State anticipates that its capital programs will be
financed, in part, through borrowings by the State and its public authorities in
the 1998-99 fiscal year. Information on the State's five-year Capital Program
and Financing Plan for the 1998-99 through 2002-03 fiscal years, updated to
reflect actions taken in the 1998-99 State budget, will be released on or before
July 30, 1998. The projection of State borrowings for the 1998-99 fiscal year is
subject to change as market conditions, interest rates and other factors vary
throughout the fiscal year.
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The State expects to issue $528 million in general obligation
bonds (including $154 million for purposes of redeeming outstanding BANs) and
$154 million in general obligation commercial paper. The State also anticipates
the issuance of up to a total of $419 million in Certificates of Participation
to finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase
and contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
The proposed 1997-98 through 2002-03 Capital Program and
Financing Plan was released with the 1998-99 Executive Budget on January 20,
1998. As a part of that Plan, changes were proposed to the State's 1997-98
borrowing plan, including: the delay in the issuance of COPs to finance welfare
information systems until 1998-99 to permit a thorough assessment of needs; and
the elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
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to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of
legislation enacted during the 1990 legislative session which changed actuarial
funding methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision in
the case of State of Delaware v. State of New York, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances,
State programs and miscellaneous cure rights, tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan.
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Although other litigation is pending against New York State,
except as described herein, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
Authorities. The fiscal stability of New York State is
related, in part, to the fiscal stability of its Authorities, which generally
have responsibility for financing, constructing and operating revenue-producing
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the
State may also be impacted by the fiscal health of its localities, particularly
the City, which has required and continues to require significant financial
assistance from the State. The City depends on State aid both to enable the City
to balance its budget and to meet its cash requirements. There can be no
assurance that there will not be reductions in State aid to the City from
amounts currently projected or that State budgets will be adopted by the April 1
statutory deadline or that any such reductions or delays will not have adverse
effects on the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979. In 1975, S&P suspended its A
rating of City bonds. This suspension remained in effect until March 1981, at
which time the City received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward
to BBB+ and on November 19, 1987, to A-. On February 3, 1998 and again on May
27, 1998, S&P assigned a BBB+ rating to the City's general obligation debt and
placed the ratings on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981
from B (in effect since 1977) to Ba1, in November 1983 to Baa, in December 1985
to Baa1, in May 1988 to A and again in February 1991 to Baa1. On February 25,
1998, Moody's upgraded nearly $28 billion of the City's general obligations from
Baa1 to A3. On June 9, 1998, Moody's again assigned on A3 rating to the City's
general obligations and stated that its outlook was stable.
New York City is heavily dependent on New York State and
federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future federal and State assistance will enable the City
to make up its budget deficits. To help alleviate the City's financial
difficulties, the Legislature created the Municipal Assistance Corporation
("MAC") in 1975. Since its creation, MAC has provided, among other things,
financing assistance to the City by refunding maturing City short-term debt and
transferring to the City funds received from sales of MAC bonds and notes. MAC
is authorized to issue bonds and notes payable from certain stock transfer tax
revenues, from the City's portion of the State sales tax derived in the City
and, subject to certain prior claims, from State per capita aid otherwise
payable by the State to the City. Failure by the State to continue the
imposition of such taxes, the reduction of the rate of such taxes to rates less
than those in effect on July 2, 1975, failure by the State to pay such aid
revenues and the reduction of such aid revenues below a specified level are
included among the events of default in the resolutions authorizing MAC's
long-term debt. The occurrence of an event of default may result in the
acceleration of the maturity of all or a portion of MAC's debt. MAC bonds and
notes constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. As of June 30, 1997, MAC had
outstanding an aggregate of approximately $4.267 billion of its bonds. MAC is
authorized to issue bonds and notes to refund its outstanding bonds and notes
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and to fund certain reserves, without limitation as to principal amount, and to
finance certain capital commitments to the Transit Authority and the New York
City School Construction Authority through the 1997 fiscal year in the event the
City fails to provide such financing.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and CUNY and
reflected the City's expense and capital budgets for the 1998 fiscal year, which
were adopted on June 6, 1997. The 1998-2001 Financial Plan projected revenues
and expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the
impact of scheduled tax reductions that will lower receipts by $38 million, as
well as the impact of two Executive Budget proposals that are projected to lower
receipts by an additional $79 million. The first proposal would divert $30
million in motor vehicle registration fees from the General Fund to the
Dedicated Highway and Bridge Trust Fund; the second would reduce fees for motor
vehicle registrations, which would further lower receipts by $49 million. The
underlying growth of receipts in this category is projected at 4 percent, after
adjusting for these scheduled and recommended changes.
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In comparison to the current fiscal year, business tax
receipts are projected to decline slightly in 1998-99, falling from $4.98
million to $4.96 billion. The decline in this category is largely attributable
to scheduled tax reductions. In total, collections for corporation and utility
taxes and the petroleum business tax are projected to fall by $107 million from
1997-98. The decline in receipts in these categories is partially offset by
growth in the corporation franchise, insurance and bank taxes, which are
projected to grow by $88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus
of $131 million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99
in the General Fund, primarily as a result of the use of the 1997-98 cash
surplus. In 1998-99, the General Fund GAAP Financial Plan shows total revenues
of $34.68 billion, total expenditures of $35.94 billion, and net other financing
sources and uses of $42 million.
Although the City has maintained balanced budgets in each of
its last seventeen fiscal years and is projected to achieve balanced operating
results for the 1998 fiscal year, there can be no assurance that the gap-closing
actions proposed in the 1998-2001 Financial Plan can be successfully implemented
or that the City will maintain a balanced budget in future years without
additional State aid, revenue increases or expenditure reductions. Additional
tax increases and reductions in essential City services could adversely affect
the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's financing program for fiscal years 1998 through 2001 contemplates the
issuance of $5.7 billion of general obligation bonds and $5.7 billion of bonds
to be issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority,
was created as part of the City's effort to assist in keeping the City's
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indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials
have issued reports and made public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal financing. The
City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the re-establishment of the Financial Control Board for
the City of Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers
Board is charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the State to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.
Troy MAC has issued bonds to effect a restructuring of the City of Troy's
obligations.
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Eighteen municipalities received extraordinary assistance
during the 1996 legislative session through $50 million in special
appropriations targeted for distressed cities, and that was largely continued in
1997. Twenty-eight municipalities are scheduled to share in more than $32
million in targeted unrestricted aid allocated in the 1997-98 budget. An
additional $21 million will be dispersed among all cities, towns and villages, a
3.97% increase in General Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in
unrestricted aid targeted to 57 municipalities across the State. Other
assistance for municipalities with special needs totals more than $25.6 million.
Twelve upstate cities will receive $24.2 million in one-time assistance from a
cash flow acceleration of State aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1996, the total indebtedness
of all localities in the State other than New York City was approximately $20.0
billion. A small portion (approximately $77.2 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling State legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
other than New York City that are authorized by State law to issue debt to
finance deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
From time to time, federal expenditure reductions could
reduce, or in some cases eliminate, federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If the State, the City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing the State assistance in
the future.
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Investment Limitations
Money Market Portfolio and Municipal Money Market Portfolio.
Neither the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary
purposes (and with respect to the Money Market Portfolio only, except
for reverse repurchase agreements) and then in amounts not in excess of
10% of the value of the Portfolio's total assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of
at least 300% for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate any of its assets except in connection with such borrowings
and then, with respect to the Money Market Portfolio, in amounts not in
excess of 10% of the value of a Portfolio's total assets at the time of
such borrowing and, with respect to the Municipal Money Market
Portfolio, in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of a Portfolio's total assets at the time
of such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate
management of the Portfolio's securities by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio securities
is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with a
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
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(5) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(7) purchase or sell commodities or commodity
contracts;
(8) invest in oil, gas or mineral exploration or
development programs;
(9) make loans except that a Portfolio may purchase or
hold debt obligations in accordance with its investment objective,
policies and limitations and (except for the Municipal Money Market
Portfolio) may enter into repurchase agreements;
(10) purchase any securities issued by any other
investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(11) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
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(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations. The foregoing investment limitations
cannot be changed without shareholder approval.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities of the
parents, and will divide utility companies according to their services. For
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry. The policy and practices stated in this
paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change would be subject to any applicable requirements of the Securities
and Exchange Commission (the "SEC") and would be disclosed in the Prospectus
prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Money Market Portfolio will meet the following limitations on its
investments in addition to the fundamental investment limitations described
above. These limitations may be changed without a vote of shareholders of the
Money Market Portfolio.
1. The Money Market Portfolio will limit its purchases
of the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that the Money
Market Portfolio may invest more than 5% of its total assets in First
Tier Securities of one issuer for a period of up to three business
days. "First Tier Securities" include eligible securities that (i) if
rated by more than one Rating Organization, are rated (at the time of
purchase) by two or more Rating Organizations in the highest rating
category for such securities, (ii) if rated by only one Rating
Organization, are rated by such Rating Organization (as defined in the
Prospectus) in its highest rating category for such securities, (iii)
have no short-term rating and are comparable in priority and security
to a class of short-term obligations of the issuer of such securities
that have been rated in accordance with (i) or (ii) above, or (iv) are
Unrated Securities that are determined to be of comparable quality to
such securities. Purchases of First Tier Securities that come within
categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
2. The Money Market Portfolio will limit its purchases
of Second Tier Securities, which are eligible securities other than
First Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases
of Second Tier Securities of one issuer to the greater of 1% of its
total assets or $1 million.
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Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not
purchase any put if after the acquisition of the put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments issued by
or subject to puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal Money
Market Portfolio's total assets. A "put" means a right to sell a specified
underlying instrument within a specified period of time and at a specified
exercise price that may be sold, transferred or assigned only with the
underlying instrument.
Government Obligations Money Market Portfolio. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to such
obligations. There is no limit on the amount of the Portfolio's assets which may
be invested in the securities of any one issuer of obligations that the
Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an amount
not exceeding 10% of the value of the Portfolio's total assets, and only if
after such borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 10% of the
value of the Portfolio's assets at the time of such borrowing; or purchase
portfolio securities while borrowings are in excess of 5% of the Portfolio's net
assets. (This borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio by enabling the Portfolio to meet
redemption requests where the liquidation of portfolio securities is deemed to
be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective, policies
and limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral consisting of cash or securities
29
<PAGE>
which are consistent with the Portfolio's permitted investments, which is equal
at all times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies.
The foregoing investment limitations cannot be changed without
shareholder approval.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
New York Municipal Money Market Portfolio. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in amounts not
in excess of 10% of the value of the Portfolio's total assets at the time of
such borrowing, and only if after such borrowing there is asset coverage of at
least 300% for all borrowings of the Portfolio; or mortgage, pledge, hypothecate
any of its assets except in connection with such borrowings and then in amounts
not in excess of 10% of the value of 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 on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio securities, the
Portfolio may be deemed an underwriter under federal securities laws and except
to the extent that the purchase of Municipal Obligations directly from the
issuer thereof in accordance with the Portfolio's investment objective, policies
and limitations may be deemed to be an underwriting;
(4) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or combinations
thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity
contracts;
30
<PAGE>
(7) invest in oil, gas or mineral exploration or
development programs;
(8) make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such an issuer;
or
(10) make investments for the purpose of exercising control
or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular federal income tax and does not
constitute an item of tax preference for purposes of the federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
shareholder approval.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio
will not purchase any put if after the acquisition of the put the New
York Municipal Money Market Portfolio has more than 5% of its total
assets invested in instruments issued by or subject to puts from the
same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "put" means a right to sell a specified
31
<PAGE>
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
32
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning Communities,
1345 Chestnut Street Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ------------------------
* Each of Mr. Sablowsky and Mr. Reichman 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. and Counsellors Securities, Inc.,
respectively, each a registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
34
<PAGE>
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors $12,000 annually and $1,250 per
meeting of the Board or any committee thereof that is not held in conjunction
with a Board meeting. In addition, the Chairman of the Board receives an
additional fee of $6,000 per year for his services in this capacity. Directors
are reimbursed for any expenses incurred in attending meetings of the Board of
Directors or any committee thereof. For the year ended August 31, 1998, each of
the following members of the Board of Directors received compensation from the
Fund in the following amounts:
<TABLE>
<CAPTION>
Directors' Compensation
-----------------------
Pension or Retirement
Aggregate Benefits Accrued as Estimated Annual
Compensation Part of Fund Benefits Upon
Name of Person/Position from Registrant Expenses Retirement
- ------------------------------ ---------------- --------------------- ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
35
<PAGE>
On October 24, 1990 the Fund adopted, as a participating
employer, the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a
retirement plan for employees (currently Edward J. Roach and one other
employee), pursuant to which the Fund will contribute on a quarterly basis
amounts equal to 10% of the quarterly compensation of each eligible employee. By
virtue of the services performed by Blackrock Institutional Management
Corporation ("BIMC") (formerly known as "PNC Institutional Management
Corporation"), the Portfolios' adviser, PNC Bank, National Association ("PNC
Bank"), the Fund's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market and New York Municipal Money Market Portfolios and the
Fund's transfer and dividend disbursing agent, and Provident Distributors, Inc.
(the "Distributor" or "PDI"), the Fund's distributor, the Fund itself requires
only one part-time employee. 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.
36
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The Portfolios have
investment advisory agreements with BIMC. Although BIMC in turn has sub-advisory
agreements respecting the Portfolios (except the New York Municipal Money Market
Portfolio) with PNC Bank dated August 16, 1988, as of April 29, 1998, BIMC
assumed these advisory responsibilities from PNC Bank. Pursuant to the
Sub-Advisory Agreements, PNC Bank would be entitled to receive a annual fee from
BIMC for its sub-advisory services calculated at the annual rate of 75% of the
fees received by BIMC on behalf of the Money Market, Municipal Money Market and
Government Obligations Portfolios. The advisory agreements relating to the Money
Market and Government Obligations Money Market Portfolios are each dated August
16, 1988, the advisory agreement relating to the New York Municipal Money Market
Portfolio is dated November 5, 1991 and the advisory agreement relating to the
Municipal Money Market Portfolio is dated April 21, 1992. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Agreements."
For the fiscal year ended August 31, 1998, the Fund paid BIMC
(excluding fees to PFPC, with respect to the Money Market and Government
Obligations Portfolios, for administrative services obligated under the Advisory
Agreements) advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money
Market $1,649,453 $ 723,970 $392,949
New York Municipal Money
Market $ 60,758 $ 267,374 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Fund paid BIMC
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- ---------------- ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money $1,774,123 $ 647,063 $404,193
Market
New York Municipal Money $ 21,831 $ 324,917 $0
Market
</TABLE>
37
<PAGE>
For the fiscal year ended August 31, 1996, the Fund paid BIMC
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
Portfolios waivers and reimbursements) Waivers Reimbursements
- ---------- --------------------------- ------- --------------
<S> <C> <C> <C>
Money Market $4,174,375 $3,527,715 $342,158
Municipal Money Market $ 190,687 $1,218,973 $ 17,576
Government Obligations Money Market $1,638,622 $ 671,811 $406,954
New York Municipal Money Market $ 2,709 $ 268,017 $0
</TABLE>
Each 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; and (f) the cost of investment company
literature and other publications provided by the Fund to its directors and
officers. The Theta classes of the Fund pay their own distribution fees, and may
pay a different share than other classes of other expenses (excluding advisory
and custodial fees) if those expenses are actually incurred in a different
amount by the Theta classes or if they receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or a Portfolio in connection with the performance of the Advisory
Agreements, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of BIMC or PNC Bank in the performance of their
respective duties or from reckless disregard of their duties and obligations
thereunder.
The Advisory Agreements were each most recently approved July
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 Agreements or "interested
persons" (as defined in the 1940 Act) of such parties. The Advisory Agreements
were each approved with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by shareholders at a special meeting held on December 22, 1989. The
Advisory Agreement was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
38
<PAGE>
shareholders held November 21, 1991, as adjourned. Each Advisory Agreement is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to BIMC or PNC Bank. Each of
the Advisory Agreements may also be terminated by BIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Agreements terminates automatically in the event of assignment thereof.
Administration Agreements. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
BIMC is obligated to render administrative services to the
Money Market and Government Obligations Money Market Portfolio pursuant to the
investment advisory agreements. Pursuant to the terms of Delegation Agreements,
dated July 29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC
its administrative responsibilities to these Portfolios. The Fund pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $0 $0
New York Municipal Money Market $ 85,926 $7,826 $0
Money Market $0 $0 $0
Government Obligations Money Market $0 $0 $0
</TABLE>
39
<PAGE>
For the fiscal year ended August 31, 1997, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money Market $ 99,071 $0 $0
</TABLE>
For the fiscal year ended August 31, 1996, the Fund paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Municipal Money Market $428,209 $0 $0
New York Municipal Money Market $ 67,204 $10,146 $0
</TABLE>
Custodian and Transfer Agency Agreements. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
40
<PAGE>
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Theta Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Theta Classes, (b) addresses and mails all communications
by each Portfolio to record owners of shares of each such Class, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic reports to the Fund's Board of
Directors concerning the operations of each Theta Class. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a
distribution agreement, dated as of May 29, 1998 entered into by the Distributor
and the Fund on behalf of each of the Theta Classes, (the "Distribution
Agreement") and separate Plans of Distribution, as amended, for each of the
Theta Classes (collectively, the "Plans"), all of which were adopted by the Fund
in the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor will
use appropriate efforts to distribute shares of each of the Theta Classes. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution 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 each of the Portfolios based on a
percentage of the amounts invested by their customers.
41
<PAGE>
Each of the Plans relating to the Theta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios were approved by the Fund's Board of
Directors, including the directors who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in the operation of the
Plans or any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Theta Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Theta Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Fund.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Each of Mr. Sablowsky and Mr. Reichman, Directors of
the Fund, had an indirect interest in the operation of the Plans by virtue of
his position with Fahnestock Co., Inc. and Counsellors Securities, Inc.,
respectively, each a registered broker-dealer.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 13 months or less, except for securities that are
subject to repurchase agreements (which in turn may have maturities of 13 months
or less), and except that each of the Money Market Portfolio, Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio may purchase
variable rate securities with remaining maturities of 13 months or more so long
as such securities comply with conditions established by the SEC under which
they may be considered to have remaining maturities of 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months or less, their portfolio turnover rates will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by each such Portfolio, the turnover rate
should not adversely affect such Portfolio's net asset value or net income. The
Portfolios do not intend to seek profits through short term trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
42
<PAGE>
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, 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 a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by 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 a Portfolio is
concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which 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 a Portfolio.
43
<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,
1998, the following portfolios held the following securities:
Portfolio Security Value
- --------- -------- -----
Money Market Bear Stearns Companies $65,000,808
Corporate Obligations
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each class of the Portfolios at $1.00 per share. Net asset value
per share, the value of an individual share in a Portfolio, is computed by
adding the value of the proportionate interest of a class in the Portfolio's
cash, securities and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of the class. The net asset value of each class of the Fund is calculated
independently of the other classes of the Fund. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
liabilities. The net asset value per share of each class is computed twice each
day, as of 12:00 noon (Eastern Time) and as of the close of regular trading on
the NYSE (generally 4:00 p.m. Eastern Time), on each Business Day. "Business
44
<PAGE>
Day" means each day, Monday through Friday, when both the NYSE and the Federal
Reserve Bank of Philadelphia (the "FRB") are open. Currently, the NYSE is closed
weekends and on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day and the preceding Friday and subsequent Monday when one of
these holidays falls on a Saturday or Sunday. The FRB is currently closed on
weekends and the same holidays as the NYSE as well as Columbus Day and Veterans'
Day.
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will
limit portfolio investments, including repurchase agreements (where permitted),
to those 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.
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
45
<PAGE>
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are
computed using standardized methods required by the SEC. The annualized yields
for a Portfolio are computed by: (a) determining the net change in the value of
a hypothetical account having a balance of one share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
Total return and yield may fluctuate daily and do not provide
a basis for determining future returns and yields. Because the returns and
yields of each Portfolio will fluctuate, they cannot be compared with returns
and yields on savings accounts or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, return
and yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the return and yield of
one money market fund to another, consideration should be given to each fund's
investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the returns and/or yields of a Portfolio may be quoted and
compared to those of other mutual funds with similar investment objectives and
to stock or other relevant indices. For example, the yield of a Portfolio may be
compared to the Donoghue's Money Fund Average, which is an average compiled by
46
<PAGE>
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
Each Portfolio intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that each Portfolio generally
will be relieved of federal income and excise taxes. If a Portfolio were to fail
to so qualify: (1) the Portfolio would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction. For the
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
to pay tax-exempt dividends for any taxable year, at least 50% of the aggregate
value of each such Portfolio's assets at the close of each quarter of the Fund's
taxable year must consist of exempt-interest obligations.
47
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Theta 1 Common Stock, Theta 2 Common Stock,
Theta 3 Common Stock and Theta 4 Common Stock constitute the Theta Classes,
described herein. Under RBB's charter, the Board of Directors has the power to
classify or reclassify any unissued shares of Common Stock from time to time.
48
<PAGE>
The classes of Common Stock have been grouped into fifteen
separate "families": the RBB Family, the Cash Preservation Family, the Sansom
Street Family, the Bedford Family, the Principal (Gamma) Family, the Janney
Montgomery Scott Money Family, the Select (Beta) Family, the Schneider Capital
Management Family, the n/i numeric investors family of funds, the Boston
Partners Family, the Delta Family, the Epsilon Family, the Zeta Family, the Eta
Family and the Theta Family. The RBB Family represents interests in the
Government Securities Portfolio; the Cash Preservation Family represents
interests in the Money Market and Municipal Money Market Portfolios; the Sansom
Street Family represents interests in the Money Market, Municipal Money Market
and Government Obligations Money Market Portfolios; the Bedford Family
represents interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Portfolios; the n/i
numeric investors family of funds represents interests in five non-money market
portfolios; the Boston Partners Family represents interests in five non-money
market portfolios; the Schneider Capital Management Family represents interests
in one non-money market portfolio; the Janney Montgomery Scott Family, the
Select (Beta) Family, the Principal (Gamma) Family and the Delta, Epsilon, Zeta,
Eta and Theta Families represent interests in the Money Market, Municipal Money
Market, Government Obligations Money Market and New York Municipal Money Market
Funds.
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 shares of each portfolio
affected by the matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of each
portfolio in the matter are identical or that the matter does not affect any
interest of the portfolio. Under the Rule the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a portfolio only if approved by the holders of a
majority of the outstanding voting securities of such portfolio. However, the
Rule also provides that the ratification of the selection of independent public
accountants, and the election of directors are not subject to the separate
voting requirements and may be effectively acted upon by shareholders of an
investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, serves as counsel to the
Fund and the non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants.
49
<PAGE>
Control Persons. As of November 16, 1998, 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>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
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, PNC Bank and other institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
BIMC and PNC Bank believe they may perform the services for
the Fund contemplated by their respective agreements with the Fund without
violation of applicable banking laws or regulations. It should be noted,
however, that there have been no cases deciding whether bank and non-bank
subsidiaries of a registered bank holding company may perform services
comparable to those that are to be performed by these companies, and future
changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory 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.
61
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BOSTON PARTNERS LARGE CAP VALUE FUND
(Institutional, Advisor, and Investor Classes)
of
The RBB Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of the Institutional, Advisor and Investor Classes (the
"Shares") representing interests in the Boston Partners Large Cap Value Fund
(the "Fund") of The RBB Fund, Inc. ("RBB"). This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Boston Partners Large Cap Value Fund Prospectuses dated December 29, 1998
(together, the "Prospectuses"). A copy of any of the Prospectuses may be
obtained from RBB by calling toll-free (888) 261-4073. This Statement of
Additional Information is dated December 29, 1998.
CONTENTS
Page
----
General.............................................. 2
Investment Objectives and Policies................... 2
Directors and Officers............................... 9
Investment Advisory, Distribution
and Servicing Arrangements......................... 12
Portfolio Transactions............................... 18
Purchase and Redemption Information.................. 19
Valuation of Shares.................................. 20
Performance Information.............................. 21
Taxes................................................ 23
Additional Information Concerning
RBB Shares......................................... 25
Miscellaneous........................................ 28
Financial Statements................................. 36
Appendix A........................................... A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by RBB or its distributor. The Prospectus does not constitute an offering by the
Fund or by the distributor in any jurisdiction in which such offering may not
lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. ("RBB") is an open-end management investment company
currently operating or proposing to operate seventeen separate investment
portfolios. RBB was organized as a Maryland corporation on February 29, 1988.
The Institutional Shares of the Fund were first issued on January 2, 1997. The
Investor Shares of the Fund were first issued on January 16, 1997. As of the
date of this Statement of Additional Information, no Advisor Shares have been
issued.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Fund.
Additional Information on Fund Investments.
Lending of Fund Securities. The Fund may lend its portfolio securities to
financial institutions in accordance with the investment restrictions described
below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the Fund's
investment adviser to be of good standing and only when, in the Adviser's
judgment, the income to be earned from the loans justifies the attendant risks.
Any loans of the Fund's securities will be fully collateralized and marked to
market daily.
Indexed Securities. The Fund may invest in indexed securities whose value
is linked to securities indices. Most such securities have values which rise and
fall according to the change in one or more specified indices, and may have
characteristics similar to direct investments in the underlying securities. The
Fund does not presently intend to invest more than 5% of net assets in indexed
securities.
Convertible Securities. The Fund may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common stocks
of the same or similar issuers. Convertible securities rank senior to common
-2-
<PAGE>
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. While no securities investment is
completely without risk, investments in convertible securities generally entail
less risk than the corporation's common stock, although the extent to which such
risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed-income characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed-income security.
A convertible security might be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security, convert
it into the underlying common stock or sell it to a third party. The Fund does
not presently intend to invest more than 5% of net assets in convertible
securities.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
The financial institutions with whom the Fund may enter into repurchase
agreements will be banks which the Adviser considers creditworthy pursuant to
criteria approved by the Board of Directors and non-bank dealers of U.S.
Government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers. The Adviser will consider the creditworthiness of a
seller in determining whether to have the Fund enter into a repurchase
agreement. The seller under a repurchase agreement will be required to maintain
the value of the securities subject to the agreement at not less than the
repurchase price plus accrued interest. The Adviser will mark to market daily
the value of the securities, and will, if necessary, require
-3-
<PAGE>
the seller to maintain additional securities, to ensure that the value is
not less than the repurchase price. Default by or bankruptcy of the seller
would, however, expose the Fund to possible loss because of adverse market
action or delays in connection with the disposition of the underlying
obligations.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may enter into
reverse repurchase agreements with respect to portfolio securities for temporary
purposes (such as to obtain cash to meet redemption requests) when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the Adviser. Reverse repurchase agreements involve the sale of securities held
by the Fund pursuant to the Fund's agreement to repurchase the securities at an
agreed-upon price, date and rate of interest. Such agreements are considered to
be borrowings under the Investment Company Act of 1940, as amended (the "1940
Act"), and may be entered into only for temporary or emergency purposes. While
reverse repurchase transactions are outstanding, the Fund will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash
or liquid securities of an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement and will monitor the
account to ensure that such value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the price of the securities the Fund is obligated to repurchase.
The Fund may also enter into "dollar rolls," in which it sells fixed-income
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, the Fund would forgo principal
and interest paid on such securities. The Fund would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale. The Fund does not presently intend to engage in reverse repurchase or
dollar roll transactions involving more than 5% of the Fund's net assets.
U.S. Government Obligations. The Fund may purchase U.S. Government agency
and instrumentality obligations that are debt securities issued by U.S.
Government-sponsored enterprises and federal agencies. Some obligations of
agencies and instrumentalities of the U.S. Government are supported by the full
faith and credit of the U.S. Government or by U.S. Treasury guarantees, such as
securities of the Government National Mortgage Association and the Federal
Housing Authority; others, by the ability of the issuer to borrow, provided
approval is granted, from the U.S. Treasury, such as securities of the Federal
Home Loan Mortgage Corporation and others, only by the credit of the agency or
instrumentality issuing the obligation, such as securities of the Federal
National Mortgage Association and the Federal Loan Banks.
The Fund's net assets may be invested in obligations issued or guaranteed
by the U.S. Treasury or the agencies or instrumentalities of the U.S.
Government, including options and futures on such obligations. The maturities of
U.S. Government securities usually range from three months to thirty years.
Examples of types of U.S. Government obligations include U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage
-4-
<PAGE>
Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the Maritime Administration, the
Asian-American Development Bank and the Inter-American Development Bank. The
Fund does not presently intend to invest more than 5% of net assets in U.S.
Government obligations.
Illiquid Securities. The Fund may not invest more than 15% of its net
assets in illiquid securities (including repurchase agreements that have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. With respect to the Fund, repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Mutual funds do not typically hold a significant amount of restricted or
other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Fund may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Fund's adviser that an
adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Fund during
any period that qualified institutional buyers become uninterested in purchasing
restricted securities.
The Adviser will monitor the liquidity of restricted securities in the Fund
under the supervision of the Board of Directors. In reaching liquidity
decisions, the Adviser may consider, among others, the following factors: (1)
the unregistered nature of the security; (2) the frequency of trades and quotes
for the security; (3) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (4) dealer undertakings
to make a market in the security; and (5) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
Hedging Investments. At such times as the Adviser deems it appropriate and
consistent with the investment objective of the Fund, the Fund may invest in
financial futures contracts and options on financial futures contracts. The
purpose of such transactions is to hedge against changes in the market value of
securities in the Fund caused by fluctuating interest rates, and to close out or
offset its existing positions in such futures contracts or options as described
-5-
<PAGE>
below. Such instruments will not be used for speculation. Futures contracts and
options on futures contracts are discussed below.
Futures Contracts. The Fund may invest in financial futures contracts with
respect to those securities listed on the S&P 500 Stock Index. Financial futures
contracts obligate the seller to deliver a specific type of security called for
in the contract, at a specified future time, and for a specified price.
Financial futures contracts may be satisfied by actual delivery of the
securities or, more typically, by entering into an offsetting transaction. There
are risks that are associated with the use of futures contracts for hedging
purposes. In certain market conditions, as in a rising interest rate
environment, sales of futures contracts may not completely offset a decline in
value of the portfolio securities against which the futures contracts are being
sold. In the futures market, it may not always be possible to execute a buy or
sell order at the desired price, or to close out an open position due to market
conditions, limits on open positions, and/or daily price fluctuations. Risks in
the use of futures contracts also result from the possibility that changes in
the market interest rates may differ substantially from the changes anticipated
by the Fund's investment adviser when hedge positions were established. The Fund
does not presently intend to invest more than 5% of net assets in futures
contracts.
Options on Futures. The Fund may purchase and write call and put options on
futures contracts with respect to those securities listed on the S&P 500 Stock
Index and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract. The Fund may use options on futures contracts in connection
with hedging strategies. The purchase of put options on futures contracts is a
means of hedging against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of hedging against a market advance when
the Fund is not fully invested.
There is no assurance that the Fund will be able to close out its financial
futures positions at any time, in which case it would be required to maintain
the margin deposits on the contract. There can be no assurance that hedging
transactions will be successful, as there may be imperfect correlations (or no
correlations) between movements in the prices of the futures contracts and of
the securities being hedged, or price distortions due to market conditions in
the futures markets. Such imperfect correlations could have an impact on the
Fund's ability to effectively hedge its securities. The Fund does not presently
intend to invest more than 5% of net assets in options on futures.
Bank and Corporate Obligations. The Fund may purchase obligations of
issuers in the banking industry, such as short-term obligations of bank holding
companies, certificates of deposit, bankers' acceptances and time deposits
issued by U.S. or foreign banks or savings institutions having total assets at
the time of purchase in excess of $1 billion. Investment in obligations of
foreign banks or foreign branches of U.S. banks may entail risks that are
different from those of investments in obligations of U.S. banks due to
differences in political, regulatory and economic systems and conditions. The
Fund may also make interest-bearing savings deposits in commercial and savings
banks in amounts not in excess of 5% of its total assets.
-6-
<PAGE>
The Fund may invest in debt obligations, such as bonds and debentures,
issued by corporations and other business organizations that are rated at the
time of purchase within the three highest ratings categories of S&P or Moody's
(or which, if unrated, are determined by the Adviser to be of comparable
quality). Unrated securities will be determined to be of comparable quality to
rated debt obligations if, among other things, other outstanding obligations of
the issuers of such securities are rated A or better. See Appendix "A" for a
description of corporate debt ratings.
Commercial Paper. The Fund may purchase commercial paper rated (at the time
of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed advisable by
the Fund's investment adviser, issues rated "A-2" or "Prime-2" by S&P or Moody's
respectively. These rating symbols are described in Appendix "A" hereto. The
Fund may also purchase unrated commercial paper provided that such paper is
determined to be of comparable quality by the Fund's investment adviser pursuant
to guidelines approved by the Fund's Board of Directors. Commercial paper issues
in which the Fund may invest include securities issued by corporations without
registration under the Securities Act of 1933, as amended (the "Securities Act")
in reliance on the exemption from such registration afforded by Section 3(a)(3)
thereof, and commercial paper issued in reliance on the so-called "private
placement" exemption from registration which is afforded by Section 4(2) of the
Securities Act ("Section 4(2) paper"). Section 4(2) paper is restricted as to
disposition under the federal securities laws in that any resale must similarly
be made in an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors through or with the assistance of investment dealers who
make a market in Section 4(2) paper, thus providing liquidity. The Fund does not
presently intend to invest more than 5% of its net assets in commercial paper.
Foreign Securities. The Fund may invest in foreign securities, either
directly or indirectly through American Depository Receipts and European
Depository Receipts. Investments in foreign securities involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity and political stability. Future political and economic information,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls, or the adoption of other governmental restrictions, might
adversely affect the payment of principal and interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as the price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which the Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of the Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar may have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of the Fund's
securities in foreign markets. In addition to favorable and unfavorable currency
-7-
<PAGE>
exchange rate developments, the Fund is subject to the possible imposition of
exchange control regulations or freezes on convertibility of currency.
Investment Limitations.
RBB has adopted the following fundamental investment limitations which may
not be changed without the affirmative vote of the holders of a majority of the
Fund's outstanding Shares (as defined in Section 2(a)(42) of the Investment
Company Act). The Fund may not:
1. Borrow money, except from banks, and only if after such borrowing there
is asset coverage of at least 300% for all borrowings of the Fund; or mortgage,
pledge or hypothecate any of its assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 33 1/3% of the value of the Fund's total assets at the time of such
borrowing; (For purposes of this Limitation No. 1, any collateral arrangements,
if applicable, with respect to the writing of options, futures contracts and
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets.)
2. Issue any senior securities, except as permitted under the 1940 Act;
(For purposes of this Limitation No. 2, neither the collateral arrangements with
respect to options and futures identified in Limitation No. 1, nor the purchase
or sale of futures or related options, are deemed to be the issuance of senior
securities.)
3. Act as an underwriter of securities within the meaning of the Securities
Act except insofar as it might be deemed to be an underwriter upon disposition
of certain portfolio securities acquired within the limitation on purchases of
restricted securities;
4. Purchase or sell real estate (including real estate limited partnership
interests), provided that the Fund may invest (a) in securities secured by real
estate or interests therein or issued by companies that invest in real estate or
interests therein or (b) in real estate investment trusts;
5. Purchase or sell commodities or commodity contracts, except that a Fund
may deal in forward foreign exchange between currencies of the different
countries in which it may invest and purchase and sell stock index and currency
options, stock index futures, financial futures and currency futures contracts
and related options on such futures;
6. Make loans, except through loans of portfolio instruments and repurchase
agreements, provided that for purposes of this restriction the acquisition of
bonds, debentures or other debt instruments or interests therein and investment
in government obligations, loan participations and assignments, short-term
commercial paper, certificates of deposit and bankers' acceptances shall not be
deemed to be the making of a loan;
-8-
<PAGE>
7. Invest 25% or more of its assets, taken at market value at the time of
each investment, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities); or
8. Purchase the securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase more than 5% of the value of
the Fund's total assets would be invested in the securities of such issuer, or
more than 10% of the outstanding voting securities of such issuer would be owned
by the Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
The Fund may invest in securities issued by other investment companies
within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, the Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations.
Securities held by the Fund generally may not be purchased from, sold or
loaned to the Adviser or its affiliates or any of their directors, officers or
employees, acting as principal, unless pursuant to a rule or exemptive order
under the 1940 Act.
-9-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning Communities,
1345 Chestnut Street Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ----------------------
* Each of Mr. Sablowsky and Mr. Reichman is an "interested person" of RBB, as
that term is defined in the 1940 Act, by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to RBB the firm to be selected as independent
auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of RBB when the Board of Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of RBB.
RBB pays directors $12,000 annually and $1,250 per meeting of the Board or
any committee thereof that is not held in conjunction with a Board meeting. In
addition, the Chairman of the Board receives an additional fee of $6,000 per
year for his services in this capacity. Directors are reimbursed for any
expenses incurred in attending meetings of the Board of Directors or any
committee thereof.
-11-
<PAGE>
For the year ended August 31, 1998, each of the following members of the Board
of Directors received compensation from RBB in the following amounts:
Directors' Compensation
Pension or
Retirement Estimated
Aggregate Benefits Annual
Compensation Accrued as Benefits
Name of Person/ from Part of Fund Upon
Position Registrant Expenses Retirement
- -------- ---------- -------- ----------
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
On October 24, 1990 RBB adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
RBB will contribute on a quarterly basis amounts equal to 10% of the quarterly
compensation of each eligible employee. By virtue of the services performed by
RBB's advisers, custodians, administrators and distributor, RBB itself requires
only one part-time employee. Drinker Biddle & Reath LLP, of which Mr. Jones is
a partner, receives legal fees as counsel to RBB. No officer, director or
employee of Boston Partners Asset Management, L.P. ("Boston Partners" or the
"Adviser") or the Distributor currently receives any compensation from RBB.
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
Advisory Agreement. Boston Partners renders advisory services to the Fund
pursuant to an Investment Advisory Agreement dated October 16, 1996 (the
"Advisory Agreement"). Boston Partners' general partner is Boston Partners, Inc.
-12-
<PAGE>
Boston Partners has investment discretion for the Fund and will make all
decisions affecting assets in the Fund under the supervision of RBB's Board of
Directors and in accordance with the Fund's stated policies. Boston Partners
will select investments for the Fund. For its services to the Fund, Boston
Partners is entitled to receive a monthly advisory fee under the Advisory
Agreement computed at an annual rate of 0.75% of the Fund's average daily net
assets.
For the fiscal year ended August 31, 1998, the Fund paid Boston Partners
advisory fees as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Boston Partners
Large Cap Value Fund $250,634 $112,482 $0
For the fiscal period ended August 31, 1997, the Fund paid Boston Partners
advisory fees as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Boston Partners
Large Cap Value Fund $5,635 $57,752 $26,104
Each class of the Fund bears its own expenses not specifically assumed by
Boston Partners. General expenses of RBB not readily identifiable as belonging
to a portfolio of RBB are allocated among all investment portfolios by or under
the direction of RBB's Board of Directors in such manner as the Board determines
to be fair and equitable. Expenses borne by a portfolio include, but are not
limited to, the following (or a portfolio's share of the following): (a) the
cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by Boston Partners; (c) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against RBB or a portfolio for violation of any law; (d)
any extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment
-13-
<PAGE>
company literature and other publications provided by RBB to its directors
and officers; (g) organizational costs; (h) fees to the investment adviser and
PFPC; (i) fees and expenses of officers and directors who are not affiliated
with a portfolios' investment adviser or Distributor; (j) taxes; (k) interest;
(l) legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Fund and its shares for distribution under federal and state securities
laws; (q) expenses of preparing prospectuses and statements of additional
information and distributing annually to existing shareholders that are not
attributable to a particular class of shares of RBB; (r) the expense of reports
to shareholders, shareholders' meetings and proxy solicitations that are not
attributable to a particular class of shares of RBB; (s) fidelity bond and
directors' and officers' liability insurance premiums; (t) the expense of using
independent pricing services; and (u) other expenses which are not expressly
assumed by a portfolio's investment adviser under its advisory agreement with
the portfolio. Each class of the Fund pays its own distribution fees, if
applicable, and may pay a different share than other classes of other expenses
(excluding advisory and custodial fees) if those expenses are actually incurred
in a different amount by such class or if it receives different services.
Under the Advisory Agreement, Boston Partners will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or RBB
in connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Boston Partners in the performance of its respective duties or from reckless
disregard of its duties and obligations thereunder.
The Advisory Agreement was most recently approved on July 29, 1998 by vote
of RBB's Board of Directors, including a majority of those directors who are not
parties to the Advisory Agreement or interested persons (as defined in the 1940
Act) of such parties. The Advisory Agreement was approved by the initial
shareholder of each class of the Fund. The Advisory Agreement is terminable by
vote of RBB's Board of Directors or by the holders of a majority of the
outstanding voting securities of the Fund, at any time without penalty, on 60
days' written notice to Boston Partners. The Advisory Agreement may also be
terminated by Boston Partners on 60 days' written notice to RBB. The Advisory
Agreement terminates automatically in the event of its assignment.
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Fund (b) holds and
transfers portfolio securities on account of the Fund, (c) accepts receipts and
makes disbursements of money on behalf of the Fund, (d) collects and receives
all income and other payments and distributions on account of the Fund's
portfolio securities and (e) makes periodic reports to RBB's Board of Directors
concerning the Fund's operations. PNC Bank is authorized to select one or more
banks or trust companies to serve as sub-custodian on behalf of the Fund,
provided that PNC Bank remains responsible for the performance of all of its
duties under the Custodian Agreement and holds the Fund harmless from the acts
and omissions of any sub-custodian. For its services to the Fund under the
Custodian Agreement, PNC Bank receives a fee, which is calculated based upon the
Fund's average
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<PAGE>
daily gross assets as follows: $.18 per $1,000 on the first $100 million of
average daily gross assets; $.15 per $1,000 on the next $400 million of average
daily gross assets; $.125 per $1,000 on the next $500 million of average daily
gross assets; and $.10 per $1,000 on average daily gross assets over $1 billion,
exclusive of transaction charges and out-of-pocket expenses, which are also
charged to the Fund.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund pursuant to a Transfer Agency Agreement
dated November 5, 1991, as supplemented (the "Transfer Agency Agreement"), under
which PFPC (a) issues and redeems shares of the Fund, (b) addresses and mails
all communications by the Fund to record owners of the Shares, including reports
to shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to RBB's Board of Directors
concerning the operations of the Fund. PFPC may, on 30 days' notice to RBB,
assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $10 per account in
the Fund, exclusive of out-of-pocket expenses, and also receives reimbursement
of its out-of-pocket expenses.
Administration Agreement. PFPC serves as administrator to the Fund pursuant
to an Administration and Accounting Services Agreement dated October 16, 1996,
(the "Administration Agreement"). PFPC has agreed to furnish to the Fund
statistical and research data, clerical, accounting and bookkeeping services,
and certain other services required by the Fund. In addition, PFPC has agreed to
prepare and file various reports with the appropriate regulatory agencies and
prepare materials required by the SEC or any state securities commission having
jurisdiction over the Fund. For its services to the Fund, PFPC is entitled to
receive a fee calculated at an annual rate of .125% of the Fund's average daily
net assets, with a minimum annual fee of $75,000 payable monthly on a pro rata
basis. PFPC is currently waiving one-half of its minimum annual fee.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Boston Partners
Large Cap Value Fund $55,792 $22,142 $0
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<PAGE>
For the period ended August 31, 1997, the Fund paid PFPC administration
fees as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Boston Partners
Large Cap Value Fund $25,000 $25,000 $0
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by RBB or the Fund in
connection with the performance of the agreement, except a loss resulting from
willful misfeasance, gross negligence or reckless disregard by it of its duties
and obligations thereunder.
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, (the "Distribution Agreement"), entered into by the
Distributor and RBB on behalf of the Institutional, Investor and Advisor
Classes, and Plans of Distribution, as amended, for the Investor and Advisor
Classes (together, the "Plans"), which were adopted by RBB in the manner
prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to solicit orders for the sale of Fund Shares. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution Agreement, a distribution fee under the Plans,
to be calculated daily and paid monthly by the Investor and Advisor Class, at
the annual rate set forth in the Prospectus.
For the period May 29, 1998 through August 31, 1998, the Fund paid the
Distributor fees as follows:
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
Boston Partners
Large Cap Value Fund
(Investor) $3,387 $22 $0
For the period September 1, 1997 through May 29, 1998, both the
Institutional Class and Investor Class of the Fund paid the Fund's previous
distributor, Counsellors Securities, Inc. ("Counsellors"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
address of 466 Lexington Avenue, New York, New York 10071, distribution fees as
follows:
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<PAGE>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
Boston Partners
Large Cap Value Fund
(Institutional) $10,283 $28,278 $0
Boston Partners
Large Cap Value Fund
(Investor) $878 $1,317 $0
For the period ended August 31, 1997, the Fund paid Counsellors fees as
follows:
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
Boston Partners
Large Cap Value Fund $3,325 $0 $0
(Institutional)
Boston Partners
Large Cap Value Fund $155 $0 $0
(Investor)
On October 16, 1996, the Plans were approved by RBB's Board of Directors,
including the directors who are not "interested persons" of RBB and who have no
direct or indirect financial interest in the operation of the Plans or any
agreements related to the Plans ("12b-1 Directors"). RBB believes that the Plans
may benefit the Fund by increasing sales of Fund Shares.
Among other things, the Plans provide that: (1) the Distributor shall be
required to submit quarterly reports to the directors of RBB regarding all
amounts expended under the Plans and the purposes for which such expenditures
were made, including commissions, advertising, printing, interest, carrying
charges and any allocated overhead expenses; (2) the Plans will continue in
effect only so long as they are approved at least annually, and any material
amendment thereto is approved, by RBB's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Investor and Advisor Classes under the Plans shall not be
materially increased without shareholder approval; and (4) while the Plans
remain in effect, the selection and nomination of RBB's directors who are not
"interested persons" of RBB (as
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<PAGE>
defined in the 1940 Act) shall be committed to the discretion of such
directors who are not "interested persons" of RBB.
Each of Mr. Sablowsky and Mr. Reichman, directors of RBB, had an indirect
interest in the operation of the Plans by virtue of his position with Fahnestock
Co., Inc. and Counsellors Securities, Inc., respectively, each a broker-dealer.
Administrative Services Agent
Provident Distributors, Inc. ("PDI") provides certain administrative
services to the Institutional Class of the Fund that are not provided by PFPC,
pursuant to an Administrative Services Agreement, dated May 29, 1998, between
RBB and PDI. These services include furnishing data processing and clerical
services, acting as liaison between the Funds and various service providers and
coordinating the preparation of annual, semi-annual and quarterly reports. As
compensation for such administrative services, PDI is entitled to a monthly fee
calculated at the annual rate of .15% of each Fund's average daily net assets.
PDI is currently waiving fees in excess of .03% of each fund's average daily net
assets. For the period May 29, 1998 through August 31, 1998, the Institutional
Class of the Fund paid PDI $24,042 in administrative services fees, and PDI
waived $6,662.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors, Boston Partners
is responsible for the execution of portfolio transactions and the allocation of
brokerage transactions for the Fund. In purchasing or selling portfolio
securities, Boston Partners will seek to obtain the best net price and the most
favorable execution of orders. To the extent that the execution and price
offered by more than one broker/dealer are comparable, the Adviser may effect
transactions in portfolio securities with broker/dealers who provide research,
advice or other services such as market investment literature.
For the fiscal year ended August 31, 1998, the Fund paid brokerage
commissions aggregating $165,408.
For the fiscal year ended August 31, 1998, the Fund paid commissions in the
aggregate amount of $0 to brokers on account of research services on
transactions in the aggregate amount of $0.
RBB is required to identify securities of its "regular brokers or dealers"
that the Fund has acquired during the most recent fiscal period. At August 31,
1998, the Fund held the following securities of RBB's regular brokers or
dealers:
SECURITY AMOUNT
-------- ------
Bear Stearns Companies, Inc. $487,575
(Common Stock)
Lehman Brothers Holdings, Inc. $145,688
(Common Stock)
Morgan Stanley, Dean Witter & Co. $574,819
(Common Stock)
Investment decisions for the Fund and for other investment accounts managed
by Boston Partners are made independently of each other in the light of
differing conditions.
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<PAGE>
However, the same investment decision may be made for two or more of such
accounts. In such cases, simultaneous transactions are inevitable. Purchases or
sales are then averaged as to price and allocated as to amount according to a
formula deemed equitable to each such account. While in some cases this practice
could have a detrimental effect upon the price or value of the security as far
as the Fund is concerned, in other cases it is believed to be beneficial to the
Fund.
The Fund expects that its annual portfolio turnover rate will not exceed
100%. A high rate (100% or more) of portfolio turnover involves correspondingly
greater brokerage commissions expenses and other transaction costs that must be
borne directly by the Fund. The Fund anticipates that its annual portfolio
turnover rate will vary from year to year. The portfolio turnover rate is
calculated by dividing the lesser of a portfolio's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year.
PURCHASE AND REDEMPTION INFORMATION
RBB reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the Fund's
shares by making payment in whole or in part in securities chosen by RBB and
valued in the same way as they would be valued for purposes of computing the
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. RBB has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that the
Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of the Fund.
Under the 1940 Act, RBB may suspend the right to redemption or postpone the
date of payment upon redemption for any period during which the New York Stock
Exchange, Inc. (the "NYSE") is closed (other than customary weekend and holiday
closings), or during which trading on the NYSE is restricted, or during which
(as determined by the SEC by rule or regulation) an emergency exists as a result
of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (RBB may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
The computation of the hypothetical offering price per share of an
Institutional and Investor Share of the Fund based on the value of the Fund's
net assets on August 31, 1998 and the Fund's Institutional and Investor Shares
outstanding on such date is as follows:
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<PAGE>
Boston Partners Large Cap Value Fund
Institutional Shares Investor Shares
-------------------- ---------------
Net Assets.......................... $50,723,586 $6,149,890
Outstanding Shares.................. 4,794,078 574,895
Net Asset Value per Share........... $10.58 $10.70
Maximum Sales Charge................ N/A N/A
Maximum Offering Price to Public.... $10.58 $10.70
On August 31, 1998, no Advisor Shares were issued and outstanding.
VALUATION OF SHARES
The net asset values per share of each class of the Fund are calculated as
of the close of the NYSE, generally 4:00 p.m. Eastern Time on each Business Day.
"Business Day" means each weekday when the NYSE is open. Currently, the NYSE is
closed on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday. Net asset value per share, the value of
an individual share in a fund, is computed by adding the value of the
proportionate interest of each class in a Fund's securities, cash and other
assets, subtracting the actual and accrued liabilities of the class and dividing
the result by the number of outstanding shares of the class. The net asset
values of each class are calculated independently of the other classes.
Securities that are listed on stock exchanges are valued at the last sale price
on the day the securities are valued or, lacking any sales on such day, at the
mean of the bid and asked prices available prior to the evaluation. In cases
where securities are traded on more than one exchange, the securities are
generally valued on the exchange designated by the Board of Directors as the
primary market. Securities traded in the over-the-counter market and listed on
the National Association of Securities Dealers Automatic Quotation System
("NASDAQ") are valued at the last trade price listed on the NASDAQ at the close
of regular trading (generally 4:00 p.m. Eastern Time); securities listed on
NASDAQ for which there were no sales on that day and other over-the-counter
securities are valued at the mean of the bid and asked prices available prior to
valuation. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
RBB's Board of Directors. The amortized cost method of valuation may also be
used with respect to debt obligations with sixty days or less remaining to
maturity.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current
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<PAGE>
payables are carried on the Fund's books at their face value. Other assets,
if any, are valued at fair value as determined in good faith by RBB's Board of
Directors.
PERFORMANCE INFORMATION
Total Return. The Fund may from time to time advertise its "average annual
total return." The Fund computes such return separately for each class of shares
by determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where : T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
The Fund, when advertising its "aggregate total return," computes such
returns separately for each class of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - 1]
P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Calculated according to the SEC Rules, the average annual total return for
the Fund was as follows:
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<PAGE>
Average
Fund Return
---- ------
For the fiscal year ended August 31, 1998.
Large Cap Value Fund - Institutional 6.97%
Large Cap Value Fund - 5.75%
For the period ended August 31, 1997.*
Large Cap Value Fund - Institutional 24.60%
Large Cap Value Fund - Investor 22.06%
Calculated according to the above formula, the aggregate total return for the
Fund was as follows:
Average
Fund Return
---- ------
For the fiscal year ended August 31, 1998.
Large Cap Value Fund - Institutional 11.85%
Large Cap Value Fund - Investor 9.51%
For the period ended August 31, 1997.*
Large Cap Value Fund - Institutional 24.60%
Large Cap Value Fund - Investor 22.06%
*The Institutional Class commenced operations on January 2, 1997 and the
Investor Class commenced operations on January 16, 1997.
Investors should note that the total return figures are based
on historical earnings and are not intended to indicate future performance.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Investors
are urged to consult their tax advisers with specific reference to their own tax
situation.
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<PAGE>
The Fund has elected to be taxed as a regulated investment company under
Part I of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is exempt from federal
income tax on its net investment income and realized capital gains that it
distributes to shareholders, provided that it distributes an amount equal to the
sum of (a) at least 90% of its investment company taxable income (net taxable
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any, for the year) and (b) at least 90% of its net
tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income made during
the taxable year or, under specified circumstances, within twelve months after
the close of the taxable year will satisfy the Distribution Requirement.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of the
Fund's total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses (the "Asset Diversification
Requirement").
Distributions of investment company taxable income will be taxable (subject
to the possible allowance of the dividend received deduction described below) to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in shares. Shareholders receiving any
distribution from the Fund in the form of additional shares will be treated as
receiving a taxable distribution in an amount equal to the fair market value of
the shares received, determined as of the reinvestment date.
The Fund intends to distribute to shareholders its net capital gain (excess
of net long-term capital gain over net short-term capital loss), if any, for
each taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as long-term capital gain, regardless of the length of
time the shareholder has held his shares, whether such gain was recognized by
the Fund prior to the date on which a shareholder acquired shares of the Fund
and whether the distribution was paid in cash or reinvested in shares. The
aggregate amount of distributions designated by the Fund as capital gain
dividends may not exceed the net capital gain of the Fund for any taxable year,
determined by excluding any net capital loss or net long-term capital loss
attributable to transactions occurring after October 31 of such year and by
treating any such loss as if it arose on the first day of the following taxable
year. Such distributions will be designated as capital gain dividends in a
written notice mailed by the Fund to shareholders not later than 60 days after
the close of the Fund's taxable year.
In the case of corporate shareholders, distributions (other than capital
gain dividends) of the Fund for any taxable year generally qualify for the
dividends received
-23-
<PAGE>
deduction to the extent of the gross amount of "qualifying dividends"
received by the Fund for the year. Generally, a dividend will be treated as a
"qualifying dividend" if it has been received from a domestic corporation.
Distributions of net investment income received by the Fund from investments in
debt securities will be taxable to shareholders as ordinary income and will not
be treated as "qualifying dividends" for purposes of the dividends received
deduction. The Fund will designate the portion, if any, of the distribution made
by the Fund that qualifies for the dividends received deduction in a written
notice mailed by the Fund to shareholders not later than 60 days after the close
of the Fund's taxable year.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions will be
eligible for the dividends received deduction in the case of corporate
shareholders. Investors should be aware that any loss realized on a sale of
shares of the Fund will be disallowed to the extent an investor repurchases
shares of the Fund within a period of 61 days (beginning 30 days before and
ending 30 days after the day of disposition of the shares). Dividends paid by
the Fund in the form of shares within the 61-day period would be treated as a
purchase for this purpose.
A shareholder will recognize gain or loss upon a redemption of shares or an
exchange of shares of the Fund for shares of another Boston Partners Fund upon
exercise of the exchange privilege, to the extent of any difference between the
price at which the shares are redeemed or exchanged and the price or prices at
which the shares were originally purchased for cash.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that do not distribute with respect to each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the 1-year period ending on October 31 of such
calendar year. The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. Investors should note that the Fund may in certain
circumstances be required to liquidate investments in order to make sufficient
distributions to avoid excise tax liability.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (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
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<PAGE>
significantly change the conclusions expressed herein, and any such changes
or decisions may have a retroactive effect with respect to the transactions
contemplated herein.
Although the Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, the Fund may be subject
to the tax laws of such states or localities.
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<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Classes QQ, RR, and SS Common Stock
constitute the Boston Partners Large Cap Value Fund, described herein. Under
RBB's charter, the Board of Directors has the power to classify or reclassify
any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interest in the Money Market,
Municipal Money Market Funds; the Sansom Street Family represents interests in
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
RBB does not currently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. RBB's amended
By-Laws provide that shareholders owning at least ten percent of the outstanding
shares of all classes of Common Stock of RBB have the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, RBB will assist in shareholder communication in such
matters.
As stated in the Prospectus, holders of shares of each class of the Fund
will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular portfolio. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted by the provisions of
the 1940 Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment
-27-
<PAGE>
company such as the Fund shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding voting
securities, as defined in the 1940 Act, of each portfolio affected by the
matter. Rule 18f-2 further provides that a portfolio shall be deemed to be
affected by a matter unless it is clear that the interests of each portfolio in
the matter are identical or that the matter does not affect any interest of the
portfolio. Under Rule 18f-2, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by the holders of a majority of the
outstanding voting securities, as defined in the 1940 Act, of such portfolio.
However, Rule 18f-2 also provides that the ratification of the selection of
independent public accountants and the election of directors are not subject to
the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of RBB's common stock (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law or by RBB's Articles
of Incorporation, RBB may take or authorize such action upon the favorable vote
of the holders of more than 50% of all of the outstanding shares of Common Stock
entitled to vote on the matter voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, serves as counsel to RBB and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as RBB's independent
accountants.
Control Persons. As of November 16, 1998, to RBB's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of each class of RBB indicated below. See
"Additional Information Concerning RBB Shares" above. RBB does not know whether
such persons also beneficially own such shares.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
As of the above date, directors and officers as a group owned less than one
percent of the shares of RBB.
-28-
<PAGE>
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal period ended August 31, 1998 has
been filed with the Securities and Exchange Commission. The financial statements
in such Annual Report are incorporated herein by reference into this Statement
of Additional Information. The financial statements included in the Annual
Report for the Fund for the fiscal period ended August 31, 1998 have been
audited by RBB's independent accountants, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), whose report thereon also appears and is
incorporated herein by reference. No other portions of the Annual Report are
incorporated herein by reference. The financial statements in such Annual Report
have been incorporated herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. Copies of the
Annual Report may be obtained by calling toll-free (888) 261-4073.
-29-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
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The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are 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
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A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BOSTON PARTNERS MID CAP VALUE FUND
(Institutional and Investor Classes)
of
The RBB Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of the Investor and Institutional Classes (the "Shares")
representing interests in the Boston Partners Mid Cap Value Fund (the "Fund") of
The RBB Fund, Inc. ("RBB"). This Statement of Additional Information is not a
prospectus, and should be read only in conjunction with the Boston Partners Mid
Cap Value Fund Prospectuses, dated December 29, 1998 (together, the
"Prospectuses"). A copy of any of the Prospectuses may be obtained from RBB by
calling toll-free (888) 261-4073. This Statement of Additional Information is
dated December 29, 1998.
CONTENTS
Page
----
General............................................................ 2
Investment Objectives and Policies................................. 2
Directors and Officers............................................. 8
Investment Advisory, Distribution
and Servicing Arrangements....................................... 11
Portfolio Transactions............................................. 17
Purchase and Redemption Information................................ 18
Valuation of Shares................................................ 18
Performance Information............................................ 19
Taxes.............................................................. 21
Additional Information Concerning
RBB Shares...................................................... 23
Miscellaneous...................................................... 27
Financial Statements............................................... 35
Appendix A......................................................... A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by RBB or its distributor. The Prospectus does not constitute an offering by the
Fund or by the distributor in any jurisdiction in which such offering may not
lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. ("RBB") is an open-end management investment company
currently operating or proposing to operate seventeen separate investment
portfolios. RBB was organized as a Maryland corporation on February 29, 1988.
The Institutional and Investor Shares of the Fund were first issued on June 2,
1997.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Fund.
Additional Information on Fund Investments.
Lending of Fund Securities. The Fund may lend its portfolio securities to
financial institutions in accordance with the investment restrictions described
below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the Fund's
investment adviser to be of good standing and only when, in the Adviser's
judgment, the income to be earned from the loans justifies the attendant risks.
Any loans of the Fund's securities will be fully collateralized and marked to
market daily. The Fund does not presently intend to invest more than 5% of net
assets in securities lending.
Indexed Securities. The Fund may invest in indexed securities whose value
is linked to securities indices. Most such securities have values which rise and
fall according to the change in one or more specified indices, and may have
characteristics similar to direct investments in the underlying securities. The
Fund does not presently intend to invest more than 5% of net assets in indexed
securities.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
The financial institutions with whom the Fund may enter into repurchase
agreements will be banks which the Adviser considers creditworthy pursuant to
criteria approved by the Board of Directors and non-bank dealers of U.S.
Government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers. The Adviser will consider the creditworthiness of a
seller in determining whether to have the Fund enter into a repurchase
agreement. The seller under a repurchase agreement will be required to
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<PAGE>
maintain the value of the securities subject to the agreement at not less than
the repurchase price plus accrued interest. The Adviser will mark to market
daily the value of the securities, and will, if necessary, require the seller to
maintain additional securities, to ensure that the value is not less than the
repurchase price. Default by or bankruptcy of the seller would, however, expose
the Fund to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may enter into
reverse repurchase agreements with respect to portfolio securities for temporary
purposes (such as to obtain cash to meet redemption requests) when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the Adviser. Reverse repurchase agreements involve the sale of securities held
by the Fund pursuant to the Fund's agreement to repurchase the securities at an
agreed-upon price, date and rate of interest. Such agreements are considered to
be borrowings under the Investment Company Act of 1940 (the "1940 Act"), and may
be entered into only for temporary or emergency purposes. While reverse
repurchase transactions are outstanding, the Fund will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement and will monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Fund may decline below
the price of the securities the Fund is obligated to repurchase. The Fund may
also enter into "dollar rolls," in which it sells fixed income securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Fund would forgo principal and interest
paid on such securities. The Fund would be compensated by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. The Fund
does not presently intend to engage in reverse repurchase or dollar roll
transactions involving more than 5% of the Fund's net assets.
U.S. Government Obligations. The Fund may purchase U.S. Government agency
and instrumentality obligations that are debt securities issued by U.S.
Government-sponsored enterprises and federal agencies. Some obligations of
agencies and instrumentalities of the U.S. Government are supported by the full
faith and credit of the U.S. Government or by U.S. Treasury guarantees, such as
securities of the Government National Mortgage Association and the Federal
Housing Authority; others, by the ability of the issuer to borrow, provided
approval is granted, from the U.S. Treasury, such as securities of the Federal
Home Loan Mortgage Corporation and others, only by the credit of the agency or
instrumentality issuing the obligation, such as securities of the Federal
National Mortgage Association and the Federal Loan Banks.
The Fund's net assets may be invested in obligations issued or guaranteed
by the U.S. Treasury or the agencies or instrumentalities of the U.S.
Government, including options and futures on such obligations. The maturities of
U.S. Government securities usually range from three months to thirty years.
Examples of types of U.S. Government obligations include U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
-3-
<PAGE>
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, the Asian-American Development Bank and the Inter-American
Development Bank. The Fund does not presently intend to invest more than 5% of
net assets in U.S. Government obligations.
Illiquid Securities. The Fund may not invest more than 15% of its net
assets in illiquid securities (including repurchase agreements that have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. With respect to the Fund, repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Mutual funds do not typically hold a significant amount of restricted or
other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Fund may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Fund's adviser that an
adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Fund during
any period that qualified institutional buyers become uninterested in purchasing
restricted securities.
The Adviser will monitor the liquidity of restricted securities in the Fund
under the supervision of the Board of Directors. In reaching liquidity
decisions, the Adviser may consider, among others, the following factors: (1)
the unregistered nature of the security; (2) the frequency of trades and quotes
for the security; (3) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (4) dealer undertakings
to make a market in the security; and (5) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
Hedging Investments. At such times as the Adviser deems it appropriate and
consistent with the investment objective of the Fund, the Fund may invest in
financial futures contracts and options on financial futures contracts. The
purpose of such transactions is to hedge against changes in the market value of
securities in the Fund caused by fluctuating interest rates
-4-
<PAGE>
and to close out or offset its existing positions in such futures contracts or
options as described below. Such instruments will not be used for speculation.
Futures contracts and options on futures are discussed below.
Futures Contracts. The Fund may invest in financial futures contracts with
respect to those securities listed on the S&P 500 Stock Index. Financial futures
contracts obligate the seller to deliver a specific type of security called for
in the contract, at a specified future time, and for a specified price.
Financial futures contracts may be satisfied by actual delivery of the
securities or, more typically, by entering into an offsetting transaction. There
are risks that are associated with the use of futures contracts for hedging
purposes. In certain market conditions, as in a rising interest rate
environment, sales of futures contracts may not completely offset a decline in
value of the portfolio securities against which the futures contracts are being
sold. In the futures market, it may not always be possible to execute a buy or
sell order at the desired price, or to close out an open position due to market
conditions, limits on open positions, and/or daily price fluctuations. Risks in
the use of futures contracts also result from the possibility that changes in
the market interest rates may differ substantially from the changes anticipated
by the Fund's investment adviser when hedge positions were established. The Fund
does not presently intend to invest more than 5% of net assets in futures
contracts.
Options on Futures. The Fund may purchase and write call and put options on
futures contracts with respect to those securities listed on the S&P 500 Stock
Index and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract. The Fund may use options on futures contracts in connection
with hedging strategies. The purchase of put options on futures contracts is a
means of hedging against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of hedging against a market advance when
the Fund is not fully invested.
There is no assurance that the Fund will be able to close out its financial
futures positions at any time, in which case it would be required to maintain
the margin deposits on the contract. There can be no assurance that hedging
transactions will be successful, as there may be imperfect correlations (or no
correlations) between movements in the prices of the futures contracts and of
the securities being hedged, or price distortions due to market conditions in
the futures markets. Such imperfect correlations could have an impact on the
Fund's ability to effectively hedge its securities. The Fund does not presently
intend to invest more than 5% of net assets in options on futures.
Bank and Corporate Obligations. The Fund may purchase obligations of
issuers in the banking industry, such as short-term obligations of bank holding
companies, certificates of deposit, bankers' acceptances and time deposits
issued by U.S. or foreign banks or savings institutions having total assets at
the time of purchase in excess of $1 billion. Investment in obligations of
foreign banks or foreign branches of U.S. banks may entail risks that are
different from those of investments in obligations of U.S. banks due to
differences in political, regulatory and economic systems and conditions. The
Fund may also make interest-bearing savings deposits in commercial and savings
banks in amounts not in excess of 5% of its total assets.
-5-
<PAGE>
The Fund may invest in debt obligations, such as bonds and debentures,
issued by corporations and other business organizations that are rated at the
time of purchase within the three highest ratings categories of S&P or Moody's
(or which, if unrated, are determined by the Adviser to be of comparable
quality). Unrated securities will be determined to be of the comparable quality
to rated debt obligations if, among other things, other outstanding obligations
of the issuers of such securities are rated A or better. See Appendix "A" for a
description of corporate debt ratings.
Commercial Paper. The Fund may purchase commercial paper rated (at the time
of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed advisable by
the Fund's investment adviser, issues rated "A-2" or "Prime-2" by S&P or
Moody's, respectively. These rating symbols are described in Appendix "A"
hereto. The Fund may also purchase unrated commercial paper provided that such
paper is determined to be of comparable quality by the Fund's investment adviser
pursuant to guidelines approved by the Fund's Board of Directors. Commercial
paper issues in which the Fund may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "Securities Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration, which is afforded
by Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper
is restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. The Fund does not presently intend to invest more than 5% of its net
assets in commercial paper.
Foreign Securities. The Fund may invest in foreign securities, either
directly or indirectly through American Depository Receipts and European
Depository Receipts. Investments in foreign securities involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity and political stability. Future political and economic information,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls, or the adoption of other governmental restrictions, might
adversely affect the payment of principal and interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as the price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which the Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of the Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar may have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of the Fund's
securities in its foreign markets. In addition to favorable and unfavorable
-6-
<PAGE>
currency exchange rate developments, the Fund is subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currency.
Investment Limitations.
RBB has adopted the following fundamental investment limitations, which may
not be changed without the affirmative vote of the holders of a majority of the
Fund's outstanding Shares (as defined in Section 2(a)(42) of the 1940 Act). The
Fund may not:
1. Borrow money, except from banks, and only if after such borrowing there
is asset coverage of at least 300% for all borrowings of the Fund; or mortgage,
pledge or hypothecate any of its assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 33 1/3% of the value of the Fund's total assets at the time of such
borrowing; (For purposes of this Limitation No. 1, any collateral arrangements,
if applicable, with respect to the writing of options, futures contracts and
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets.)
2. Issue any senior securities, except as permitted under the 1940 Act;
(For purposes of this Limitation No. 2, neither the collateral arrangements with
respect to options and futures identified in Limitation No. 1, nor the purchase
or sale of futures or related options, are deemed to be the issuance of senior
securities.)
3. Act as an underwriter of securities within the meaning of the Securities
Act, except insofar as it might be deemed to be an underwriter upon disposition
of certain portfolio securities acquired within the limitation on purchases of
restricted securities;
4. Purchase or sell real estate (including real estate limited partnership
interests), provided that the Fund may invest (a) in securities secured by real
estate or interests therein or issued by companies that invest in real estate or
interests therein or (b) in real estate investment trusts;
5. Purchase or sell commodities or commodity contracts, except that a Fund
may deal in forward foreign exchanges between currencies of the different
countries in which it may invest and purchase and sell stock index and currency
options, stock index futures, financial futures and currency futures contracts
and related options on such futures;
6. Make loans, except through loans of portfolio instruments and repurchase
agreements, provided that for purposes of this restriction the acquisition of
bonds, debentures or other debt instruments or interests therein and investment
in government obligations, loan participations and assignments, short-term
commercial paper, certificates of deposit and bankers' acceptances shall not be
deemed to be the making of a loan;
-7-
<PAGE>
7. Invest 25% or more of its assets, taken at market value at the time of
each investment, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities); or
8. Purchase the securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase, more than 5% of the value of
the Fund's total assets would be invested in the securities of such issuer, or
more than 10% of the outstanding voting securities of such issuer would be owned
by the Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
The Fund may invest in securities issued by other investment companies
within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, the Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations.
Securities held by the Fund generally may not be purchased from, sold or
loaned to the Adviser or its affiliates or any of their directors, officers or
employees, acting as principal, unless pursuant to a rule or exemptive order
under the 1940 Act.
-8-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning Communities,
1345 Chestnut Street Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ----------------------
* Each of Mr. Sablowsky and Mr. Reichman is an "interested person" of RBB, as
that term is defined in the 1940 Act, by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to RBB the firm to be selected as independent
auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of RBB when the Board of Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of RBB.
RBB pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser of the Fund or the
Distributor and Mr. Sablowsky, who is considered to be an affiliated person,
$12,000 annually and $1,250 per meeting of the Board or any committee thereof
that is not held in conjunction with a Board meeting. In addition, the Chairman
of the Board receives an additional fee of $6,000 per year for his services in
this capacity. Directors who are not affiliated persons of RBB and Mr. Sablowsky
are reimbursed for any expenses incurred in attending meetings of the Board of
Directors or any
-10-
<PAGE>
committee thereof. For the year ended August 31, 1998, each of the following
members of the Board of Directors received compensation from RBB in the
following amounts:
Directors' Compensation
<TABLE>
<CAPTION>
Pension or Retirement Estimated
Name of Person/ Aggregate Compensation Benefits Accrued Annual Benefits
Position from Registrant as Part of Fund Expenses Upon Retirement
- --------------- ---------------------- ------------------------ ---------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 RBB adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
RBB will contribute on a quarterly basis amounts equal to 10% of the quarterly
compensation of each eligible employee. By virtue of the services performed by
RBB's advisers, custodians, administrators and distributor, RBB itself requires
only two part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is
a partner, receives legal fees as counsel to RBB. No officer, director or
employee of Boston Partners Asset Management, L.P. ("Boston Partners" or the
"Adviser") or the Distributor currently receives any compensation from RBB.
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
Advisory Agreement. Boston Partners renders advisory services to the Fund
pursuant to an Investment Advisory Agreement dated May 30, 1997 (the "Advisory
Agreement"). Boston Partners' general partner is Boston Partners, Inc.
Boston Partners has investment discretion for the Fund and will make all
decisions affecting assets in the Fund under the supervision of RBB's Board of
Directors and in accordance with the Fund's stated policies. Boston Partners
will select investments for the
-11-
<PAGE>
Fund. For its services to the Fund, Boston Partners is entitled to receive a
monthly advisory fee under the Advisory Agreement computed at an annual rate of
0.80% of the Fund's average daily net assets. Boston Partners is currently
waiving advisory fees in excess of 1.00% of average daily net assets.
For the fiscal year ended August 31, 1998, the Fund paid Boston Partners
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolio reimbursements) Waivers Reimbursements
--------- ------------------ ------- --------------
<S> <C> <C> <C>
Boston Partners
Mid Cap Value Fund $235,623 $84,082 $30,520
</TABLE>
For the period ended August 31, 1997, the Fund paid Boston Partners
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolio reimbursements) Waivers Reimbursements
--------- ------------------ ------- --------------
<S> <C> <C> <C>
Boston Partners $0 $3,606 $32,554
Mid Cap Value Fund
</TABLE>
Each class of the Fund bears its own expenses not specifically assumed by
Boston Partners. General expenses of RBB not readily identifiable as belonging
to a portfolio of RBB are allocated among all investment portfolios by or under
the direction of RBB's Board of Directors in such manner as the Board determines
to be fair and equitable. Expenses borne by a portfolio include, but are not
limited to, the following (or a portfolio's share of the following): (a) the
cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by Boston Partners; (c) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against RBB or a portfolio for violation of any law; (d)
any extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment company literature and other publications provided by RBB
to its directors and officers; (g) organizational costs; (h) fees to the
investment adviser and PFPC; (i) fees and expenses of officers and directors who
are not affiliated with a portfolios' investment adviser or Distributor; (j)
taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees; (o)
brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Fund and its shares for distribution under
federal and state securities laws; (q) expenses of preparing prospectuses and
statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of RBB;
-12-
<PAGE>
(r) the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of RBB;
(s) fidelity bond and directors' and officers' liability insurance premiums; (t)
the expense of using independent pricing services; and (u) other expenses which
are not expressly assumed by a portfolio's investment adviser under its advisory
agreement with the portfolio. Each class of the Fund pays its own distribution
fees, if applicable, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by such class or if it receives different
services.
Under the Advisory Agreement, Boston Partners will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or RBB
in connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Boston Partners in the performance of its duties or from reckless disregard of
its duties and obligations thereunder.
The Advisory Agreement was most recently approved on July 29, 1998 by vote
of RBB's Board of Directors, including a majority of those directors who are not
parties to the Advisory Agreement or interested persons (as defined in the 1940
Act) of such parties. The Advisory Agreement was approved by the initial
shareholder of each class of the Fund. The Advisory Agreement is terminable by
vote of RBB's Board of Directors or by the holders of a majority of the
outstanding voting securities of the Fund, at any time without penalty, on 60
days' written notice to Boston Partners. The Advisory Agreement may also be
terminated by Boston Partners on 60 days' written notice to RBB. The Advisory
Agreement terminates automatically in the event of its assignment.
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Fund (b) holds and
transfers portfolio securities on account of the Fund, (c) accepts receipts and
makes disbursements of money on behalf of the Fund, (d) collects and receives
all income and other payments and distributions on account of the Fund's
portfolio securities and (e) makes periodic reports to RBB's Board of Directors
concerning the Fund's operations. PNC Bank is authorized to select one or more
banks or trust companies to serve as sub-custodian on behalf of the Fund,
provided that PNC Bank remains responsible for the performance of all of its
duties under the Custodian Agreement and holds the Fund harmless from the acts
and omissions of any sub-custodian. For its services to the Fund under the
Custodian Agreement, PNC Bank receives a fee, which is calculated based upon the
Fund's average daily gross assets as follows: $.18 per $1,000 on the first $100
million of average daily gross assets; $.15 per $1,000 on the next $400 million
of average daily gross assets; $.125 per $1,000 on the next $500 million of
average daily gross assets; and $.10 per $1,000 on average daily gross assets
over $1 billion, exclusive of transaction charges and out-of-pocket expenses,
which are also charged to the Fund.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund pursuant to a Transfer Agency Agreement
dated November 5, 1991, as supplemented (the "Transfer Agency Agreement"), under
which
-13-
<PAGE>
PFPC (a) issues and redeems shares of the Fund, (b) addresses and mails all
communications by the Fund to record owners of the Shares, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to RBB's Board of Directors
concerning the operations of the Fund. PFPC may, on 30 days' notice to RBB,
assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund, under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $10 per account in
the Fund, exclusive of out-of-pocket expenses, and also receives reimbursement
of its out-of-pocket expenses.
Administration Agreement. PFPC serves as administrator to the Fund pursuant
to an Administration and Accounting Services Agreement dated May 30, 1997, (the
"Administration Agreement"). PFPC has agreed to furnish to the Fund statistical
and research data, clerical, accounting and bookkeeping services, and certain
other services required by the Fund. In addition, PFPC has agreed to prepare and
file various reports with the appropriate regulatory agencies and prepare
materials required by the SEC or any state securities commission having
jurisdiction over the Fund. For its services to the Fund, PFPC is entitled to
receive a fee calculated at an annual rate of .125% of the Fund's average daily
net assets, with a minimum annual fee of $75,000 payable monthly on a pro rata
basis. PFPC is currently waiving one-half of its minimum annual fee.
For the fiscal year ended August 31, 1998, the Fund paid PFPC
administration fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- ------------------- ------- ---------------
<S> <C> <C> <C>
Boston Partners
Mid Cap Value Fund $57,653 $22,352 $0
</TABLE>
For the period ended August 31, 1997, the Fund paid PFPC administration
fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- ----------------- ------- --------------
<S> <C> <C> <C>
Boston Partners $9,166 $9,167 $0
Mid Cap Value Fund
</TABLE>
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by RBB or the Fund in
-14-
<PAGE>
connection with the performance of the agreement, except a loss resulting from
willful misfeasance, gross negligence or reckless disregard by it of its duties
and obligations thereunder.
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, (the "Distribution Agreement"), entered into by the
Distributor and RBB on behalf of the Institutional and Investor Classes, and
Plan of Distribution, as amended, for the Investor Class (the "Plan"), which
were adopted by RBB in the manner prescribed by Rule 12b-1 under the 1940 Act,
the Distributor will use appropriate efforts to solicit orders for the sale of
Fund Shares. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreement, a distribution
fee under the Plans, to be calculated daily and paid monthly by the Investor
Class, at the annual rate set forth in the Prospectus.
For the period May 29, 1998 through August 31, 1998, the Fund paid the
Distributor fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Boston Partners
Mid Cap Value Fund
(Investor) $6,827 $21,843 $0
</TABLE>
For the period September 1, 1997 through May 29, 1998, both the
Institutional Class and Investor Class of the Fund paid the Fund's previous
distributor, Counsellors Securities, Inc. ("Counsellors"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
address of 466 Lexington Avenue, New York, New York 10071, distribution fees as
follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Boston Partners
Mid Cap Value Fund
(Institutional) $8,284 $22,780 $0
Boston Partners
Mid Cap Value Fund
(Investor) $950 $1,425 $0
</TABLE>
-15-
<PAGE>
For the period ended August 31, 1997, the Fund paid Counsellors fees as
follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Boston Partners
Mid Cap Value Fund $161 $0 $0
(Institutional)
Boston Partners
Mid Cap Value Fund $ 77 $0 $0
(Investor)
</TABLE>
On April 23, 1997, the Plan was approved by RBB's Board of Directors,
including the directors who are not "interested persons" of RBB and who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan ("12b-1 Directors"). RBB believes that the Plan
may benefit the Fund by increasing sales of Fund shares.
Among other things, the Plan provides that: (1) the Distributor shall be
required to submit quarterly reports to the directors of RBB 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 RBB's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Investor Class under the Plan shall not be materially increased
without shareholder approval; and (4) while the Plan remains in effect, the
selection and nomination of RBB's directors who are not "interested persons" of
RBB (as defined in the 1940 Act) shall be committed to the discretion of such
directors who are not "interested persons" of RBB.
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plan
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, Directors of the Fund, had an indirect interest in the operation
of the plans by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
Administrative Services Agent
Provident Distributors, Inc. ("PDI") provides certain administrative
services to the Institutional Class of the Fund that are not provided by PFPC,
pursuant to an Administrative Services Agreement, dated May 29, 1998, between
RBB and PDI. These services include
-16-
<PAGE>
furnishing data processing and clerical services, acting as liaison between the
Funds and various service providers and coordinating the preparation of annual,
semi-annual and quarterly reports. As compensation for such administrative
services, PDI is entitled to a monthly fee calculated at the annual rate of .15%
of each Fund's average daily net assets. PDI is currently waiving fees in excess
of .03% of each fund's average daily net assets. For the period May 29, 1998
through August 31, 1998, the Institutional Class of the Fund paid PDI $13,741 in
administrative services fees, and PDI waived $44,606.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors, Boston Partners
is responsible for the execution of portfolio transactions and the allocation of
brokerage transactions for the Fund. In purchasing and selling portfolio
securities, Boston Partners seeks to obtain the best net price and the most
favorable execution of orders. To the extent that the execution and price
offered by more than one broker/dealer are comparable, the Adviser may effect
transactions in portfolio securities with broker/dealers who provide research,
advice or other services such as market investment literature.
For the fiscal year ended August 31, 1998, the Fund paid brokerage
commissions aggregating $326,951.
For the fiscal year ended August 31, 1998, the Fund paid commissions in the
aggregate amount of $0 to brokers on account of research services on
transactions in the aggregate amount of $0.
RBB is required to identify securities of its "regular brokers or dealers"
that the Fund has acquired during the most recent fiscal period. At August 31,
1998, the Fund held no securities of RBB's regular brokers or
dealers.
Investment decisions for the Fund and for other investment accounts managed
by Boston Partners are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as the Fund is concerned, in other cases it is believed
to be beneficial to the Fund.
-17-
<PAGE>
The Fund expects that its annual portfolio turnover rate will not exceed
100%. A high rate (100% or more) of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs that must be
borne directly by the Fund. The Fund anticipates that its annual portfolio
turnover rate will vary from year to year. The portfolio turnover rate is
calculated by dividing the lesser of a portfolio's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year.
PURCHASE AND REDEMPTION INFORMATION
RBB reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the Fund's
shares by making payment in whole or in part in securities chosen by RBB and
valued in the same way as they would be valued for purposes of computing the
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. RBB has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that the
Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of the Fund.
Under the 1940 Act, RBB may suspend the right to redemption or postpone the
date of payment upon redemption for any period during which the New York Stock
Exchange, Inc. (the "NYSE") is closed (other than customary weekend and holiday
closings), or during which trading on the NYSE is restricted, or during which
(as determined by the SEC by rule or regulation) an emergency exists as a result
of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (RBB may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
The computation of the hypothetical offering price per share of an
Institutional and Investor Share of the Fund based on the value of the Fund's
net assets on August 31, 1998 and the Fund's Institutional and Investor Shares
outstanding on such date is as follows:
Boston Partners Mid Cap Value Fund
<TABLE>
<CAPTION>
Institutional Shares Investor Shares
-------------------- ---------------
<S> <C> <C>
Net Assets....................................... $67,568,452 $1,827,932
Outstanding Shares............................... 7,125,702 194,122
Net Asset Value
per Share....................................... $9.48 $9.42
Maximum Sales Charge............................. N/A N/A
Maximum Offering Price
to Public...................................... $9.48 $9.42
</TABLE>
-18-
<PAGE>
VALUATION OF SHARES
The net asset values per share of each class of the Fund are calculated as
of the close of the NYSE, generally 4:00 p.m. Eastern Time on each Business Day.
"Business Day" means each weekday when the NYSE is open. Currently, the NYSE is
closed on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on the preceding Friday and subsequent Monday when one of
these holidays falls on Saturday or Sunday. Net asset value per share, the value
of an individual share in a fund, is computed by adding the value of the
proportionate interest of each class in a Fund's securities, cash and other
assets, subtracting the actual and accrued liabilities of the class, and
dividing the result by the number of outstanding shares of the class. The net
asset values of each class are calculated independently of the other classes.
Securities that are listed on stock exchanges are valued at the last sale price
on the day the securities are valued or, lacking any sales on such day, at the
mean of the bid and asked prices available prior to the evaluation. In cases
where securities are traded on more than one exchange, the securities are
generally valued on the exchange designated by the Board of Directors as the
primary market. Securities traded in the over-the-counter market and listed on
the National Association of Securities Dealers Automatic Quotation System
("NASDAQ") are valued at the last trade price listed on the NASDAQ at the close
of regular trading (generally 4:00 p.m. Eastern Time); securities listed on
NASDAQ for which there were no sales on that day and other over-the-counter
securities are valued at the mean of the bid and asked prices available prior to
valuation. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
RBB's Board of Directors. The amortized cost method of valuation may also be
used with respect to debt obligations with sixty days or less remaining to
maturity.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by RBB's Board of Directors.
PERFORMANCE INFORMATION
Total Return. The Fund may from time to time advertise its "average annual
total return." The Fund computes such return separately for each class of shares
by determining the average annual compounded rate of return during specified
periods that equates
-19-
<PAGE>
the initial amount invested to the ending redeemable value of such investment
according to the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
The Fund, when advertising its "aggregate total return," computes such
returns separately for each class of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - 1]
P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Calculated according to the SEC Rules, the average annual total return for
the Fund was as follows:
Average
Fund Return
For the fiscal year ended August 31, 1998.
Mid Cap Value Fund - Institutional (3.16)%
Mid Cap Value Fund - Investor (3.19)%
For the period ended August 31, 1997.*
Mid Cap Value Fund - Institutional 10.10%
Mid Cap Value Fund - Investor 10.10%
-20-
<PAGE>
Calculated according to the above formula, the aggregate total return for
the Fund was as follows:
Fund Aggregate
Return
For the fiscal year ended August 31, 1998.
Mid Cap Value Fund - Institutional (3.92)%
Mid Cap Value Fund - Investor (3.96)%
For the period ended August 31, 1997.*
Mid Cap Value Fund - Institutional 10.10%
Mid Cap Value Fund - Investor 10.10%
*The Fund commenced operations on June 2, 1997.
Investors should note that the total return figures are based on historical
earnings and are not intended to indicate future performance.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Investors
are urged to consult their tax advisers with specific reference to their own tax
situation.
The Fund has elected to be taxed as a regulated investment company under
Part I of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is exempt from federal
income tax on its net investment income and realized capital gains that it
distributes to shareholders, provided that it distributes an amount equal to the
sum of (a) at least 90% of its investment company taxable income (net taxable
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any, for the year) and (b) at least 90% of its net
tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income made during
the taxable year or, under specified circumstances, within twelve months after
the close of the taxable year will satisfy the Distribution Requirement.
-21-
<PAGE>
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of the
Fund's total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses (the "Asset Diversification
Requirement").
Distributions of investment company taxable income will be taxable (subject
to the possible allowance of the dividend received deduction described below) to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in shares. Shareholders receiving any
distribution from the Fund in the form of additional shares will be treated as
receiving a taxable distribution in an amount equal to the fair market value of
the shares received, determined as of the reinvestment date.
The Fund intends to distribute to shareholders its net capital gain (excess
of net long-term capital gain over net short-term capital loss), if any, for
each taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as long-term capital gain, regardless of the length of
time the shareholder has held his shares, whether such gain was recognized by
the Fund prior to the date on which a shareholder acquired shares of the Fund
and whether the distribution was paid in cash or reinvested in shares. The
aggregate amount of distributions designated by the Fund as capital gain
dividends may not exceed the net capital gain of the Fund for any taxable year,
determined by excluding any net capital loss or net long-term capital loss
attributable to transactions occurring after October 31 of such year and by
treating any such loss as if it arose on the first day of the following taxable
year. Such distributions will be designated as capital gain dividends in a
written notice mailed by the Fund to shareholders not later than 60 days after
the close of the Fund's taxable year.
In the case of corporate shareholders, distributions (other than capital
gain dividends) of the Fund for any taxable year generally qualify for the
dividends received deduction to the extent of the gross amount of "qualifying
dividends" received by the Fund for the year. Generally, a dividend will be
treated as a "qualifying dividend" if it has been received from a domestic
corporation. Distributions of net investment income received by the Fund from
investments in debt securities will be taxable to shareholders as ordinary
income and will not be treated as "qualifying dividends" for purposes of the
dividends received deduction. The Fund will designate the portion, if any, of
the distribution made by the Fund that qualifies for the dividends received
deduction in a written notice mailed by the Fund to shareholders not later than
60 days after the close of the Fund's taxable year.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such
-22-
<PAGE>
distributions will be eligible for the dividends received deduction in the case
of corporate shareholders. Investors should be aware that any loss realized on a
sale of shares of the Fund will be disallowed to the extent an investor
repurchases shares of the Fund within a period of 61 days (beginning 30 days
before and ending 30 days after the day of disposition of the shares). Dividends
paid by the Fund in the form of shares within the 61-day period would be treated
as a purchase for this purpose.
A shareholder will recognize gain or loss upon a redemption of shares or an
exchange of shares of the Fund for shares of another Boston Partners Fund upon
exercise of the exchange privilege, to the extent of any difference between the
price at which the shares are redeemed or exchanged and the price or prices at
which the shares were originally purchased for cash.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that do not distribute with respect to each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the 1-year period ending on October 31 of such
calendar year. The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. Investors should note that the Fund may in certain
circumstances be required to liquidate investments in order to make sufficient
distributions to avoid excise tax liability.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that he is not subject to backup withholding or
that he is an "exempt recipient."
The foregoing general discussion of federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although the Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, the Fund may be subject
to the tax laws of such states or localities.
-23-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class TT and UU Common Stock
constitute the Boston Partners Mid Cap Value Fund, described herein. Under
RBB's charter, the Board of Directors has the power to classify or reclassify
any unissued shares of Common Stock from time to time.
-25-
<PAGE>
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interest in the Money Market,
Municipal Money Market Funds; the Sansom Street Family represents interests in
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
RBB does not currently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. RBB's amended
By-Laws provide that shareholders owning at least ten percent of the outstanding
shares of all classes of Common Stock of RBB have the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, RBB will assist in shareholder communication in such
matters.
As stated in the Prospectus, holders of shares of each class of the Fund
will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular portfolio. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted by the provisions of
the 1940 Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding voting securities, as defined in the 1940 Act, of
each portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of the portfolio. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a portfolio only if approved by
the holders of a majority of the outstanding voting securities, as defined in
the 1940 Act, of such portfolio. However, Rule 18f-2 also provides that the
ratification of the selection of independent public accountants and the election
of directors are not subject to the separate voting requirements and may be
effectively acted upon by shareholders of an investment company voting without
regard to portfolio.
-26-
<PAGE>
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of RBB's common stock (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law, or by RBB's
Articles of Incorporation, RBB may take or authorize such action upon the
favorable vote of the holders of more than 50% of all of the outstanding shares
of Common Stock entitled to vote on the matter voting without regard to class
(or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496 serves as counsel to RBB and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as RBB's independent
accountants.
Control Persons. As of November 16, 1998, to RBB's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of each class of RBB indicated below. See
"Additional Information Concerning RBB Shares" above. RBB does not know whether
such persons also beneficially own such shares.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
<PAGE>
As of the same date, directors and officers as a group owned less than one
percent of the shares of RBB.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal period ended August 31, 1998 has
been filed with the Securities and Exchange Commission. The financial statements
in such Annual Report are incorporated herein by reference into this Statement
of Additional Information. The financial statements included in the Annual
Report for the Fund for the fiscal period ended August 31, 1998 have been
audited by RBB's independent accountants, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), whose report thereon also appears and is
incorporated herein by reference. No other portions of the Annual Report are
incorporated herein by reference. The financial statements in such Annual Report
have been incorporated herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. Copies of the
Annual Report may be obtained by calling toll-free (888) 261-4073.
-27-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BOSTON PARTNERS BOND FUND
(Institutional and Investor Classes)
of
The RBB Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of the Investor and Institutional Classes (the "Shares")
representing interests in the Boston Partners Bond Fund (the "Fund") of The RBB
Fund, Inc. ("RBB"). This Statement of Additional Information is not a
prospectus, and should be read only in conjunction with the Boston Partners Bond
Fund Prospectuses, dated December 29, 1998 (together, the "Prospectuses"). A
copy of any of the Prospectuses may be obtained from RBB by calling toll-free
(888) 261-4073. This Statement of Additional Information is dated December 29,
1998.
CONTENTS
Page
----
General.............................................. 2
Investment Objectives and Policies................... 2
Directors and Officers............................... 17
Investment Advisory, Distribution
and Servicing Arrangements......................... 20
Portfolio Transactions............................... 24
Purchase and Redemption Information.................. 25
Valuation of Shares.................................. 25
Performance Information.............................. 26
Taxes................................................ 28
Additional Information Concerning
RBB Shares ........................................ 30
Miscellaneous........................................ 33
Financial Statements ................................ 41
Appendix A........................................... A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by RBB or its distributor. The Prospectus does not constitute an offering by the
Fund or by the distributor in any jurisdiction in which such offering may not
lawfully be made.
<PAGE>
GENERAL
The RBB Fund, Inc. ("RBB") is an open-end management investment company
currently operating or proposing to operate seventeen separate investment
portfolios. RBB was organized as a Maryland corporation on February 29, 1988.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Fund.
Additional Information on Fund Investments.
Mortgage-Related Securities. There are a number of important differences
among the agencies and instrumentalities of the U.S. Government that issue
mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes"), which are guaranteed as to the timely payment of principal
and interest by GNMA and such guarantee is backed by the full faith and credit
of the United States. GNMA is a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Fund may invest in multiple class pass-through securities, including
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduit ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S. Government
agencies or instrumentalities, including
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FNMA and FHLMC, or by trusts formed by private originators of, or investors in,
mortgage loans. In general, CMOs and REMICs are debt obligations of a legal
entity that are collateralized by, and multiple class pass-through securities
represent direct ownership interests in, a pool of residential mortgage loans or
mortgage pass-through securities (the "Mortgage Assets"), the payments on which
are used to make payments on the CMOs or multiple pass-through securities.
Investors may purchase beneficial interests in REMICs, which are known as
"regular" interests or "residual" interests. The Fund does not intend to
purchase residual interests.
Each class of CMOs or REMIC Certificates, 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 or REMIC Certificates may cause some or all
of the classes of CMOs or REMIC Certificates to be retired substantially earlier
than their final distribution dates. Generally, interest is paid or accrues on
all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs or REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates 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.
A wide variety of REMIC Certificates may be issued in the parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying Mortgage Assets. These tranches tend to have market prices and
yields that are much more volatile than the PAC classes.
FNMA REMIC Certificates are issued and guaranteed as to timely distribution
of principal and interest by FNMA. In addition, FNMA will be obligated to
distribute on a timely basis to holders of FNMA REMIC Certificates required
installments of principal and interest and
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to distribute the principal balance of each class of REMIC Certificates in full,
whether or not sufficient funds are otherwise available.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of
interest, and also guarantees the ultimate payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by FHLMC and placed in
a PC pool. With respect to principal payments on PCs, FHLMC generally guarantees
ultimate collection of all principal of the related mortgage loans without
offset or deduction. FHLMC also guarantees timely payment of principal on
certain PCs, referred to as "Gold PCs."
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.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting 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.
Foreign Securities. The Fund may invest in securities of foreign issuers
that may or may not be publicly traded in the United States. The Fund may
invest, either directly, or indirectly through investments in closed-end
investment companies, in securities issued by foreign companies wherever
organized. The Fund may invest in Eurodollar Convertible Securities that are
convertible into or exchangeable for foreign equity securities represented by
listed American Depositary Receipts ("ADRs"). Interest and dividends on such
Eurodollar securities are payable in U.S. dollars outside of the United States.
ADRs are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a foreign issuer. ADRs may be
listed on a national securities exchange or may trade in the over-the-counter
market. ADR prices are denominated in United States dollars; the underlying
security may be denominated in a foreign currency. The underlying security may
be subject to foreign government taxes which would reduce the yield on such
securities. The extent to which a Portfolio will be invested in foreign
companies and ADRs will fluctuate from time to time within the limits stated in
the Prospectus depending on the Adviser's assessment of prevailing market,
economic and other conditions.
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The Fund may purchase debt obligations issued or guaranteed by governments
(including states, provinces or municipalities) of countries other than the
United States, or by their agencies, authorities or instrumentalities. The Fund
may purchase debt obligations issued or guaranteed by supranational entities
organized or supported by several national governments, such as the
International Bank for Reconstruction and Development (the "World Bank"), the
Inter-American Development Bank, the Asian Development Bank and the European
Investment Bank. The Fund may purchase debt obligations of foreign corporations
or financial institutions, such as Yankee bonds (dollar-denominated bonds sold
in the United States by non-U.S. issuers) and Euro bonds (bonds not issued in
the country (and possibly currency of the country of the issuer).
Fixed commissions on foreign securities exchanges are generally higher than
negotiated commissions on U.S. exchanges, although the Fund endeavors to achieve
the most favorable net results on its portfolio transactions. There is generally
less government supervision and regulation of securities exchanges, brokers,
dealers and listed companies than in the United States. Settlement mechanics
(e.g., mail service between the United States and foreign countries) may be
slower or less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Portfolio is uninvested and no return
is earned thereon. The inability of the Portfolios to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of Fund securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the securities, or, if a Fund has entered into a contract
to sell the securities, could result in possible liability to the purchaser.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth or gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Investments in foreign securities involve certain inherent risks, such as
political or economic instability of the issuer or the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Foreign brokerage commissions and custodian
fees are generally higher than in the United States. With respect to certain
foreign countries, there is a possibility of expropriation or confiscatory
taxation, or diplomatic developments which could affect investment in those
countries.
Foreign Currency Exchange Transactions. In order to protect against a
possible loss on investments resulting from a decline or appreciation in the
value of a particular foreign currency against the U.S. dollar or another
foreign currency or for other reasons, the Fund is authorized to enter into
forward currency exchange contracts. These contracts involve an obligation to
purchase or sell a specified currency at a future date at a price set at the
time of the contract. Forward currency contracts do not eliminate fluctuations
in the values of portfolio securities but rather may allow the Fund to establish
a rate of exchange for a future point in time.
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The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When entering into a contract for the purchase or sale of
a security, the Fund may enter into a contract for the amount of the purchase or
sale price to protect against variations, between the date the security is
purchased or sold and the date on which payment is made or received, in the
value of the foreign currency relative to the U.S. dollar or other foreign
currency.
When the Adviser anticipates that a particular foreign currency may decline
substantially relative to the U.S. dollar or other leading currencies, in order
to reduce risk, the Fund may enter into a forward contract to sell, for a fixed
amount, the amount of foreign currency approximating the value of some or all of
the Fund's securities denominated in such foreign currency. Similarly, when the
securities held by the Fund create a short position in a foreign currency, the
Fund may enter into a forward contract to buy, for a fixed amount, an amount of
foreign currency approximating the short position. With respect to any forward
foreign currency contract, it will generally not be possible to precisely match
the amount covered by that contract and the value of the securities involved due
to the changes in the values of such securities resulting from market movements
between the date the forward contract is entered into and the date it matures.
While forward contracts may offer protection from losses resulting from declines
or appreciation in the value of a particular foreign currency, they also limit
potential gains which might result from changes in the value of such currency.
The Fund will also incur costs in connection with forward foreign currency
exchange contracts and conversions of foreign currencies and U.S. dollars. In
addition, the Adviser may purchase or sell forward foreign currency exchange
contracts for the Fund for non-hedging purposes when the Adviser anticipates
that the foreign currency will appreciate or depreciate in value.
A separate account consisting of liquid assets, such as cash, U.S.
Government securities or other liquid high grade debt obligations, equal to the
amount of the Fund's assets that could be required to consummate forward
contracts will be established with the Fund's Custodian except to the extent the
contracts are otherwise "covered." For the purpose of determining the adequacy
of the securities in the account, the deposited securities will be valued at
market or fair value. If the market or fair value of such securities declines,
additional cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by the Fund. A
forward contract to sell a foreign currency is "covered" if the Fund owns the
currency (or securities denominated in the currency) underlying the contract, or
holds a forward contract (or call option) permitting the Fund to buy the same
currency at a price no higher than the Fund's price to sell the currency. A
forward contract to buy a foreign currency is "covered" if the Fund holds a
forward contract (or put option) permitting the Fund to sell the same currency
at a price as high as or higher than the Fund's price to buy the currency.
Indexed Securities. The Fund may invest in indexed securities whose value
is linked to securities indices. Most such securities have values which rise and
fall according to the change in one or more specified indices, and may have
characteristics similar to direct investments in the underlying securities. The
Fund does not presently intend to invest more than 5% of net assets in indexed
securities.
Illiquid Securities. The Fund may not invest more than 15% of its net
assets in illiquid securities (including repurchase agreements which have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this
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limitation. With respect to the Fund, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
SEC Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. The Adviser anticipates that the market for certain restricted
securities such as institutional commercial paper will expand further as a
result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc.
The Adviser will monitor the liquidity of restricted securities in the Fund
under the supervision of the Board of Directors. In reaching liquidity
decisions, the Adviser may consider, inter alia, the following factors: (1) the
unregistered nature of the security; (2) the frequency of trades and quotes for
the security; (3) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (4) dealer undertakings to make a
market in the security; and (5) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). The Fund does not
presently intend to invest more than 5% of net assets in illiquid securities.
When-Issued Purchases and Forward Commitments. When the Fund agrees to
purchase securities on a when-issued basis or enters into a forward commitment
to purchase securities, the Custodian will set aside cash, U.S. government
securities or other liquid assets equal to the amount of the purchase or the
commitment in a separate account. The market value of the separate account will
be monitored and if such market value declines, the Fund will 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 Fund's
commitments.
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The Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases, the Fund may
realize a capital gain or loss.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the Fund's net asset value
starting on the day that the Fund agrees to purchase the securities. The Fund
does not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
Forward Currency Transactions. The Fund's participation in forward currency
contracts will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging involves the purchase or sale of
foreign currency with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities. The purpose of transaction hedging is to "lock in" the U.S. dollar
equivalent price of such specific securities. Position hedging is the sale of
foreign currency with respect to portfolio security positions denominated or
quoted in that currency. The Funds will not speculate in foreign currency
exchange transactions. Transaction and position hedging will not be limited to
an overall percentage of the Fund's assets, but will be employed as necessary to
correspond to particular transactions or positions. The Fund may not hedge its
currency positions to an extent greater than the aggregate market value (at the
time of entering into the forward contract) of the securities held in its
portfolio denominated, quoted in, or currently convertible into that particular
currency. When the Fund engages in forward currency transactions, certain asset
segregation requirements must be satisfied to ensure that the use of foreign
currency transactions is unleveraged. When a Fund takes a long position in a
forward currency contract, it must maintain a segregated account containing
liquid assets equal to the purchase price of the contract, less any margin or
deposit. When a Fund takes a short position in a forward currency contract, the
Fund must maintain a segregated account containing liquid assets in an amount
equal to the market value of the currency underlying such contract (less any
margin or deposit), which amount must be at least equal to the market price at
which the short position was established. Asset segregation requirements are not
applicable when a Fund "covers" a forward currency position generally by
entering into an offsetting position.
The transaction costs to the Fund of engaging in forward currency
transactions vary with factors such as the currency involved, the length of the
contract period and prevailing currency market conditions. Because currency
transactions are usually conducted on a principal basis, no fees or commissions
are involved. The use of forward currency contracts does not eliminate
fluctuations in the underlying prices of the securities being hedged, but it
does establish a rate of exchange that can be achieved in the future. Thus,
although forward currency contracts used for transaction or position hedging
purposes may limit the risk of loss due to an increase in the value of the
hedged currency, at the same time they limit potential gain that might result
were the contracts not entered into. Further, the Adviser may be incorrect in
its expectations as to currency fluctuations, and the Fund may incur losses in
connection with its
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currency transactions that it would not otherwise incur. If a price movement in
a particular currency is generally anticipated, a Fund may not be able to
contract to sell or purchase that currency at an advantageous price.
At or before the maturity of a forward sale contract, the Fund may sell a
portfolio security and make delivery of the currency, or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency which it is obligated to deliver. If the Fund
retains the portfolio security and engages in an offsetting transaction, the
Fund, at the time of execution of the offsetting transaction, will incur a gain
or a loss to the extent that movement has occurred in forward contract prices.
Should forward prices decline during the period between a Fund's entering into a
forward contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Fund will suffer a loss to the extent the price of the currency it has
agreed to sell is less than the price of the currency it has agreed to purchase
in the offsetting contract. The foregoing principles generally apply also to
forward purchase contracts.
Convertible Securities. The Fund may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common stocks
of the same or similar issuers. Convertible securities rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. While no securities investment is
completely without risk, investments in convertible securities generally entail
less risk than the corporation's common stock, although the extent to which such
risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the
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price of the convertible security will be increasingly influenced by its
conversion value. A convertible security generally will sell at a premium over
its conversion value by the extent to which investors place value on the right
to acquire the underlying common stock while holding a fixed income security.
A convertible security might be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security, convert
it into the underlying common stock or sell it to a third party. The Fund does
not presently intend to invest more than 5% of net assets in convertible
securities, or securities received by the Fund upon conversion thereof.
Lending of Fund Securities. The Fund may lend its portfolio securities to
financial institutions in accordance with the investment restrictions described
below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the Adviser
to be of good standing and only when, in the Adviser's judgment, the income to
be earned from the loans justifies the attendant risks. Any loans of the Fund's
securities will be fully collateralized and marked to market daily. The Fund
does not presently intend to invest more than 5% of net assets in securities
lending.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
The financial institutions with whom the Fund may enter into repurchase
agreements will be banks which the Adviser considers creditworthy pursuant to
criteria approved by the Board of Directors and non-bank dealers of U.S.
Government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers. The Adviser will consider the creditworthiness of a
seller in determining whether to have the Fund enter into a repurchase
agreement. The seller under a repurchase agreement will be required to maintain
the value of the securities subject to the agreement at not less than the
repurchase price plus accrued interest. The Adviser will mark to market daily
the value of the securities, and will, if necessary, require the seller to
maintain additional securities, to ensure that the value is not less than the
repurchase price. Default by or bankruptcy of the seller would, however, expose
the Fund to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may enter into
reverse repurchase agreements with respect to portfolio securities for temporary
purposes (such as to obtain cash to meet redemption requests) when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the Adviser. Reverse repurchase agreements involve the sale of securities held
by the Fund pursuant to the Fund's agreement to repurchase the securities at an
agreed-upon price, date and rate of interest. Such agreements are considered to
be borrowings under the Investment company Act of 1940, as amended (the "1940
Act"), and may be entered into only for temporary or emergency purposes. While
reverse repurchase transactions are outstanding, the Fund will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash
or liquid securities of an amount at least equal to the market value of the
securities,
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plus accrued interest, subject to the agreement and will monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Fund may decline below
the price of the securities the Fund is obligated to repurchase. The fund may
also enter into "dollar rolls," in which it sells fixed-income securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Fund would forgo principal and interest
paid on such securities. The Fund would be compensated by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. The Fund
does not presently intend to engage in reverse repurchase or dollar roll
transactions involving more than 5% of the Fund's net assets.
U.S. Government Obligations. The Fund may purchase U.S. Government agency
and instrumentality obligations that are debt securities issued by U.S.
Government-sponsored enterprises and federal agencies. Some obligations of
agencies and instrumentalities of the U.S. Government are supported by the full
faith and credit of the U.S. Government or by U.S. Treasury guarantees, such as
securities of the Government National Mortgage Association and the Federal
Housing Authority; others, by the ability of the issuer to borrow, provided
approval is granted, from the U.S. Treasury, such as securities of the Federal
Home Loan Mortgage Corporation and others, only by the credit of the agency or
instrumentality issuing the obligation, such as securities of the Federal
National Mortgage Association and the Federal Loan Banks.
The Fund's net assets may be invested in obligations issued or guaranteed
by the U.S. Treasury or the agencies or instrumentalities of the U.S.
Government, including options and futures on such obligations. The maturities of
U.S. Government securities usually range from three months to thirty years.
Examples of types of U.S. Government obligations include U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, the Asian-American Development Bank and the Inter-American
Development Bank. The Fund does not presently intend to invest more than 5% of
net assets in U.S. Government obligations.
Futures Contracts and Options on Futures Contracts. To seek to increase
total return, to hedge against changes in interest rates, securities prices or
currency exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on any of such futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any such contracts and options. The futures contracts may be
based on various securities (such as U.S. Government Securities), foreign
currencies, securities indices and other financial instruments and indices. The
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. The Fund may not purchase or sell futures contracts or purchase or
sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid
-12-
<PAGE>
on the Fund's outstanding positions in futures and related options entered into
for the purpose of seeking to increase total return would exceed 5% of the
market value of the Fund's net assets. These transactions involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
segregate and maintain cash or liquid assets with a value equal to the amount of
the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while the Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance than if the Fund had not
entered into any futures contracts or options transactions. Because perfect
correlation between a futures position and portfolio position which is intended
to be protected is impossible to achieve, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. The loss incurred by the
Fund in entering into futures contracts and in writing call options on futures
is potentially unlimited and may exceed the amount of the premium received.
Futures markets are highly volatile and the use of futures may increase the
volatility of the Fund's net asset value. The profitability of the Fund's
trading in futures to seek to increase total return depends upon the ability of
the Adviser to correctly analyze the futures markets. In addition, because of
the low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to the
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single day.
Stripped Securities. The Federal Reserve has established an investment
program known as "STRIPS" or "Separate Trading of Registered Interest and
Principal of Securities." The Fund may purchase securities registered under this
program. This program allows the Fund to be able to have beneficial ownership of
zero coupon securities recorded directly in the book-entry record-keeping system
in lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities. The Treasury Department has, within the
past several years, facilitated transfers of such securities by accounting
separately for the beneficial ownership of particular interest coupon and
principal payments on Treasury securities through the Federal Reserve book-entry
record-keeping system.
In addition, the Fund may acquire U.S. Government Obligations and their
unmatured interest coupons that have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government Obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners. RBB is unaware of any binding legislative, judicial or
administrative authority on this issue.
Commercial Paper. The Fund may purchase commercial paper rated (at the time
of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed advisable by
the Fund's
-13-
<PAGE>
investment adviser, issues rated "A-2" or "Prime-2" by S&P or Moody's,
respectively. These rating symbols are described in Appendix "A" hereto. The
Fund may also purchase unrated commercial paper provided that such paper is
determined to be of comparable quality by the Fund's investment adviser pursuant
to guidelines approved by the Fund's Board of Directors. Commercial paper issues
in which the Fund may invest include securities issued by corporations without
registration under the Securities Act of 1933, as amended (the "Securities Act")
in reliance on the exemption from such registration afforded by Section 3(a)(3)
thereof, and commercial paper issued in reliance on the so-called "private
placement" exemption from registration, which is afforded by Section 4(2) of the
Securities Act ("Section 4(2) paper"). Section 4(2) paper is restricted as to
disposition under the federal securities laws in that any resale must similarly
be made in an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors through or with the assistance of investment dealers who
make a market in Section 4(2) paper, thus providing liquidity. The Fund does not
presently intend to invest more than 5% of its net assets in commercial paper.
Money Market Instruments. The Fund may invest in "money market
instruments," for purposes of temporary defensive measures which include, among
other things, bank obligations. Bank obligations include bankers' acceptances,
negotiable certificates of deposit, and non-negotiable time deposits earning a
specified return and issued by a U.S. bank which is a member of the Federal
Reserve System or insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"), or by a savings and loan association or savings
bank which is insured by the Savings Association Insurance Fund of the FDIC.
Bank obligations also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign 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 Fund.
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 Fund
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when the Adviser believes that the risks
associated with such investment are minimal.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as the price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which the Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of the Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar may have the opposite effect of magnifying the effect
of increases and reduces the effect of decreases in the prices of the fund's
securities in foreign markets. In addition to favorable and unfavorable currency
exchange rate developments, the Fund is subject to the possible imposition of
exchange control regulations or freezes on convertibility of currency.
Investment Limitations.
RBB has adopted the following fundamental investment limitations, which may
not be changed without the affirmative vote of the holders of a majority of the
Fund's
-14-
<PAGE>
outstanding Shares (as defined in Section 2(a) (42) of the 1940 Investment
Company Act). The Fund may not:
1. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements and dollar rolls for
temporary purposes in amounts up to one-third of the value of its total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in excess
of one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation; (For purposes of this Limitation No. 1, any collateral arrangements
with respect to, if applicable, the writing of options and futures contracts,
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets.)
2. Issue any senior securities, except as permitted under the 1940 Act;
(For purposes of Investment Limitation No. 2, neither the collateral
arrangements with respect to options and futures identified in Limitation No. 1,
nor the purchase or sale of futures or related options are deemed to be the
issuance of senior securities.)
3. Act as an underwriter of securities within the meaning of the Securities
Act, except insofar as it might be deemed to be an underwriter upon disposition
of certain portfolio securities acquired within the limitation on purchases of
restricted securities;
4. Purchase or sell real estate (including real estate limited partnership
interests), provided that the Fund may invest (a) in securities secured by real
estate or interests therein or issued by companies that invest in real estate or
interests therein or (b) in real estate investment trusts;
5. Purchase or sell commodities or commodity contracts, except that a Fund
may deal in forward foreign exchange between currencies of the different
countries in which it may invest and purchase and sell stock index and currency
options, stock index futures, financial futures and currency futures contracts
and related options on such futures;
6. Make loans, except through loans of portfolio instruments and repurchase
agreements, provided that for purposes of this restriction the acquisition of
bonds, debentures or other debt instruments or interests therein and investment
in government obligations, loan participations and assignments, short-term
commercial paper, certificates of deposit and bankers' acceptances shall not be
deemed to be the making of a loan;
7. Invest 25% or more of its total assets, taken at market value at the
time of each investment, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities); or
8. Purchase the securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase, more than 5% of the value of
the Fund's total assets would be invested in the securities of such issuer, or
more than 10% of the outstanding voting securities of
-15-
<PAGE>
such issuer would be owned by the Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
The Fund may invest in securities issued by other investment companies
within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, the Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations.
Securities held by the Fund generally may not be purchased from, sold or
loaned to the Adviser or its affiliates or any of their directors, officers or
employees, acting as principal, unless pursuant to a rule or exemptive order
under the 1940 Act.
-16-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning Communities,
1345 Chestnut Street Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ----------------------
* Each of Mr. Sablowsky and Mr. Reichman is an "interested person" of RBB, as
that term is defined in the 1940 Act, by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to RBB the firm to be selected as independent
auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of RBB when the Board of Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of RBB.
RBB pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser of the Fund or the
Distributor and Mr. Sablowsky, who is considered to be an affiliated person,
$12,000 annually and $1,250 per meeting of the Board or any committee thereof
that is not held in conjunction with a Board meeting. In addition, the Chairman
of the Board receives an additional fee of $6,000 per year for his services in
-18-
<PAGE>
this capacity. Directors who are not affiliated persons of RBB and Mr. Sablowsky
are reimbursed for any expenses incurred in attending meetings of the Board of
Directors or any committee thereof. For the year ended August 31, 1998, each of
the following members of the Board of Directors received compensation from RBB
in the following amounts:
Directors' Compensation
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated
Name of Person/ Compensation Accrued as Part of Annual Benefit
Position from Registrant Fund Expenses Upon Retirement
- --------------- --------------- =================== ---------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 RBB adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
RBB will contribute on a quarterly basis amounts equal to 10% of the quarterly
compensation of each eligible employee. By virtue of the services performed by
RBB's advisers, custodians, administrators and distributor, RBB itself requires
only two part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is
a partner, receives legal fees as counsel to RBB. No officer, director or
employee of Boston Partners Asset Management, L.P. ("Boston Partners" or the
"Adviser") or the Distributor currently receives any compensation from RBB.
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
Advisory Agreement. Boston Partners renders advisory services to the Fund
pursuant to an Investment Advisory Agreement dated October 16, 1996 (the
"Advisory Agreement"). Boston Partners' general partner is Boston Partners, Inc.
Boston Partners has investment discretion for the Fund and
will make all decisions affecting assets in the Fund under the supervision of
RBB's Board of Directors and in accordance with the Fund's stated policies.
Boston Partners will select investments for the Fund. For its services to the
Fund, Boston Partners is entitled to receive a monthly advisory fee under
-19-
<PAGE>
the Advisory Agreement computed at an annual rate of 0.40% of the Fund's average
daily net assets.
For the period ended August 31, 1998, the Fund paid Boston Partners
advisory fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Boston Partners Bond Fund $0 $34,418 $54,244
</TABLE>
Each class of the Fund bears its own expenses not specifically assumed by
Boston Partners. General expenses of RBB not readily identifiable as belonging
to a portfolio of RBB are allocated among all investment portfolios by or under
the direction of RBB's Board of Directors in such manner as the Board determines
to be fair and equitable. Expenses borne by a portfolio include, but are not
limited to, the following (or a portfolio's share of the following): (a) the
cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by Boston Partners; (c) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against RBB or a portfolio for violation of any law; (d)
any extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment company literature and other publications provided by RBB
to its directors and officers; (g) organizational costs; (h) fees to the
investment adviser and PFPC; (i) fees and expenses of officers and directors who
are not affiliated with a portfolios' investment adviser or Distributor; (j)
taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees; (o)
brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Fund and its shares for distribution under
federal and state securities laws; (q) expenses of preparing prospectuses and
statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of RBB;
(r) the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of RBB;
(s) fidelity bond and directors' and officers' liability insurance premiums; (t)
the expense of using independent pricing services; and (u) other expenses which
are not expressly assumed by a portfolio's investment adviser under its advisory
agreement with the portfolio. Each class of the Fund pays its own distribution
fees, if applicable, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by such class or if it receives different
services.
Under the Advisory Agreement, Boston Partners will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or RBB
in connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Boston Partners in the performance of its respective duties or from reckless
disregard of its duties and obligations thereunder.
The Advisory Agreement was most recently approved on July 29, 1998 by vote
of RBB's Board of Directors, including a majority of those directors who are not
parties to the
-20-
<PAGE>
Advisory Agreement or interested persons (as defined in the 1940 Act) of such
parties. The Advisory Agreement was approved by the initial shareholder of each
class of the Fund. The Advisory Agreement is terminable by vote of RBB's Board
of Directors or by the holders of a majority of the outstanding voting
securities of the Fund, at any time without penalty, on 60 days' written notice
to Boston Partners. The Advisory Agreement may also be terminated by Boston
Partners on 60 days' written notice to RBB. The Advisory Agreement terminates
automatically in the event of its assignment.
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Fund (b) holds and
transfers portfolio securities on account of the Fund, (c) accepts receipts and
makes disbursements of money on behalf of the Fund, (d) collects and receives
all income and other payments and distributions on account of the Fund's
portfolio securities and (e) makes periodic reports to RBB's Board of Directors
concerning the Fund's operations. PNC Bank is authorized to select one or more
banks or trust companies to serve as sub-custodian on behalf of the Fund,
provided that PNC Bank remains responsible for the performance of all of its
duties under the Custodian Agreement and holds the Fund harmless from the acts
and omissions of any sub-custodian. For its services to the Fund under the
Custodian Agreement, PNC Bank receives a fee, which is calculated based upon the
Fund's average daily gross assets as follows: $.18 per $1,000 on the first $100
million of average daily gross assets; $.15 per $1,000 on the next $400 million
of average daily gross assets; $.125 per $1,000 on the next $500 million of
average daily gross assets; and $.10 per $1,000 on average daily gross assets
over $1 billion, exclusive of transaction charges and out-of-pocket expenses,
which are also charged to the Fund.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund pursuant to a Transfer Agency Agreement
dated November 5, 1991, as supplemented (the "Transfer Agency Agreement"), under
which PFPC (a) issues and redeems shares of the Fund, (b) addresses and mails
all communications by the Fund to record owners of the Shares, including reports
to shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to RBB's Board of Directors
concerning the operations of the Fund. PFPC may, on 30 days' notice to RBB,
assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund, under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $10 per account in
the Fund, exclusive of out-of-pocket expenses, and also receives reimbursement
of its out-of-pocket expenses.
Administration Agreement. PFPC serves as administrator to the Fund pursuant
to an Administration and Accounting Services Agreement dated October 16, 1996,
(the "Administration Agreement"). PFPC has agreed to furnish to the Fund
statistical and research data, clerical, accounting and bookkeeping services,
and certain other services required by the Fund. In addition, PFPC has agreed to
prepare and file various reports with the appropriate regulatory agencies and
prepare materials required by the SEC or any state securities commission having
jurisdiction over the Fund. For its services to the Fund, PFPC is entitled to
receive a fee calculated at an annual rate of .125% of the Fund's average daily
net assets, with a minimum annual fee of $75,000 payable monthly on a pro rata
basis. PFPC is currently waiving one-half of its minimum annual fee.
-21-
<PAGE>
For the period ended August 31, 1998, the Fund paid PFPC administration
fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Boston Partners Bond Fund $25,201 $25,202 $0
</TABLE>
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by RBB or the Fund in
connection with the performance of the agreement, except a loss resulting from
willful misfeasance, gross negligence or reckless disregard by it of its duties
and obligations thereunder.
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, (the "Distribution Agreement"), entered into by the
Distributor and RBB on behalf of the Institutional and Investor Classes, and a
Plan of Distribution, as amended, for the Investor Class (the "Plan"), which
were adopted by RBB in the manner prescribed by Rule 12b-1 under the 1940 Act,
the Distributor will use appropriate efforts to solicit orders for the sale of
Fund Shares. As compensation for its distribution services, the Distributor
receives, pursuant to the terms of the Distribution Agreement, a distribution
fee under the Plan, to be calculated daily and paid monthly by the Investor
Class, at the annual rate set forth in the Prospectus.
For the period May 29, 1998 through August 31, 1998, the Fund paid the
Distributor fees as follows:
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- --------------- ------- --------------
<S> <C> <C> <C>
Boston Partners
Bond Fund
(Investor) $1,294 $4,063 $0
</TABLE>
For the period December 30, 1997 (commencement of operations) through May
29, 1998, both the Institutional Class and Investor Class of the Fund paid the
Fund's previous distributor, Counsellors Securities, Inc. ("Counsellors"), a
wholly-owned subsidiary of Warburg Pincus Asset Management, Inc., with a
principal business address of 466 Lexington Avenue, New York, New York 10071,
distribution fees as follows:
-22-
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
(After
waivers and
Portfolios reimbursements) Waivers Reimbursements
- ---------- --------------- ------- --------------
<S> <C> <C> <C>
Boston Partners
Bond Fund
(Institutional) $1,986 $5,461 $0
Boston Partners
Bond Fund
(Investor) $54 $0 $0
</TABLE>
The amounts retained by Counsellors and PDI were used to pay certain
advertising and promotion, printing, postage, legal fees, travel, entertainment,
sales, marketing and administrative expenses. The Fund believes that such Plans
may benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and
Mr. Reichman, directors of RBB, had an indirect interest in the operation of the
Plans by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
Administrative Services Agent
Provident Distributors, Inc. ("PDI") provides certain administrative
services to the Institutional Class of the Fund that are not provided by PFPC,
pursuant to an Administrative Services Agreement, dated May 29, 1998, between
RBB and PDI. These services include furnishing data processing and clerical
services, acting as liaison between the Funds and various service providers and
coordinating the preparation of annual, semi-annual and quarterly reports. As
compensation for such administrative services, PDI is entitled to a monthly fee
calculated at the annual rate of .15% of each Fund's average daily net assets.
PDI is currently waiving fees in excess of .03% of each fund's average daily net
assets. For the period May 29, 1998 through August 31, 1998, the Institutional
Class of the Fund paid PDI $3,155 in administrative services fees, and PDI
waived $9,524.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors, Boston Partners
is responsible for the execution of portfolio transactions and the allocation of
brokerage transactions for the Fund. In purchasing or selling portfolio
securities, Boston Partners will seek to obtain the best net price and the most
favorable execution of orders. To the extent that the execution and price
offered by more than one broker/dealer are comparable, the Adviser may effect
transactions in portfolio securities with broker/dealers who provide research,
advice or other services such as market investment literature.
For the fiscal year ended August 31, 1998, the Fund paid brokerage
commissions aggregating $804.
For the fiscal year ended August 31, 1998, the Fund paid commissions in the
aggregate amount of $0 to brokers on account of research services on
transactions in the aggregate amount of $0.
-23-
<PAGE>
RBB is required to identify securities of its "regular brokers or dealers"
that the Fund has acquired during the most recent fiscal period. At August 31,
1998, the Fund held no securities of RBB's regular brokers or dealers.
Investment decisions for the Fund and for other investment accounts managed
by Boston Partners are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as the Fund is concerned, in other cases it is believed
to be beneficial to the Fund.
The Fund expects that its annual portfolio turnover rate will not exceed
100%. A high rate (100% or more) of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs that must be
borne directly by the Fund. The Fund anticipates that its annual portfolio
turnover rate will vary from year to year. The portfolio turnover rate is
calculated by dividing the lesser of a portfolio's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year.
PURCHASE AND REDEMPTION INFORMATION
RBB reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the Fund's
shares by making payment in whole or in part in securities chosen by RBB and
valued in the same way as they would be valued for purposes of computing the
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. RBB has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that the
Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of the Fund.
Under the 1940 Act, RBB may suspend the right to redemption or postpone the
date of payment upon redemption for any period during which the New York Stock
Exchange, Inc. (the "NYSE") is closed (other than customary weekend and holiday
closings), or during which trading on the NYSE is restricted, or during which
(as determined by the SEC by rule or regulation) an emergency exists as a result
of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (RBB may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
The computation of the hypothetical offering price per share of an
Institutional and Investor Share of the Fund based on the value of the Fund's
net assets on August 31, 1998 and the Fund's Institutional and Investor Shares
outstanding on such date is as follows:
-24-
<PAGE>
Boston Partners Bond Fund
Institutional Shares Investor Shares
Net Assets.......................... $15,509,128 $198,090
Outstanding Shares.................. 1,538,650 19,613
Net Asset Value per Share........... $10.08 $10.10
Maximum Sales Charge................ N/A N/A
Maximum Offering Price to Public.... $10.08 $10.10
VALUATION OF SHARES
The net asset values per share of each class of the Fund are calculated as
of the close of the NYSE, generally 4:00 p.m. Eastern Time on each Business Day.
"Business Day" means each weekday when the NYSE is open. Currently, the NYSE is
closed on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on the preceding Friday or subsequent Monday when one of these
holidays falls on a Saturday or Sunday. Net asset value per share, the value of
an individual share in a fund, is computed by adding the value of the
proportionate interest of each class in a Fund's securities, cash and other
assets, subtracting the actual and accrued liabilities of the class and dividing
the result by the number of outstanding shares of the class. The net asset
values of each class are calculated independently of the other classes.
Securities that are listed on stock exchanges are valued at the last sale price
on the day the securities are valued or, lacking any sales on such day, at the
mean of the bid and asked prices available prior to the evaluation. In cases
where securities are traded on more than one exchange, the securities are
generally valued on the exchange designated by the Board of Directors as the
primary market. Securities traded in the over-the-counter market and listed on
the National Association of Securities Dealers Automatic Quotation System
("NASDAQ") are valued at the last trade price listed on the NASDAQ at the close
of regular trading (generally 4:00 p.m. Eastern Time); securities listed on
NASDAQ for which there were no sales on that day and other over-the-counter
securities are valued at the mean of the bid and asked prices available prior to
valuation. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
RBB's Board of Directors. The amortized cost method of valuation may also be
used with respect to debt obligations with sixty days or less remaining to
maturity.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by RBB's Board of Directors.
-25-
<PAGE>
PERFORMANCE INFORMATION
Total Return. The Fund may from time to time advertise its "average annual
total return." The Fund computes such return separately for each class of shares
by determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
ERV 1/n
T = [(------)-1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable
period (or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
The Fund when advertising its "aggregate total return" computes such
returns separately for each class of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----)-1]
P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
-26-
<PAGE>
Calculated according to the above formula, the aggregate total return for
the Fund was as follows:
Average
Fund Return
---- -------
For the period ended August 31, 1998.
Bond Fund - Institutional 4.79%
Bond Fund - Investor 4.63%
Investors should note that the total return figures are based on historical
earnings and are not intended to indicate future performance.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Investors
are urged to consult their tax advisers with specific reference to their own tax
situation.
The Fund has elected to be taxed as a regulated investment company under
Part I of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is exempt from federal
income tax on its net investment income and realized capital gains that it
distributes to shareholders, provided that it distributes an amount equal to the
sum of (a) at least 90% of its investment company taxable income (net taxable
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any, for the year) and (b) at least 90% of its net
tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income made during
the taxable year or, under specified circumstances, within twelve months after
the close of the taxable year will satisfy the Distribution Requirement.
-27-
<PAGE>
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of the
Fund's total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses (the "Asset Diversification
Requirement").
Distributions of investment company taxable income will be taxable (subject
to the possible allowance of the dividend received deduction described below) to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in shares. Shareholders receiving any
distribution from the Fund in the form of additional shares will be treated as
receiving a taxable distribution in an amount equal to the fair market value of
the shares received, determined as of the reinvestment date.
The Fund intends to distribute to shareholders its net capital gain (excess
of net long-term capital gain over net short-term capital loss), if any, for
each taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as long-term capital gain, regardless of the length of
time the shareholder has held his shares, whether such gain was recognized by
the Fund prior to the date on which a shareholder acquired shares of the Fund
and whether the distribution was paid in cash or reinvested in shares. The
aggregate amount of distributions designated by the Fund as capital gain
dividends may not exceed the net capital gain of the Fund for any taxable year,
determined by excluding any net capital loss or net long-term capital loss
attributable to transactions occurring after October 31 of such year and by
treating any such loss as if it arose on the first day of the following taxable
year. Such distributions will be designated as capital gain dividends in a
written notice mailed by the Fund to shareholders not later than 60 days after
the close of the Fund's taxable year.
In the case of corporate shareholders, distributions (other than capital
gain dividends) of the Fund for any taxable year generally qualify for the
dividends received deduction to the extent of the gross amount of "qualifying
dividends" received by the Fund for the year. Generally, a dividend will be
treated as a "qualifying dividend" if it has been received from a domestic
corporation. Distributions of net investment income received by the Fund from
investments in debt securities will be taxable to shareholders as ordinary
income and will not be treated as "qualifying dividends" for purposes of the
dividends received deduction. The Fund will designate the portion, if any, of
the distribution made by the Fund that qualifies for the dividends received
deduction in a written notice mailed by the Fund to shareholders not later than
60 days after the close of the Fund's taxable year.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions will be
eligible for the dividends received deduction in the case of corporate
shareholders. Investors should be aware that any loss realized on a sale of
shares of the Fund will be disallowed to the extent an investor repurchases
shares of the Fund within a period of 61 days (beginning 30 days before and
ending 30 days after the day of disposition of the shares).
-28-
<PAGE>
Dividends paid by the Fund in the form of shares within the 61-day period would
be treated as a purchase for this purpose.
A shareholder will recognize gain or loss upon a redemption of shares or an
exchange of shares of the Fund for shares of another Boston Partners Fund upon
exercise of the exchange privilege, to the extent of any difference between the
price at which the shares are redeemed or exchanged and the price or prices at
which the shares were originally purchased for cash.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that do not distribute with respect to each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the 1-year period ending on October 31 of such
calendar year. The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. Investors should note that the Fund may in certain
circumstances be required to liquidate investments in order to make sufficient
distributions to avoid excise tax liability.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that he is not subject to backup withholding or
that he is an "exempt recipient."
The foregoing general discussion of federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although the Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, the Fund may be subject
to the tax laws of such states or localities.
-29-
<PAGE>
ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Class VV and WW Common Stock constitute
the Boston Partners Bond Fund, described herein. Under RBB's charter, the Board
of Directors has the power to classify or reclassify any unissued shares of
Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interest in the Money Market,
Municipal Money Market Funds; the Sansom Street Family represents interests in
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
-31-
<PAGE>
RBB does not currently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. RBB's amended
By-Laws provide that shareholders owning at least ten percent of the outstanding
shares of all classes of Common Stock of RBB have the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, RBB will assist in shareholder communication in such
matters.
As stated in the Prospectus, holders of shares of each class of the Fund
will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular portfolio. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted by the provisions of
the 1940 Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding voting securities, as defined in the 1940 Act, of
each portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of the portfolio. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a portfolio only if approved by
the holders of a majority of the outstanding voting securities, as defined in
the 1940 Act, of such portfolio. However, Rule 18f-2 also provides that the
ratification of the selection of independent public accountants and the election
of directors are not subject to the separate voting requirements and may be
effectively acted upon by shareholders of an investment company voting without
regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of RBB's common stock (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law or by RBB's Articles
of Incorporation, RBB may take or authorize such action upon the favorable vote
of the holders of more than 50% of all of the outstanding shares of Common Stock
entitled to vote on the matter voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496 serves as counsel to RBB.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as RBB's independent
accountants.
Control Persons. As of November 16, 1998 to RBB's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of each class of RBB indicated below. See
"Additional Information Concerning RBB Shares" above. RBB does not know whether
such persons also beneficially own such shares.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
-32-
<PAGE>
As of the same date, directors and officers as a group owned
less than one percent of the shares of RBB.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal period ended August
31, 1998 has been filed with the Securities and Exchange Commission. The
financial statements in such Annual Report are incorporated herein by reference
into this Statement of Additional Information. The financial statements included
in the Annual Report for the Fund for the fiscal period ended August 31, 1998
have been audited by RBB's independent accountants, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"),whose report thereon also appears and is incorporated
herein by reference. No other portions of the Annual Report are incorporated
herein by reference. The financial statements in such Annual Report have been
incorporated herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing. Copies of the Annual Report may
be obtained by calling toll-free (888) 261-4073.
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
BOSTON PARTNERS MICRO CAP VALUE FUND
(Institutional and Investor Classes)
of
The RBB Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of the Investor and Institutional Classes (the "Shares")
representing interests in the Boston Partners Micro Cap Value Fund (the "Fund")
of The RBB Fund, Inc. ("RBB"). This Statement of Additional Information is not a
prospectus, and should be read only in conjunction with the Boston Partners
Micro Cap Value Fund Prospectuses, dated December 29, 1998 (together, the
"Prospectus"). A copy of any of the Prospectuses may be obtained from RBB by
calling toll-free (888) 261-4073. This Statement of Additional Information is
dated December 29, 1998.
CONTENTS
Page
----
General............................................................ 2
Investment Objectives and Policies................................. 2
Directors and Officers............................................. 9
Investment Advisory, Distribution
and Servicing Arrangements....................................... 11
Portfolio Transactions............................................. 15
Purchase and Redemption Information................................ 16
Valuation of Shares................................................ 17
Performance Information............................................ 17
Taxes.............................................................. 18
Additional Information Concerning
RBB Shares...................................................... 21
Miscellaneous...................................................... 24
Financial Statements............................................... 34
Appendix A......................................................... A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by RBB or its distributor. The Prospectus does not constitute an offering by the
Fund or by the distributor in any jurisdiction in which such offering may not
lawfully be made.
GENERAL
The RBB Fund, Inc. ("RBB") is an open-end management investment company
currently operating or proposing to operate seventeen separate investment
portfolios. RBB was organized as a Maryland corporation on February 29, 1988.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Fund.
Additional Information on Fund Investments.
Lending of Fund Securities. The Fund may lend its portfolio securities to
financial institutions in accordance with the investment restrictions described
below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the Fund's
investment adviser to be of good standing and only when, in the Adviser's
judgment, the income to be earned from the loans justifies the attendant risks.
Any loans of the Fund's securities will be fully collateralized and marked to
market daily.
Indexed Securities. The Fund may invest in indexed securities whose value
is linked to securities indices. Most such securities have values which rise and
fall according to the change in one or more specified indices, and may have
characteristics similar to direct investments in the underlying securities. The
Fund does not presently intend to invest more than 5% of net assets in indexed
securities.
Repurchase Agreements. The Fund may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
The financial institutions with whom the Fund may enter into repurchase
agreements will be banks which the Adviser considers creditworthy pursuant to
criteria approved by the Board of Directors and non-bank dealers of U.S.
Government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers. The Adviser will consider the creditworthiness of a
seller in determining whether to have the Fund enter into a repurchase
agreement. The seller under a repurchase agreement will be required to maintain
the value of the securities subject to the agreement at not less than the
repurchase price plus accrued interest. The Adviser will mark to market daily
the value of the securities, and will, if necessary, require
-2-
<PAGE>
the seller to maintain additional securities, to ensure that the value is not
less than the repurchase price. Default by or bankruptcy of the seller would,
however, expose the Fund to possible loss because of adverse market action or
delays in connection with the disposition of the underlying obligations.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may enter into
reverse repurchase agreements with respect to portfolio securities for temporary
purposes (such as to obtain cash to meet redemption requests) when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the Adviser. Reverse repurchase agreements involve the sale of securities held
by the Fund pursuant to the Fund's agreement to repurchase the securities at an
agreed-upon price, date and rate of interest. Such agreements are considered to
be borrowings under the Investment Company Act of 1940 (the "1940 Act"), and may
be entered into only for temporary or emergency purposes. While reverse
repurchase transactions are outstanding, the Fund will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement and will monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Fund may decline below
the price of the securities the Fund is obligated to repurchase. The Fund may
also enter into "dollar rolls," in which it sells fixed income securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Fund would forgo principal and interest
paid on such securities. The Fund would be compensated by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. The Fund
does not presently intend to engage in reverse repurchase or dollar roll
transactions involving more than 5% of the Fund's net assets.
U.S. Government Obligations. The Fund may purchase U.S. Government agency
and instrumentality obligations that are debt securities issued by U.S.
Government-sponsored enterprises and federal agencies. Some obligations of
agencies and instrumentalities of the U.S. Government are supported by the full
faith and credit of the U.S. Government or by U.S. Treasury guarantees, such as
securities of the Government National Mortgage Association and the Federal
Housing Authority; others, by the ability of the issuer to borrow, provided
approval is granted, from the U.S. Treasury, such as securities of the Federal
Home Loan Mortgage Corporation and others, only by the credit of the agency or
instrumentality issuing the obligation, such as securities of the Federal
National Mortgage Association and the Federal Loan Banks.
The Fund's net assets may be invested in obligations issued or guaranteed
by the U.S. Treasury or the agencies or instrumentalities of the U.S.
Government, including options and futures on such obligations. The maturities of
U.S. Government securities usually range from three months to thirty years.
Examples of types of U.S. Government obligations include U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage
-3-
<PAGE>
Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the Maritime Administration, the
Asian-American Development Bank and the Inter-American Development Bank. The
Fund does not presently intend to invest more than 5% of net assets in U.S.
Government obligations.
Illiquid Securities. The Fund may not invest more than 15% of its net
assets in illiquid securities (including repurchase agreements that have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. With respect to the Fund, repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Mutual funds do not typically hold a significant amount of restricted or
other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
The Fund may purchase securities which are not registered under the
Securities Act but which may be sold to "qualified institutional buyers" in
accordance with Rule 144A under the Securities Act. These securities will not be
considered illiquid so long as it is determined by the Fund's adviser that an
adequate trading market exists for the securities. This investment practice
could have the effect of increasing the level of illiquidity in a Fund during
any period that qualified institutional buyers become uninterested in purchasing
restricted securities.
The Adviser will monitor the liquidity of restricted securities in the Fund
under the supervision of the Board of Directors. In reaching liquidity
decisions, the Adviser may consider, among others, the following factors: (1)
the unregistered nature of the security; (2) the frequency of trades and quotes
for the security; (3) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (4) dealer undertakings
to make a market in the security; and (5) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
Hedging Investments. At such times as the Adviser deems it appropriate and
consistent with the investment objective of the Fund, the Fund may invest in
financial futures contracts and options on financial futures contracts. The
purpose of such transactions is to hedge against changes in the market value of
securities in the Fund caused by fluctuating interest rates and to close out or
offset its existing positions in such futures contracts or options as described
-4-
<PAGE>
below. Such instruments will not be used for speculation. Futures contracts and
options on futures are discussed below.
Futures Contracts. The Fund may invest in financial futures contracts with
respect to those securities listed on the S & P 500 Stock Index. Financial
futures contracts obligate the seller to deliver a specific type of security
called for in the contract, at a specified future time, and for a specified
price. Financial futures contracts may be satisfied by actual delivery of the
securities or, more typically, by entering into an offsetting transaction. There
are risks that are associated with the use of futures contracts for hedging
purposes. In certain market conditions, as in a rising interest rate
environment, sales of futures contracts may not completely offset a decline in
value of the portfolio securities against which the futures contracts are being
sold. In the futures market, it may not always be possible to execute a buy or
sell order at the desired price, or to close out an open position due to market
conditions, limits on open positions, and/or daily price fluctuations. Risks in
the use of futures contracts also result from the possibility that changes in
the market interest rates may differ substantially from the changes anticipated
by the Fund's investment adviser when hedge positions were established. The Fund
does not presently intend to invest more than 5% of net assets in futures
contracts.
Options on Futures. The Fund may purchase and write call and put options on
futures contracts with respect to those securities listed on the S & P 500 Stock
Index and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract. The Fund may use options on futures contracts in connection
with hedging strategies. The purchase of put options on futures contracts is a
means of hedging against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of hedging against a market advance when
the Fund is not fully invested.
There is no assurance that the Fund will be able to close out its financial
futures positions at any time, in which case it would be required to maintain
the margin deposits on the contract. There can be no assurance that hedging
transactions will be successful, as there may be imperfect correlations (or no
correlations) between movements in the prices of the futures contracts and of
the securities being hedged, or price distortions due to market conditions in
the futures markets. Such imperfect correlations could have an impact on the
Fund's ability to effectively hedge its securities. The Fund does not presently
intend to invest more than 5% of net assets in options on futures.
Bank and Corporate Obligations. The Fund may purchase obligations of
issuers in the banking industry, such as short-term obligations of bank holding
companies, certificates of deposit, bankers' acceptances and time deposits
issued by U.S. or foreign banks or savings institutions having total assets at
the time of purchase in excess of $1 billion. Investment in obligations of
foreign banks or foreign branches of U.S. banks may entail risks that are
different from those of investments in obligations of U.S. banks due to
differences in political, regulatory and economic systems and conditions. The
Fund may also make interest-bearing savings deposits in commercial and savings
banks in amounts not in excess of 5% of its total assets.
-5-
<PAGE>
The Fund may invest in debt obligations, such as bonds and debentures,
issued by corporations and other business organizations that are rated at the
time of purchase within the three highest ratings categories of S&P or Moody's
(or which, if unrated, are determined by the Adviser to be of comparable
quality). Unrated securities will be determined to be of the comparable quality
to rated debt obligations if, among other things, other outstanding obligations
of the issuers of such securities are rated A or better. See Appendix "A" for a
description of corporate debt ratings.
Commercial Paper. The Fund may purchase commercial paper rated (at the time
of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed advisable by
the Fund's investment adviser, issues rated "A-2" or "Prime-2" by S&P or
Moody's, respectively. These rating symbols are described in Appendix "A"
hereto. The Fund may also purchase unrated commercial paper provided that such
paper is determined to be of comparable quality by the Fund's investment adviser
pursuant to guidelines approved by the Fund's Board of Directors. Commercial
paper issues in which the Fund may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "Securities Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration, which is afforded
by Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper
is restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. The Fund does not presently intend to invest more than 5% of its net
assets in commercial paper.
Foreign Securities. The Fund may invest in foreign securities, either
directly or indirectly through American Depository Receipts and European
Depository Receipts. Investments in foreign securities involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity and political stability. Future political and economic information,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls, or the adoption of other governmental restrictions, might
adversely affect the payment of principal and interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as the price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which the Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of the Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar may have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of the Fund's
securities in its foreign markets. In addition to favorable and unfavorable
currency
-6-
<PAGE>
exchange rate developments, the Fund is subject to the possible imposition of
exchange control regulations or freezes on convertibility of currency.
Investment Limitations.
RBB has adopted the following fundamental investment limitations, which may
not be changed without the affirmative vote of the holders of a majority of the
Fund's outstanding Shares (as defined in Section 2(a)(42) of the 1940 Act). The
Fund may not:
1. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements and dollar rolls for
temporary purposes in amounts up to one-third of the value of its total assets
at the time of such borrowing; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and then in amounts not in excess
of one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation; (For purposes of this Limitation No. 1, any collateral arrangements
with respect to, if applicable, the writing of options and futures contracts,
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets.)
2. Issue any senior securities, except as permitted under the 1940 Act;
(For purposes of this Limitation No. 2, neither the collateral arrangements with
respect to options and futures identified in Limitation No. 1, nor the purchase
or sale of futures or related options are deemed to be the issuance of senior
securities.)
3. Act as an underwriter of securities within the meaning of the Securities
Act, except insofar as it might be deemed to be an underwriter upon disposition
of certain portfolio securities acquired within the limitation on purchases of
restricted securities;
4. Purchase or sell real estate (including real estate limited partnership
interests), provided that the Fund may invest (a) in securities secured by real
estate or interests therein or issued by companies that invest in real estate or
interests therein or (b) in real estate investment trusts;
5. Purchase or sell commodities or commodity contracts, except that a Fund
may deal in forward foreign exchanges between currencies of the different
countries in which it may invest and purchase and sell stock index and currency
options, stock index futures, financial futures and currency futures contracts
and related options on such futures;
6. Make loans, except through loans of portfolio instruments and repurchase
agreements, provided that for purposes of this restriction the acquisition of
bonds, debentures or other debt instruments or interests therein and investment
in government obligations, loan
-7-
<PAGE>
participations and assignments, short-term commercial paper, certificates of
deposit and bankers' acceptances shall not be deemed to be the making of a loan;
7. Invest 25% or more of its assets, taken at market value at the time of
each investment, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities); or
8. Purchase the securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase, more than 5% of the value of
the Fund's total assets would be invested in the securities of such issuer, or
more than 10% of the outstanding voting securities of such issuer would be owned
by the Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
The Fund may invest in securities issued by other investment companies
within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, the Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations.
Securities held by the Fund generally may not be purchased from, sold or
loaned to the Adviser or its affiliates or any of their directors, officers or
employees, acting as principal, unless pursuant to a rule or exemptive order
under the 1940 Act.
-8-
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their ages,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ ----------------------
<S> <C> <C>
*Arnold M. Reichman - 50 Director Chief Operating Officer of Warburg Pincus
466 Lexington Avenue Asset Management, Inc.; Executive Officer
12th Floor and Director of Counsellors Securities Inc.;
New York, NY 10017 Director/Trustee of various investment
companies advised by Warburg Pincus Asset
Management, Inc.; Prior to 1997, Managing
Director of Warburg Pincus Asset Management,
Inc.
*Robert Sablowsky - 60 Director Senior Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice President,
Fox Chase Cancer Institute Fox Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
Marvin E. Sternberg - 64 Director Since 1974, Chairman, Director and
Moyco Technologies, Inc. President, Moyco Industries, Inc.
200 Commerce Drive (manufacturer of dental supplies and
Montgomeryville, PA 18936 precision coated abrasives).
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
1500 Market Street Comcast Corporation (cable television and
35th Floor communications); Director, Comcast U.K.
Philadelphia, PA 19102
Donald van Roden - 74 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 SmithKline Beecham Corporation
(pharmaceuticals); Director AAA Mid-Atlantic
(auto service); Director, Keystone Insurance
Co.
Edward J. Roach - 74 President and Treasurer Certified Public Accountant; Vice Chairman
Suite 100 of the Board, Fox Chase Cancer Center;
Bellevue Park Corporate Trustee Emeritus, Pennsylvania School for
Center the Deaf; Trustee Emeritus, Immaculata
400 Bellevue Parkway College; President and Treasurer of
Wilmington, DE 19809 Municipal Fund for New York Investors, Inc.
(advised by BlackRock Institutional
Management); Vice President and Treasurer
of various investment companies advised
by BlackRock Institutional Management
Corporation; Treasurer of the Chestnut
Street Exchange Fund.
Morgan R. Jones - 59 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Learning
1345 Chestnut Street Communities, Inc.; Secretary, Petroferm, Inc.
Philadelphia, PA 19107-3496
</TABLE>
<PAGE>
- ----------------------
* Each of Mr. Sablowsky and Mr. Reichman is an "interested person" of RBB, as
that term is defined in the 1940 Act, by virtue of his position with
Fahnestock Co., Inc. and Counsellors Securities, Inc., respectively, each a
registered broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee of
the Board of Directors. The Audit Committee, among other things, reviews results
of the annual audit and recommends to RBB the firm to be selected as independent
auditors.
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<PAGE>
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of RBB when the Board of Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of RBB.
RBB pays directors who are not "affiliated persons" (as that term is
defined in the 1940 Act) of any investment adviser of the Fund or the
Distributor and Mr. Sablowsky, who is considered to be an affiliated person,
$12,000 annually and $1,250 per meeting of the Board or any committee thereof
that is not held in conjunction with a Board meeting. In addition, the Chairman
of the Board receives an additional fee of $6,000 per year for his services in
this capacity. Directors who are not affiliated persons of RBB and Mr. Sablowsky
are reimbursed for any expenses incurred in attending meetings of the Board of
Directors or any committee thereof. For the year ended August 31, 1998, each of
the following members of the Board of Directors received compensation from RBB
in the following amounts:
Directors' Compensation
-----------------------
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits
Aggregate Accrued as Estimated Annual
Name of Person/ Compensation Part of Fund Benefits Upon
Position from Registrant Expenses Retirement
- --------------- --------------- ------------ ----------------
<S> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A
Director
Francis J. McKay, $18,000 N/A N/A
Director
Arnold M. Reichman, $0 N/A N/A
Director
Robert Sablowsky, $18,000 N/A N/A
Director
Marvin E. Sternberg, $17,000 N/A N/A
Director
Donald van Roden, $23,000 N/A N/A
Director and Chairman
</TABLE>
On October 24, 1990 RBB adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach and one other employee), pursuant to which
RBB will contribute on a quarterly basis amounts equal to 10% of the quarterly
compensation of each eligible employee. By virtue of the services performed by
RBB's advisers, custodians, administrators and distributor, RBB itself requires
only two part-time employees. Drinker Biddle & Reath LLP, of which Mr. Jones is
a partner, receives legal fees as counsel to RBB. No officer, director or
employee of Boston
-11-
<PAGE>
Partners Asset Management, L.P. ("Boston Partners" or the "Adviser") or the
Distributor currently receives any compensation from RBB.
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
Advisory Agreement. Boston Partners renders advisory services to the Fund
pursuant to an Investment Advisory Agreement dated July 1, 1998 (the "Advisory
Agreement"). Boston Partners' general partner is Boston Partners, Inc.
Boston Partners has investment discretion for the Fund and will make all
decisions affecting assets in the Fund under the supervision of RBB's Board of
Directors and in accordance with the Fund's stated policies. Boston Partners
will select investments for the Fund. For its services to the Fund, Boston
Partners is entitled to receive a monthly advisory fee under the Advisory
Agreement computed at an annual rate of 1.25% of the Fund's average daily net
assets. Boston Partners is currently waiving advisory fees in excess of 0.00% of
average daily net assets.
For the fiscal year ended August 31, 1998, the Fund paid Boston Partners
advisory fees as follows:
Fees Paid
(After waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- ----------------- ------- --------------
Boston Partners
Micro Cap Value
Fund $0 $3,155 $19,063
Each class of the Fund bears its own expenses not specifically assumed by
Boston Partners. General expenses of RBB not readily identifiable as belonging
to a portfolio of RBB are allocated among all investment portfolios by or under
the direction of RBB's Board of Directors in such manner as the Board determines
to be fair and equitable. Expenses borne by a portfolio include, but are not
limited to, the following (or a portfolio's share of the following): (a) the
cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by Boston Partners; (c) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against RBB or a portfolio for violation of any law; (d)
any extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment company literature and other publications provided by RBB
to its directors and officers; (g) organizational costs; (h) fees to the
investment adviser and PFPC; (i) fees and expenses of officers and directors who
are not affiliated with a portfolios' investment adviser or Distributor; (j)
taxes; (k) interest; (l) legal fees; (m) custodian fees; (n) auditing fees; (o)
brokerage fees and
-12-
<PAGE>
commissions; (p) certain of the fees and expenses of registering and qualifying
the Fund and its shares for distribution under federal and state securities
laws; (q) expenses of preparing prospectuses and statements of additional
information and distributing annually to existing shareholders that are not
attributable to a particular class of shares of RBB; (r) the expense of reports
to shareholders, shareholders' meetings and proxy solicitations that are not
attributable to a particular class of shares of RBB; (s) fidelity bond and
directors' and officers' liability insurance premiums; (t) the expense of using
independent pricing services; and (u) other expenses which are not expressly
assumed by a portfolio's investment adviser under its advisory agreement with
the portfolio. Each class of the Fund pays its own distribution fees, if
applicable, and may pay a different share than other classes of other expenses
(excluding advisory and custodial fees) if those expenses are actually incurred
in a different amount by such class or if it receives different services.
Under the Advisory Agreement, Boston Partners will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or RBB
in connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Boston Partners in the performance of its duties or from reckless disregard of
its duties and obligations thereunder.
The Advisory Agreement was most recently approved on July 29, 1998 by vote
of RBB's Board of Directors, including a majority of those directors who are not
parties to the Advisory Agreement or interested persons (as defined in the 1940
Act) of such parties. The Advisory Agreement was approved by the initial
shareholder of each class of the Fund. The Advisory Agreement is terminable by
vote of RBB's Board of Directors or by the holders of a majority of the
outstanding voting securities of the Fund, at any time without penalty, on 60
days' written notice to Boston Partners. The Advisory Agreement may also be
terminated by Boston Partners on 60 days' written notice to RBB. The Advisory
Agreement terminates automatically in the event of its assignment.
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Fund (b) holds and
transfers portfolio securities on account of the Fund, (c) accepts receipts and
makes disbursements of money on behalf of the Fund, (d) collects and receives
all income and other payments and distributions on account of the Fund's
portfolio securities and (e) makes periodic reports to RBB's Board of Directors
concerning the Fund's operations. PNC Bank is authorized to select one or more
banks or trust companies to serve as sub-custodian on behalf of the Fund,
provided that PNC Bank remains responsible for the performance of all of its
duties under the Custodian Agreement and holds the Fund harmless from the acts
and omissions of any sub-custodian.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund pursuant to a Transfer Agency Agreement
dated November 5, 1991, as supplemented (the "Transfer Agency Agreement"), under
which PFPC (a) issues and redeems shares of the Fund, (b) addresses and mails
all communications by the Fund to record owners of the Shares, including reports
to shareholders, dividend and distribution notices and
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proxy materials for its meetings of shareholders, (c) maintains shareholder
accounts and, if requested, sub-accounts and (d) makes periodic reports to RBB's
Board of Directors concerning the operations of the Fund. PFPC may, on 30 days'
notice to RBB, assign its duties as transfer and dividend disbursing agent to
any other affiliate of PNC Bank Corp.
Administration Agreement. PFPC serves as administrator to the Fund pursuant
to an Administration and Accounting Services Agreement dated July 1, 1998, (the
"Administration Agreement"). PFPC has agreed to furnish to the Fund statistical
and research data, clerical, accounting and bookkeeping services, and certain
other services required by the Fund. In addition, PFPC has agreed to, among
other things, prepare and file (or assist in the preparation of) certain reports
with the SEC and other regulatory agencies. For its services to the Fund, PFPC
is entitled to receive a fee calculated at an annual rate of .125% of the Fund's
average daily net assets, with a minimum annual fee of $75,000 payable monthly
on a pro rata basis. PFPC is currently waiving one-half of its minimum annual
fee.
The Administration Agreement provides that PFPC shall be obligated to
exercise care and diligence in the performance of its duties under the
Administration Agreement, to act in good faith and to use its best efforts,
within reasonable limits, in performing services. PFPC shall be responsible for
failure to perform its duties under the Administration Agreement arising out of
PFPC's gross negligence.
For the period ended August 31, 1998, the Fund paid PFPC administration
fees as follows:
Fees Paid
(After waivers and
Portfolio reimbursements) Waivers Reimbursements
- --------- ----------------- ------- --------------
Boston Partners
Micro Cap Value Fund $6,250 $6,250 $0
Distribution Agreement. Pursuant to the terms of a distribution agreement,
dated as of May 29, 1998, (the "Distribution Agreement"), entered into by the
Distributor and RBB on behalf of the Institutional and Investor Classes, and a
Plan of Distribution, as amended, for the Investor Class (the "Plan"), which was
adopted by RBB in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use appropriate efforts to solicit orders for the sale of Fund
Shares. As compensation for its distribution services, the Distributor receives,
pursuant to the terms of the Distribution Agreement, a distribution fee under
the Plan, to be calculated daily and paid monthly by the Investor Class at the
annual rate set forth in the Prospectus.
On April 29, 1998, the Plan was approved by RBB's Board of Directors,
including the directors who are not "interested persons" of RBB and who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan ("12b-1 Directors"). RBB believes that the Plan
may benefit the Fund by increasing sales of Fund shares.
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Among other things, the Plan provides that: (1) the Distributor shall be
required to submit quarterly reports to the directors of RBB 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 a majority of RBB's directors, including the
12b-1 Directors, acting in person at a meeting called for said purpose; (3) the
compensation payable to the Distributor pursuant to the Plan shall not be
materially increased without approval by a vote of at least a majority of the
Fund's outstanding shares; and (4) while the Plan remains in effect, the
selection and nomination of RBB's directors who are not "interested persons" of
RBB (as defined in the 1940 Act) shall be committed to the discretion of such
directors who are not "interested persons" of RBB.
During the period July 1, 1998 through August 31, 1998, the Fund paid
distribution fees to the Distributor under the Plan for the Boston Partners
Micro Cap Value Fund Investor Class in the aggregate amount of $54. Of such
amount, $52 was paid to dealers with whom the Distributor had entered into
dealer agreements, and $0 was retained by the Distributor.
The amount retained by the Distributor was used to pay certain advertising
and promotion, printing, postage, legal fees, travel, entertainment, sales,
marketing and administrative expenses. The Fund believes that the Plan may
benefit the Fund by increasing sales of Shares. Each of Mr. Sablowsky and Mr.
Reichman, Directors of the Fund, had an indirect interest in the operation of
the Plan by virtue of his position with Fahnestock Co., Inc. and Counsellors
Securities, Inc., respectively, each a broker-dealer.
Administrative Services Agent. Provident Distributors, Inc. ("PDI")
provides certain administrative services to the Institutional Class of the Fund
that are not provided by PFPC, pursuant to an Administrative Services Agreement,
dated May 29, 1998, between RBB and PDI. These services include furnishing data
processing and clerical services, acting as liaison between the Funds and
various service providers and coordinating the preparation of annual,
semi-annual and quarterly reports. As compensation for such administrative
services, PDI is entitled to a monthly fee calculated at the annual rate of .15%
of each Fund's average daily net assets. PDI is currently waiving fees in excess
of .03% of each fund's average daily net assets. For the period May 29, 1998
through August 31, 1998, the Institutional Class of the Fund paid PDI $69 in
administrative services fees, and PDI waived $277.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors, Boston Partners
is responsible for the execution of portfolio transactions and the allocation of
brokerage transactions for the Fund. In purchasing and selling portfolio
securities, Boston Partners seeks to obtain the best net price and the most
favorable execution of orders. To the extent that the execution and price
offered by more than one broker/dealer are comparable, the Adviser may
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effect transactions in portfolio securities with broker/dealers who provide
research, advice or other services such as market investment literature.
Investment decisions for the Fund and for other investment accounts managed
by Boston Partners are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or value
of the security as far as the Fund is concerned, in other cases it is believed
to be beneficial to the Fund.
The Fund expects that its annual portfolio turnover rate will not exceed
150%. A high rate (100% or more) of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs that must be
borne directly by the Fund, as well as the potential for increased realization
of capital gains that are paid the shareholders. The Fund anticipates that its
annual portfolio turnover rate will vary from year to year. The portfolio
turnover rate is calculated by dividing the lesser of a portfolio's annual sales
or purchases of portfolio securities (exclusive of purchases or sales of
securities whose maturities at the time of acquisition were one year or less) by
the monthly average value of the securities in the portfolio during the year.
PURCHASE AND REDEMPTION INFORMATION
RBB reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the Fund's
shares by making payment in whole or in part in securities chosen by RBB and
valued in the same way as they would be valued for purposes of computing the
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. RBB has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that the
Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of the Fund.
Under the 1940 Act, RBB may suspend the right to redemption or postpone the
date of payment upon redemption for any period during which the New York Stock
Exchange, Inc. (the "NYSE") is closed (other than customary weekend and holiday
closings), or during which trading on the NYSE is restricted, or during which
(as determined by the SEC by rule or regulation) an emergency exists as a result
of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (RBB may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
The computation of the hypothetical offering price per share of an
Institutional and Investor Share of the Fund based on the value of the Fund's
net assets and number of Institutional and Investor Shares outstanding on August
31, 1998 is as follows:
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Boston Partners Micro Cap Value Fund
Institutional Shares Investor Shares
-------------------- ---------------
Net Assets.......................... $1,119,567 $128,634
Outstanding Shares.................. 146,849 16,857
Net Asset Value per Share.......... $7.62 $7.63
Maximum Sales Charge................ $0 $0
Maximum Offering Price
to Public......................... $7.62 $7.63
VALUATION OF SHARES
The net asset values per share of each class of the Fund are calculated as
of the close of the NYSE, generally 4:00 p.m. Eastern Time on each Business Day.
"Business Day" means each weekday when the NYSE is open. Currently, the NYSE is
closed on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on the preceding Friday and subsequent Monday when one of
these holidays falls on Saturday or Sunday. Net asset value per share, the value
of an individual share in a fund, is computed by adding the value of the
proportionate interest of each class in a Fund's securities, cash and other
assets, subtracting the actual and accrued liabilities of the class, and
dividing the result by the number of outstanding shares of the class. The net
asset values of each class are calculated independently of the other classes.
Securities that are listed on stock exchanges are valued at the last sale price
on the day the securities are valued or, lacking any sales on such day, at the
mean of the bid and asked prices available prior to the evaluation. In cases
where securities are traded on more than one exchange, the securities are
generally valued on the exchange designated by the Board of Directors as the
primary market. Securities traded in the over-the-counter market and listed on
the National Association of Securities Dealers Automatic Quotation System
("NASDAQ") are valued at the last trade price listed on the NASDAQ at the close
of regular trading (generally 4:00 p.m. Eastern Time); securities listed on
NASDAQ for which there were no sales on that day and other over-the-counter
securities are valued at the mean of the bid and asked prices available prior to
valuation. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
RBB's Board of Directors. The amortized cost method of valuation may also be
used with respect to debt obligations with sixty days or less remaining to
maturity.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current
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payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by RBB's Board of
Directors.
PERFORMANCE INFORMATION
Total Return. The Fund may from time to time advertise its "average annual
total return." The Fund computes such return separately for each class of shares
by determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
ERV
T = [(-----)1/n - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
The Fund, when advertising its "aggregate total return," computes such
returns separately for each class of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - 1]
P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
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TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Investors
are urged to consult their tax advisers with specific reference to their own tax
situation.
The Fund has elected to be taxed as a regulated investment company under
Part I of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is exempt from federal
income tax on its net investment income and realized capital gains that it
distributes to shareholders, provided that it distributes an amount equal to the
sum of (a) at least 90% of its investment company taxable income (net taxable
investment income and the excess of net short-term capital gain over net
long-term capital loss, if any, for the year) and (b) at least 90% of its net
tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income made during
the taxable year or, under specified circumstances, within twelve months after
the close of the taxable year will satisfy the Distribution Requirement.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of the
Fund's total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses (the "Asset Diversification
Requirement").
Distributions of investment company taxable income will be taxable (subject
to the possible allowance of the dividend received deduction described below) to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in shares. Shareholders receiving any
distribution from the Fund in the form of additional shares will be treated as
receiving a taxable distribution in an amount equal to the fair market value of
the shares received, determined as of the reinvestment date.
The Fund intends to distribute to shareholders its net capital gain (excess
of net long-term capital gain over net short-term capital loss), if any, for
each taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as long-term capital gain regardless of the length of
time the shareholder has held his shares, whether such gain was recognized by
the Fund prior to the date on which a shareholder acquired shares of the Fund
and whether the distribution was paid in cash or reinvested in shares. The
aggregate amount of distributions designated by the Fund as capital gain
dividends may not exceed the net capital
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gain of the Fund for any taxable year, determined by excluding any net capital
loss or net long-term capital loss attributable to transactions occurring after
October 31 of such year and by treating any such loss as if it arose on the
first day of the following taxable year. Such distributions will be designated
as capital gain dividends in a written notice mailed by the Fund to shareholders
not later than 60 days after the close of the Fund's taxable year.
In the case of corporate shareholders, distributions (other than capital
gain dividends) of the Fund for any taxable year generally qualify for the
dividends received deduction to the extent of the gross amount of "qualifying
dividends" received by the Fund for the year. Generally, a dividend will be
treated as a "qualifying dividend" if it has been received from a domestic
corporation. Distributions of net investment income received by the Fund from
investments in debt securities will be taxable to shareholders as ordinary
income and will not be treated as "qualifying dividends" for purposes of the
dividends received deduction. The Fund will designate the portion, if any, of
the distribution made by the Fund that qualifies for the dividends received
deduction in a written notice mailed by the Fund to shareholders not later than
60 days after the close of the Fund's taxable year.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions will be
eligible for the dividends received deduction in the case of corporate
shareholders. Investors should be aware that any loss realized on a sale of
shares of the Fund will be disallowed to the extent an investor repurchases
shares of the Fund within a period of 61 days (beginning 30 days before and
ending 30 days after the day of disposition of the shares). Dividends paid by
the Fund in the form of shares within the 61-day period would be treated as a
purchase for this purpose.
A shareholder will recognize gain or loss upon a redemption of shares or an
exchange of shares of the Fund for shares of another Boston Partners Fund upon
exercise of the exchange privilege, to the extent of any difference between the
price at which the shares are redeemed or exchanged and the price or prices at
which the shares were originally purchased for cash.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that do not distribute with respect to each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the 1-year period ending on October 31 of such
calendar year. The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. Investors should note that the Fund may in certain
circumstances be required to liquidate investments in order to make sufficient
distributions to avoid excise tax liability.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding
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by the Internal Revenue Service for prior failure to properly report the receipt
of interest or dividend income, or (3) who has failed to certify to the Fund
that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although the Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, the Fund may be subject
to the tax laws of such states or localities.
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ADDITIONAL INFORMATION CONCERNING RBB SHARES
RBB has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 18.326 billion shares are currently
classified in 97 classes as follows: 100 million shares are classified as Class
A Common Stock (Growth & Income), 100 million shares are classified as Class B
Common Stock, 100 million shares are classified as Class C Common Stock
(Balanced), 100 million shares are classified as Class D Common Stock
(Tax-Free), 500 million shares are classified as Class E Common Stock (Money),
500 million shares are classified as Class F Common Stock (Municipal Money), 500
million shares are classified as Class G Common Stock (Money), 500 million
shares are classified as Class H Common Stock (Municipal Money), 1 billion five
hundred million shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (Government Money), 1,500
million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (Government Money), 500 million
shares are classified as Class O Common Stock (N.Y. Money), 100 million shares
are classified as Class P Common Stock (Government), 100 million shares are
classified as Class Q Common Stock, 500 million shares are classified as Class R
Common Stock (Municipal Money), 500 million shares are classified as Class S
Common Stock (Government Money), 500 million shares are classified as Class T
Common Stock, 500 million shares are classified as Class U Common Stock, 500
million shares are classified as Class V Common Stock, 100 million shares are
classified as Class W Common Stock, 50 million shares are classified as Class X
Common Stock, 50 million shares are classified as Class Y Common Stock, 50
million shares are classified as Class Z Common Stock, 50 million shares are
classified as Class AA Common Stock, 50 million shares are classified as Class
BB Common Stock, 50 million shares are classified as Class CC Common Stock, 100
million shares are classified as Class DD Common Stock, 100 million shares are
classified as Class EE Common Stock, 50 million shares are classified as Class
FF Common Stock (n/i Numeric Investors Micro Cap), 50 million shares are
classified as Class GG Common Stock (n/i Numeric Investors Growth), 50 million
shares are classified as Class HH (n/i Numeric Investors Growth & Value), 100
million shares are classified as Class II Common Stock, 100 million shares are
classified as Class JJ Common Stock, 100 million shares are classified as Class
KK Common Stock, 100 million shares are classified as Class LL Common Stock, 100
million shares are classified as Class MM Common Stock, 100 million shares are
classified as Class NN Common Stock, 100 million shares are classified as Class
OO Common Stock, 100 million shares are classified as Class PP Common Stock, 100
million shares are classified as Class QQ Common Stock (Boston Partners
Institutional Large Cap), 100 million shares are classified as Class RR Common
Stock (Boston Partners Investor Large Cap), 100 million shares are classified as
Class SS Common Stock (Boston Partners Advisor Large Cap), 100 million shares
are classified as Class TT Common Stock (Boston Partners Investor Mid Cap), 100
million shares are classified as Class UU Common Stock (Boston Partners
Institutional Mid Cap), 100 million shares are classified as Class VV Common
Stock (Boston Partners Institutional Bond), 100 million shares are classified as
Class WW Common Stock (Boston Partners Investor Bond), 50 million shares are
classified as Class XX Common Stock (n/i Numeric Investors Larger Cap Value),
100 million shares are classified as Class YY Common Stock (Schneider Capital
Management Small Cap Value), 100 million shares are classified as Class ZZ
Common Stock, 100 million shares of Class AAA Common Stock, 100 million shares
are classified as Class BBB Common Stock, 100 million shares of Class CCC Common
Stock, 100 million shares are classified as Class DDD Common Stock (Boston
Partners Institutional Micro Cap), 100 million shares are classified as Class
EEE Common Stock (Boston Partners Investors Micro Cap), 100 million shares are
classified as Class FFF Common Stock, 100 million shares are classified as Class
GGG Common Stock, 100 million shares are classified as Class HHH Common Stock,
100 million shares are classified as Class III Common Stock (Boston Partners
Institutional Market Neutral), 100 million shares are classified as Class JJJ
Common Stock (Boston Partners Investor Market Neutral), 100 million shares are
classified as Class KKK Common Stock (Boston Partners Institutional Long-Short
Equity) 100 million shares are classified as Class LLL common stock (Boston
Partners Investor Long-Short Equity), 100 million shares are classified as Class
MMM Common Stock (n/i Small Cap Value), 3 billion shares are classified as Class
<PAGE>
Janney Money Common Stock (Money), 200 million shares are classified as Class
Janney Municipal Money Common Stock (Municipal Money), 200 million shares are
classified as Class Janney Government Money Common Stock (Government Money), 100
million shares are classified as Class Janney N.Y. Municipal Money Common Stock
(N.Y. Money), 700 million shares are classified as Class Select Common Stock
(Money), 1 million shares are classified as Class Beta 2 Common Stock (Municipal
Money), 1 million shares are classified as Class Beta 3 Common Stock (Government
Money), 1 million shares are classified as Class Beta 4 Common Stock (N.Y.
Money), 700 million shares are classified as Principal Class Money Common Stock
(Money), 1 million shares are classified as Gamma 2 Common Stock (Municipal
Money), 1 million shares are classified as Gamma 3 Common Stock (Government
Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y. Money), 1
million shares are classified as Delta 1 Common Stock (Money), 1 million shares
are classified as Delta 2 Common Stock (Municipal Money), 1 million shares are
classified as Delta 3 Common Stock (Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Epsilon 1 Common Stock (Money), 1 million shares are classified as Epsilon 2
Common Stock (Municipal Money), 1 million shares are classified as Epsilon 3
Common Stock (Government Money), 1 million shares are classified as Epsilon 4
Common Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common
Stock (Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of the Classes DDD and EEE Common Stock
constitute the Boston Partners Micro Cap Fund, described herein. Under
RBB's charter, the Board of Directors has the power to classify or reclassify
any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Principal (Gamma) Family, the Janney Montgomery
Scott Money Family, the Select (Beta) Family, the Schneider Capital Management
Family, the n/i numeric investors family of funds, the Boston Partners Family,
the Delta Family, the Epsilon Family, the Zeta Family, the Eta Family and the
Theta Family. The RBB Family represents interests in the Government Securities
Portfolio; the Cash Preservation Family represents interest in the Money Market,
Municipal Money Market Funds; the Sansom Street Family represents interests in
the Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the n/i numeric investors family of funds
represents interests in five non-money market portfolios; the Boston Partners
Family represents interests in five non-money market portfolios; the Schneider
Capital Management Family represents interests in one non-money market
portfolio; the Janney Montgomery Scott Family, the Select (Beta) Family, the
Principal (Gamma) Family and the Delta, Epsilon, Zeta, Eta and Theta Families
represent interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Funds.
RBB does not currently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. RBB's amended
By-Laws provide that shareholders owning at least ten percent of the outstanding
shares of all classes of Common Stock of RBB have the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, RBB will assist in shareholder communication in such
matters.
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As stated in the Prospectus, holders of shares of each class of the Fund
will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular portfolio. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted by the provisions of
the 1940 Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding voting securities, as defined in the 1940 Act, of
each portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of the portfolio. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a portfolio only if approved by
the holders of a majority of the outstanding voting securities, as defined in
the 1940 Act, of such portfolio. However, Rule 18f-2 also provides that the
ratification of the selection of independent public accountants and the election
of directors are not subject to the separate voting requirements and may be
effectively acted upon by shareholders of an investment company voting without
regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of RBB's common stock (or of any class voting as a class) in connection
with any corporate action, unless otherwise provided by law, or by RBB's
Articles of Incorporation, RBB may take or authorize such action upon the
favorable vote of the holders of more than 50% of all of the outstanding shares
of Common Stock entitled to vote on the matter voting without regard to class
(or portfolio).
MISCELLANEOUS
Counsel. The law firm of Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496 serves as counsel to RBB and the
non-interested directors.
Independent Accountants. PricewaterhouseCoopers LLP, 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as RBB's independent
accountants.
Control Persons. As of November 16, 1998, to RBB's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of each class of RBB indicated below. See
"Additional Information Concerning RBB Shares" above. RBB does not know whether
such persons also beneficially own such shares.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
<S> <C> <C>
CASH PRESERVATION MONEY MARKET Jewish Family and Children's Agency of Phil 44.097%
Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- ------------------------------------ ------------------------------------------------ -------------------------------
Marian E. Kunz 11.070%
52 Weiss Ave.
Flourtown, PA 19031
- ------------------------------------ ------------------------------------------------ -------------------------------
Dominic & Barbara Pisciotta 5.734%
And Successors In Tr Under The Dominic TRST &
Barbara Pisciotta Caring TR DTD
01/24/92
207 Woodmere Way
St. Charles, ,MO 63303
- ------------------------------------ ------------------------------------------------ -------------------------------
Betty L. Thomas 5.045%
TRST Thomas Living Trust
DTD 06/19/92
838 Lynn Haven Lane
Hazelwood, MO 63042-3415
- ------------------------------------ ------------------------------------------------ -------------------------------
SAMSON STREET MONEY MARKET Saxon and Co. 75.343%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------ ------------------------------------------------ -------------------------------
Wasner & Co. for Account of 24.017%
Paine Webber and Managed Assets Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- ------------------------------------ ------------------------------------------------ -------------------------------
CASH PRESERVATOIN Gary L. Lange 40.150%
MUNICIPAL MONEY MARKET and Susan D. Lange
JT TEN
837 Timber Glen Ln
Ballwin, MO 63021-6066
- ------------------------------------ ------------------------------------------------ -------------------------------
Andrew Diederich and 5.236%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Kenneth Farwell 7.228%
and Valerie Farwell JT TEN
3854 Sullivan
St. Louis, MO 63107
- ------------------------------------ ------------------------------------------------ -------------------------------
Terry H. Williams 13.686%
And Nancy L. Williams
JT TEN
2508 Janel Ct
Oakville, MO 63129
- ------------------------------------ ------------------------------------------------ -------------------------------
Emil R. Hunter and 8.325%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc 11.848%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds A/C 3143-0251
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Janis Claflin, Bruce Fetzer and 5.431%
Winston Franklin, Robert Lehman Trst The John
E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christina Adams
9292 West KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Public Inst. For Social Security 7.614%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- ------------------------------------ ------------------------------------------------ -------------------------------
Portland General Holdings Inc. 19.715%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- ------------------------------------ ------------------------------------------------ -------------------------------
State Street Bank and Trust Company 8.823%
FBO Yale Univ. Ret. Pln for Staff Emp
State Street Bank & Tr Co. Master Tr. Div
Attn: Kevin Sutton
Solomon Williard Bldg. One Enterprise Dr.
North Quincy, MA 02171
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.352%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Citibank North America Inc. 21.781%
Trst Sargent & Lundy Retirement Trust
DTD 06/01/96
Mutual Fund Unit
Bld. B Floor 1 Zone 7
3800 Citibank Center Tampa
Tampa, FL 33610-9122
- ------------------------------------ ------------------------------------------------ -------------------------------
U.S. Equity Investment Portfolio LP 6.526%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.882%
Trst Sunkist Growers-Match-Svgs Pln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I GROWTH AND VALUE FUND Charles Schwab & Co. Inc. 19.824%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute Inc. 8.505%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
Bankers Trust Cust Pge-Enron Foundation 5.829%
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- ------------------------------------ ------------------------------------------------ -------------------------------
N/I LARGER CAP VALUE FUND Charles Schwab & Co. Inc 14.989%
Special Custody Account for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Bank of America NT & SA 17.543%
FBO Community Hospital Central Cal Pn Pl
A/C 10-35-155-2048506
Attn: Mutual Funds 38615
P.O. Box 513577
Los Angeles, CA 90051
- ------------------------------------ ------------------------------------------------ -------------------------------
The John E. Fetzer Institute, Inc. 46.381%
Attn. Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND Dr. Janice B. Yost 12.275%
INST SHARES Trst Mary Black Foundation Inc.
Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- ------------------------------------ ------------------------------------------------ -------------------------------
US Bank National Association 10.754%
FBO A-DEC Inc DOT 093098
Attn: Mutual Funds a/c 97307536
PO Box 64010
St. Paul, MN 55164-0010
- ------------------------------------ ------------------------------------------------ -------------------------------
Irving Fireman's Relief & Ret Fund 5.774%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- ------------------------------------ ------------------------------------------------ -------------------------------
Miter & Co. 10.207%
c/o M&I Trust
PO Box 2977
Milwaukee, WI 53202
- ------------------------------------ ------------------------------------------------ -------------------------------
Union Bank of California 5.676%
FBO Service Employers
TR610001265-01
PO Box 120109
San Diego, CA 92112-0109
- ------------------------------------ ------------------------------------------------ -------------------------------
Swanee Hunt and Charles Ansbacher 5.939%
Trst The Swanee Hunt Family Fund
c/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS LARGE CAP FUND National Financial Services Corp. 17.202%
INVESTOR SHARES For the Exclusive Bene of Our Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 73.563%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND Donaldson Lufkin & Jenrette 8.340%
INST. SHARES Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------ ------------------------------------------------ -------------------------------
The Northern Trust Company 12.001%
FBO Thomas & Betts Master
Retirement Trust
8155 T&B Blvd
Memphis, TN 38123
- ------------------------------------ ------------------------------------------------ -------------------------------
MAC & CO. 6.901%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- ------------------------------------ ------------------------------------------------ -------------------------------
Coastal Insurance Enterprises Inc. 6.311%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- ------------------------------------ ------------------------------------------------ -------------------------------
U P Plumbers & Pipefitters 5.298%
Pension Fund
c/o James E. Schreiber Admin Manager
241 E. Saginaw St Ste 601
East Lansing, MI 48823-2791
- ------------------------------------ ------------------------------------------------ -------------------------------
NAIDOT & Co. 5.988%
c/o Bessemer Trust Co
100 Woodbridge Center Dr
Woodbridge, NJ 07095
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs Corp. for Exclusive 16.614%
INV SHARES Bene of Our Customers
Sal Vella
200 Liberty St.
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co. Inc. 40.369%
Special Custody Account for Bene of Cust
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
Jupiter & Co. 5.488%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02110
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND Boston Partners Asset Mgmt LP 31.956%
INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
Chiles Foundation 25.779%
111 S.W. Fifth Ave.
Ste 4050
Portland, OR 97204
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 34.191%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
The Roman Catholic Diocese of 8.035%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 77.073%
SHARES Special Custody Account for Bene of Cust
Stattn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
Stephen W. Hamilton 15.291%
17 Lakeside Ln
N. Barrington, IL 60010
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS Desmond J. Heathwood 8.339%
MICRO CAP VALUE 41 Chestnut St.
FUND- INSTITUTIONAL Boston, MA 02108
SHARES
- ------------------------------------ ------------------------------------------------ -------------------------------
Boston Partners Asset Mgmt LP 65.971%
28 State Street
Boston, MA 02111
- ------------------------------------ ------------------------------------------------ -------------------------------
Wayne Archambo 6.630%
42 DeLopa Cir
Westwood, MA 02090
- ------------------------------------ ------------------------------------------------ -------------------------------
David M. Dabora 6.630%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------ ------------------------------------------------ -------------------------------
<PAGE>
- ------------------------------------ ------------------------------------------------ -------------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS National Financial Services Corp. 32.992%
MICRO CAP VALUE For the Exclusive Bene of our Customers
FUND- INVESTOR Attn. Mutual Funds 5th Floor
SHARES 200 Liberty St.
1 World Financial Center
New York, NY 10281
- ------------------------------------ ------------------------------------------------ -------------------------------
Scott J. Harrington 41.867%
54 Torino Ct.
Danville, CA 94526
- ------------------------------------ ------------------------------------------------ -------------------------------
Charles Schwab & Co Inc 18.035%
Special Custody Account
For Bene of Cust
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INSTITUTIONAL SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt L.P. 100.00%
FUND - INVESTOR SHARES 28 State Street
Boston, MA 02109
- ------------------------------------ ------------------------------------------------ -------------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 28.607%
SEP IRA
826 Turnbridge Rd
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
SCM Retirement Plan 15.660%
Profit Sharing Plan
460 E. Swedesford Rd
Ste 1080
Wayne, PA 19087
- ------------------------------------ ------------------------------------------------ -------------------------------
Durward A. Huckabay 9.176%
And Susan S. Huckabay
TRST Huckabay 1987 Trust
U/A DTD 11/6/87
2531 Lakeridge Shores Cir
Reno, NV 89509
- ------------------------------------ ------------------------------------------------ -------------------------------
John Frederic Lyness 27.193%
81 Hillcrest Ave
Summit NJ 07901
- ------------------------------------ ------------------------------------------------ -------------------------------
Ronald L. Gault 8.704%
IRA
439 W. Nelson St
Lexington, VA 24450
- ------------------------------------ ------------------------------------------------ -------------------------------
</TABLE>
-24-
<PAGE>
As of the same date, directors and officers as a group owned less than one
percent of the shares of RBB.
Other Communications. From time to time, references to the Fund may appear
in advertisements and sales literature for certain products or services offered
by the Adviser, its affiliates or others, through which it is possible to invest
in one or more Funds managed by the Adviser.
The Fund may also from time to time include discussions or illustrations of
the effects of compounding in advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Fund investment are reinvested by
being paid in additional Fund shares, any future income or capital appreciation
of a Fund would increase the value, not only of the original Fund investment,
but also of the additional Fund shares received through reinvestment. As a
result, the value of the Fund investment would increase more quickly than if
dividends or other distributions had been paid in cash.
The Fund or Adviser may also include discussions or illustrations of the
potential investment goals of a prospective investor, investment management
strategies, techniques, policies or investment suitability of a Fund or that
employed by the Adviser (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer, automatic accounting
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable instruments), economic conditions, risk and volatility assessments, the
relationship between sectors of the economy and the economy as a whole, various
securities markets, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
bills. The Fund or Adviser may also include in such advertisements or
communications additional information concerning the Adviser and/or its
employees or owners, its management philosophies, operating strategies and other
advisory clients, as well as statements about the Adviser attributed to others.
From time to time advertisements or communications to shareholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of the Fund), as well as the view of the Adviser or Fund
as to current market, economy, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Fund or an investor generally. The Fund or
Adviser may also include in advertisements charts, graphs or drawings which
compare the investment objective, return potential, relative stability and/or
growth possibilities of the Fund and/or other mutual funds, or illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, Treasury bills and shares of the
Fund. In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund and/or other mutual funds, shareholder profiles and hypothetical
investor scenarios, timely information on financial management, tax and
retirement planning and investment alternatives to certificates of deposit and
other financial instruments. Such advertisements or communications may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
Banking Laws. Banking laws and regulations currently prohibit a bank
holding company registered under the Federal Bank Holding Company Act of
-25-
<PAGE>
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. Boston Partners Asset Management, Inc., PNC Bank
and other institutions that are banks or bank affiliates are subject to such
banking laws and regulations.
Boston Partners Asset Management, Inc. and PNC Bank believe they may
perform the services for the Fund contemplated by their respective agreements
with the Fund without violation of applicable banking laws or regulations. It
should be noted, however, that there have been no cases deciding whether bank
and non-bank subsidiaries of a registered bank holding company may perform
services comparable to those that are to be performed by these companies, and
future changes in either federal or state statutes and regulations relating to
permissible activities of banks and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent these companies from continuing
to perform such services for the Fund. If such were to occur, it is expected
that the Board of Directors would recommend that the Fund enter into new
agreements or would consider the possible termination of the Fund. Any new
advisory 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.
-26-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Funds' Annual
Report to Shareholders (the "1998 Annual Report") for the fiscal year ended
August 31, 1998 are incorporated by reference into this Statement of Additional
Information. No other parts of the 1998 Annual Report are incorporated by
reference herein. The financial statements included in the 1998 Annual Report
have been audited by RBB's independent accountants, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers").The reports of PricewaterhouseCoopers are
incorporated herein by reference, and 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 1998 Annual Report may be
obtained free of charge by telephoning PFPC at (888) 261-4073.
-27-
<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" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit 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.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category 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. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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.
"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.
<PAGE>
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect 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 the 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 to 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
<PAGE>
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
<PAGE>
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to
nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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 nonpayment.
"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. The "D"
rating category 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. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.
<PAGE>
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "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 operating 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 to be 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 in periods of greater 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.
<PAGE>
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 IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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 the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is
in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") 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.
There is present 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 that are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A of the Registration Statement:
Financial Highlights (audited) for the Cash
Preservation Classes of the Money Market and the Municipal
Money Market Portfolios for the years ended August 31, 1998,
1997, 1996, 1995, 1994, 1993, 1992, 1991 and 1990 and the
period from commencement of operations (September 30, 1988) to
August 31, 1989; for the Bedford Classes of the Money Market,
Municipal Money Market and Government Obligations Money Market
Portfolios for the years ended August 31, 1998, 1997, 1996,
1995, 1994, 1993, 1992, 1991, 1990 and the period from
commencement of operations (September 30, 1988) to August 31,
1989,; for the Sansom Street Class of the Money Market
Portfolio for the years ended August 31, 1998, 1997, 1996,
1995, 1994, 1993, 1992, 1991, 1990 and for the period from
commencement of operations (September 30, 1988) to August 31,
1989, and for the Sansom Street Class of the Municipal Money
Market Portfolio for the years ended August 31, 1993, 1992,
1991 and 1990 and for the period from commencement of
operations (September 30, 1988) to August 31, 1989, and for
the Sansom Street Class of the Government Obligations Money
Market Portfolio for the years ended August 31, 1992, 1991 and
1990 and for the period from commencement of operations
(October 18, 1988) to August 31, 1989; for the RBB Class of
the Government Securities Portfolio for the years ended August
31, 1998, 1997, 1996, 1995, 1994, 1993 and 1992 and for the
period from commencement of operations (August 1, 1991) to
August 31, 1991; for the Janney Montgomery Scott Class of the
Money Market, Municipal Money Market and Government
Obligations Money Market Portfolios for the years ended August
31, 1998, 1997 and 1996 and for the period from commencement
of operations (June 12, 1995) to August 31, 1995, and for the
Janney Montgomery Scott Class of the New York Municipal Money
Market Portfolio for the years ended August 31, 1998, 1997 and
1996 and for the period from commencement of operations (June
9, 1995) to August 31, 1995; and for the Institutional Shares
of the Boston Partners Large Cap Value Fund for the year ended
August 31, 1998 and for the period from commencement of
operations (January 2, 1997) to August 31, 1997, and for the
Investor Shares of the Boston Partners Large Cap Value Fund
for the year ended August 31, 1998, and for the period from
commencement of operations (January 16, 1997) through August
31, 1997; and for the Institutional and Investor Shares of the
Boston Partners Mid Cap Value Fund for the year ended August
31, 1998 and for for the period from commencement of
operations (June 2, 1997) to August 31, 1997; and for the
Institutional and Investor Shares of the Boston Partners Bond
Fund for the period from commencement of operations (December
30, 1997) through August 31, 1998; and for the Institutional
and Investor Shares of the Boston Partners Micro Cap Value
Fund for the period from commencement of operations (July 1,
1998) through August 31, 1998.
(2) Incorporated by reference into Part B:
Audited Financial Statements included in the
Registrant's August 31, 1998 Annual Report to Shareholders,
copies of which have been filed with the U.S. Securities and
Exchange Commission are incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits: SEE NOTE #
<S> <C> <C> <C>
(1) (a) Articles of Incorporation of Registrant. 1
(b) Articles Supplementary of Registrant. 1
(c) Articles of Amendment to Articles of Incorporation of Registrant. 2
(d) Articles Supplementary of Registrant. 2
(e) Articles Supplementary of Registrant. 5
(f) Articles Supplementary of Registrant. 6
(g) Articles Supplementary of Registrant. 9
(h) Articles Supplementary of Registrant. 10
(i) Articles Supplementary of Registrant. 11
(j) Articles Supplementary of Registrant. 11
(k) Articles Supplementary of Registrant. 13
(l) Articles Supplementary of Registrant. 13
(m) Articles Supplementary of Registrant. 13
(n) Articles Supplementary of Registrant. 13
(o) Articles Supplementary of Registrant. 14
(p) Articles Supplementary of Registrant. 17
(q) Articles Supplementary of Registrant. 19
(r) Articles Supplementary of Registrant. 21
(s) Articles of Amendment to Charter of the Registrant. 22
(t) Articles Supplementary of Registrant. 22
(u) Articles Supplementary of Registrant. 31
(v) Articles Supplementary of Registrant. 31
(w) Articles Supplementary of Registrant. 29
(x) Articles Supplementary of Registrant 29
(2) (a) By-Laws, as amended. 22
(3) None.
(4) (a) See Articles VI, VII, VIII, IX and XI of Registrant's 1
Articles of Incorporation dated February 17, 1988.
(b) See Articles II, III, VI, XIII, and XIV of Registrant's By-Laws as 17
amended through April 26, 1996.
(5) (a) Investment Advisory Agreement (Money Market) between 3
Registrant and Provident Institutional Management Corporation, dated
as of August 16, 1988.
(b) Sub-Advisory Agreement (Money Market) between 3
Provident Institutional Management Corporation and Provident National
Bank, dated as of August 16, 1988.
(c) Investment Advisory Agreement (Tax-Free Money 3
Market) between Registrant and Provident Institutional Management
Corporation, dated as of August 16, 1988.
(d) Sub-Advisory Agreement (Tax-Free Money Market) 3
between Provident Institutional Management Corporation and Provident
National Bank, dated as of August 16, 1988.
(e) Investment Advisory Agreement (Government 3
Obligations Money Market) between Registrant and Provident
Institutional Management Corporation, dated as of August 16, 1988.
(f) Sub-Advisory Agreement (Government Obligations Money 3
Market) between Provident Institutional Management Corporation and
Provident National Bank, dated as of August 16, 1988.
(g) Investment Advisory Agreement (Government Securities) between 8
Registrant and Provident Institutional Management Corporation dated
as of April 8, 1991.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits: SEE NOTE #
<S> <C> <C>
(h) Investment Advisory Agreement (New York Municipal Money Market) 9
between Registrant and Provident Institutional Management Corporation
dated November 5, 1991.
(i) Investment Advisory Agreement (Tax-Free Money Market) between 10
Registrant and Provident Institutional Management Corporation dated
April 21, 1992.
(j) Investment Advisory Agreement (n/i Micro Cap Fund) between Registrant 17
and Numeric Investors, L.P.
(k) Investment Advisory Agreement (n/i Growth Fund) between Registrant 17
and Numeric Investors, L.P.
(l) Investment Advisory Agreement (n/i Growth & Value Fund) between 17
Registrant and Numeric Investors, L.P.
(m) Investment Advisory Agreement (Boston Partners Large Cap Value Fund) 20
between Registrant and Boston Partners Asset Management, L.P.
(n) Investment Advisory Agreement (Boston Partners Mid 22
Cap Value Fund) 22 between Registrant and Boston
Partners Asset Management, L.P.
(o) Investment Advisory Agreement (n/i Larger Cap Value 24
Fund) between 24 Registrant and Numeric Investors,
L.P. dated December 1, 1997.
(p) Investment Advisory Agreement (Boston Partners Bond Fund) between 24
Registrant and Boston Partners Asset Management, L.P. dated December
1, 1997.
(q) Investment Advisory Agreement (Schneider Small Cap Value Fund) 29
between Registrant and Schneider Capital Management Company.
(r) Investment Advisory Agreement (Boston Partners Micro Cap Value Fund) 29
between Registrant and Boston Partners Asset Management, L.P.
(s) Investment Advisory Agreement (Boston Partners Market 31
Neutral Fund) 31 between Registrant and Boston
Partners Asset Management, L.P.
(t) Investment Advisory Agreement (n/i Small Cap Value Fund) between 32
Registrant and Numeric Investors, L.P.
(6) (a) Distribution Agreement between Registrant and Provident 26
Distributors, Inc. dated as of May 29, 1998.
(b) Distribution Agreement Supplement between Registrant and Provident 31
Distributors, Inc. (Boston Partners Market Neutral Fund -
Institutional Class).
(c) Distribution Agreement Supplement between Registrant and Provident 31
Distributors, Inc. (Boston Partners Market Neutral Fund - Investor
Class).
(d) Distribution Agreement Supplement between Registrant and Provident 32
Distributors, Inc. (n/i Small Cap Value Fund).
(7) Fund Office Retirement Profit-Sharing and Trust Agreement, dated as of 23
October 24, 1990, as amended.
(8) (a) Custodian Agreement between Registrant and Provident 3
National Bank dated as of August 16, 1988.
(b) Sub-Custodian Agreement among The Chase Manhattan Bank, N.A., the 10
Registrant and Provident National Bank, dated as of July 13, 1992,
relating to custody of Registrant's foreign securities.
(c) Amendment No. 1 to Custodian Agreement dated August 16, 1988. 9
(d) Custodian Contract between Registrant and State Street Bank and Trust 12
Company.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits: SEE NOTE #
<S> <C> <C>
(e) Custody Agreement between Registrant and Custodial Trust Company on 17
behalf of n/i Micro Cap Fund, n/i Growth Fund and n/i Growth & Value
Fund Portfolios of the Registrant.
(f) Custodian Agreement Supplement Between Registrant and PNC Bank, 20
National Association dated October 16, 1996.
(g) Custodian Agreement Supplement between Registrant and PNC Bank, 22
National Association, on behalf of the Boston Partners Mid Cap Value
Fund.
(h) Custody Agreement between Registrant and Custodial Trust Company on 24
behalf of the n/i Larger Cap Value Fund.
(i) Custodian Agreement Supplement between Registrant and PNC Bank, N.A. 24
on behalf of the Boston Partners Bond Fund.
(j) Custodian Agreement Supplement between Registrant and PNC Bank, N.A. 29
on behalf of the Schneider Small Cap Value Fund.
(k) Custodian Agreement Supplement between Registrant and PNC Bank, N.A. 29
on behalf of the Boston Partners Micro Cap Value Fund.
(l) Custodian Agreement Supplement between Registrant and PNC Bank, N.A. 31
on behalf of Boston Partners Market Neutral Fund.
(m) Custodian Agreement Supplement between Registrant and Custodial Trust 31
Company on behalf of n/i Small Cap Value Fund.
(9) (a) Transfer Agency Agreement (Sansom Street) between Registrant 3
and Provident Financial Processing Corporation, dated as of
August 16, 1988.
(b) Transfer Agency Agreement (Cash Preservation) between Registrant and 3
Provident Financial Processing Corporation, dated as of August 16,
1988.
(c) Shareholder Servicing Agreement (Sansom Street Money Market). 3
(d) Shareholder Servicing Agreement (Sansom Street Tax-Free Money Market). 3
(e) Shareholder Servicing Agreement (Sansom Street Government Obligations 3
Money Market).
(f) Shareholder Services Plan (Sansom Street Money Market). 3
(g) Shareholder Services Plan (Sansom Street Tax-Free Money Market). 3
(h) Shareholder Services Plan (Sansom Street Government Obligations Money 3
Market).
(i) Transfer Agency Agreement (Bedford) between Registrant and Provident 3
Financial Processing Corporation, dated as of August 16, 1988.
(j) Administration and Accounting Services Agreement between Registrant 8
and Provident Financial Processing Corporation, relating to
Government Securities Portfolio, dated as of April 10, 1991.
(k) Administration and Accounting Services Agreement between Registrant 9
and Provident Financial Processing Corporation, relating to New York
Municipal Money Market Portfolio dated as of November 5, 1991.
(l) Transfer Agency Agreement and Supplements (Bradford, Alpha (now known 9
as Janney), Beta, Gamma, Delta, Epsilon, Zeta, Eta and Theta) between
Registrant and Provident Financial Processing Corporation dated as of
November 5, 1991.
(m) Administration and Accounting Services Agreement between Registrant 10
and Provident Financial Processing Corporation, relating to Tax-Free
Money Market Portfolio, dated as of April 21, 1992.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits: SEE NOTE #
<S> <C> <C>
(n) Transfer Agency and Service Agreement between 15
Registrant and State 15 Street Bank and Trust Company
and PFPC, Inc. dated February 1, 1995.
(o) Supplement to Transfer Agency and Service Agreement between 16
Registrant, State Street Bank and Trust Company, Inc. and PFPC dated
April 10, 1995.
(p) Amended and Restated Credit Agreement dated December 15, 1994. 16
(q) Transfer Agency Agreement Supplement (n/i Micro Cap Fund, n/i Growth 17
Fund and n/i Growth & Value Fund) between Registrant and PFPC, Inc.
dated April 14, 1996.
(r) Administration and Accounting Services Agreement between Registrant 17
and PFPC, Inc. (n/i Micro Cap Fund) dated April 24, 1996.
(s) Administration and Accounting Services Agreement between Registrant 17
and PFPC, Inc. (n/i Growth Fund) dated April 24, 1996.
(t) Administration and Accounting Services Agreement 17
between Registrant 17 and PFPC, Inc. (n/i Growth &
Value Fund) dated April 24, 1996.
(u) Transfer Agreement and Service Agreement between Registrant and State 18
Street Bank and Trust Company.
(v) Administration and Accounting Services Agreement between the 21
Registrant and PFPC Inc. dated October 16, 1996 (Boston Partners
Large Cap Value Fund).
(w) Transfer Agency Agreement Supplement between Registrant and PFPC Inc. 20
(Boston Partners Large Cap Value Fund, Institutional Class).
(x) Transfer Agency Agreement Supplement between Registrant and PFPC Inc. 20
(Boston Partners Large Cap Value Fund, Investor Class).
(y) Transfer Agency Agreement Supplement between Registrant and PFPC Inc. 20
(Boston Partners Large Cap Value Fund, Advisor Class).
(z) Transfer Agency Agreement Supplement between 22
Registrant and PFPC 22 Inc., (Boston Partners Mid Cap
Value Fund, Institutional Class).
(aa) Transfer Agency Agreement Supplement between Registrant and PFPC 22
Inc., (Boston Partners Mid Cap Value Fund, Investor Class).
(bb) Administration and Accounting Services Agreement between Registrant 22
and PFPC Inc. dated, May 30, 1997 (Boston Partners Mid Cap Value
Fund).
(cc) Transfer Agency Agreement Supplement (n/i Larger Cap Value Fund) 24
between Registrant and PFPC, Inc. dated December 1, 1997.
(dd) Administration and Accounting Services Agreement between Registrant 24
and PFPC, Inc. dated December 1, 1997 (n/i Larger Cap Value Fund).
(ee) Co-Administration Agreement between Registrant and Bear Stearns Funds 24
Management, Inc. dated December 1, 1997 (n/i Larger Cap Value Fund).
(ff) Transfer Agency Agreement Supplement between Registrant and PFPC, 24
Inc. dated December 1, 1997 (Boston Partners Bond Fund, Institutional
Class).
(gg) Transfer Agency Agreement Supplement between Registrant and PFPC, 24
Inc. dated December 1, 1997 (Boston Partners Bond Fund, Investor
Class).
(hh) Administration and Accounting Services Agreement between Registrant 24
and PFPC, Inc. dated December 1, 1997 (Boston Partners Bond Fund).
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits: SEE NOTE #
<S> <C> <C>
(ii) Administration and Accounting Services Agreement between Registrant 29
and PFPC Inc. (Schneider Small Cap Value Fund).
(jj) Transfer Agency Agreement Supplement between Registrant and PFPC Inc. 29
(Schneider Small Cap Value Fund).
(kk) Transfer Agency Agreement Supplement between Registrant and PFPC, 29
Inc. (Boston Partners Micro Cap Value Fund, Institutional Class).
(ll) Transfer Agency Agreement Supplement between Registrant and PFPC, 29
Inc. (Boston Partners Micro Cap Value Fund, Investor Class).
(mm) Administration and Accounting Services Agreement between Registrant 29
and PFPC, Inc. (Boston Partners Micro Cap Value Fund).
(nn) Administrative Services Agreement between Registrant and Provident 26
Distributors, Inc. dated as of May 29, 1998 and relating to the n/i
funds, Schneider Small Cap Value Fund and Institutional Shares of the
Boston Partners Funds.
(oo) Administrative Services Agreement Supplement between Registrant and 31
Provident Distributors, Inc. relating to the Boston Partners Market
Neutral Fund (Institutional Class).
(pp) Administrative and Accounting Services Agreement between Registrant 31
and PFPC, Inc. (Boston Partners Market Neutral Fund - Institutional
and Investor Classes).
(qq) Transfer Agency Agreement Supplement between Registrant and PFPC, 31
Inc. (Boston Partners Market Neutral Fund - Institutional and
Investor Classes).
(rr) Transfer Agency Agreement Supplement between Registrant and PFPC, 31
Inc. (n/i Small Cap Value Fund).
(ss) Administration and Accounting Services Agreement between Registrant 31
and PFPC, Inc. (n/i Small Cap Value Fund).
(tt) Co-Administration Agreement between Registrant and Bear Stearns Funds 31
Management, Inc. (n/i Small Cap Value Fund).
(uu) Administrative Services Agreement between Registrant and Provident 31
Distributors, Inc. (n/i Small Cap Value Fund).
(10) Opinion of Counsel as to validity of shares issued. 32
(11) (a) Consent of Drinker Biddle & Reath LLP. 32
(b) Consent of Independent Auditor. 32
(12) None.
(13) (a) Subscription Agreement (relating to Classes A through N). 2
(b) Subscription Agreement between Registrant and Planco Financial 7
Services, Inc., relating to Classes O and P.
(c) Subscription Agreement between Registrant and Planco Financial 7
Services, Inc., relating to Class Q.
(d) Subscription Agreement between Registrant and 9
Counsellors Securities 9 Inc. relating to Classes R,
S, and Alpha 1 through Theta 4.
(e) Purchase Agreement between Registrant and Numeric Investors, L.P. 17
relating to Class FF (n/i Micro Cap Fund).
(f) Purchase Agreement between Registrant and Numeric Investors, L.P. 17
relating to Class GG (n/i Growth Fund).
(g) Purchase Agreement between Registrant and Numeric Investors, L.P. 17
relating to Class HH (n/i Growth & Value Fund).
(h) Purchase Agreement between Registrant and Boston Partners Asset 21
Management, L.P. relating to Classes QQ, RR and SS (Boston Partners
Large Cap Value Fund).
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits: SEE NOTE #
<S> <C> <C>
(i) Purchase Agreement between Registrant and Boston Partners Asset 22
Management, L.P. relating to Classes TT and UU (Boston Partners Mid
Cap Value Fund).
(j) Purchase Agreement between Registrant and Boston Partners Asset 24
Management L.P. relating to Classes VV and WW (Boston Partners Bond
Fund).
(k) Purchase Agreement between Registrant and Numeric Investors, L.P. 24
relating to Class XX (n/i Larger Cap Value Fund).
(l) Purchase Agreement between Registrant and Schneider Capital 29
Management Company relating to Class YY (Schneider Small Cap Value
Fund).
(m) Purchase Agreement between Registrant and Boston Partners Asset 29
Management, L.P. relating to Classes DDD and EEE (Boston Partners
Micro Cap Value Fund).
(n) Purchase Agreement between Registrant and Boston Partners Asset 31
Management relating to Classes III and JJJ (Boston Partners Market
Neutral Fund).
(o) Purchase Agreement between Registrant and Provident Distributors, 31
Inc. relating to Class MMM (n/i Small Cap Value Fund).
(14) None.
(15) (a) Plan of Distribution (Sansom Street Money Market). 3
(b) Plan of Distribution (Sansom Street Tax-Free Money Market). 3
(c) Plan of Distribution (Sansom Street Government Obligations Money 3
Market).
(d) Plan of Distribution (Cash Preservation Money). 3
(e) Plan of Distribution (Cash Preservation Tax-Free Money Market). 3
(f) Plan of Distribution (Bedford Money Market). 3
(g) Plan of Distribution (Bedford Tax-Free Money Market). 3
(h) Plan of Distribution (Bedford Government Obligations Money Market). 3
(i) Plan of Distribution (Income Opportunities High Yield). 7
(j) Amendment No. 1 to Plans of Distribution (Classes A through Q). 8
(k) Plan of Distribution (Alpha (now known as Janney) Money Market). 9
(l) Plan of Distribution (Alpha (now known as Janney) Tax-Free Money 9
Market (now known as the Municipal Money Market)).
(m) Plan of Distribution (Alpha (now known as Janney) Government 9
Obligations Money Market).
(n) Plan of Distribution (Alpha (now known as Janney) New York Municipal 9
Money Market).
(o) Plan of Distribution (Beta Tax-Free Money Market). 9
(p) Plan of Distribution (Beta Government Obligations Money Market). 9
(q) Plan of Distribution (Beta New York Money Market). 9
(r) Plan of Distribution (Gamma Tax-Free Money Market). 9
(s) Plan of Distribution (Gamma Government Obligations Money Market). 9
(t) Plan of Distribution (Gamma New York Municipal Money Market). 9
(u) Plan of Distribution (Delta Money Market). 9
(v) Plan of Distribution (Delta Tax-Free Money Market). 9
(w) Plan of Distribution (Delta Government Obligations Money Market). 9
(x) Plan of Distribution (Delta New York Municipal Money Market). 9
(y) Plan of Distribution (Epsilon Money Market). 9
(z) Plan of Distribution (Epsilon Tax-Free Money Market). 9
(aa) Plan of Distribution (Epsilon Government Obligations Money Market). 9
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits: SEE NOTE #
<S> <C> <C>
(bb) Plan of Distribution (Epsilon New York Municipal Money Market). 9
(cc) Plan of Distribution (Zeta Money Market). 9
(dd) Plan of Distribution (Zeta Tax-Free Money Market). 9
(ee) Plan of Distribution (Zeta Government Obligations Money Market). 9
(ff) Plan of Distribution (Zeta New York Municipal Money Market). 9
(gg) Plan of Distribution (Eta Money Market). 9
(hh) Plan of Distribution (Eta Tax-Free Money Market). 9
(ii) Plan of Distribution (Eta Government Obligations Money Market). 9
(jj) Plan of Distribution (Eta New York Municipal Money Market). 9
(kk) Plan of Distribution (Theta Money Market). 9
(ll) Plan of Distribution (Theta Tax-Free Money Market). 9
(mm) Plan of Distribution (Theta Government Obligations Money Market). 9
(nn) Plan of Distribution (Theta New York Municipal Money Market). 9
(oo) Plan of Distribution (Boston Partners Large Cap Value Fund Investor 21
Class).
(pp) Plan of Distribution (Boston Partners Large Cap Value Fund Advisor 21
Class).
(qq) Plan of Distribution (Boston Partners Mid Cap Value Fund Investor 21
Class).
(rr) Plan of Distribution (Boston Partners Bond Fund Investor Class). 24
(ss) Plan of Distribution (Boston Partners Micro Cap Value Fund Investor 25
Class).
(tt) Amendment to Plans of Distribution pursuant to Rule 12b-1. 31
(uu) Plan of Distribution (Boston Partners Market Neutral Fund - Investor 30
Class).
(vv) Plan of Distribution (Principal Money Market). 29
(16) (a) Schedule for Computation of Performance Quotations for the 23
Money Market Portfolios, Government Securities
Portfolio and Boston Partners Large Cap and Mid Cap
Portfolios.
(b) Schedule for Computation of Performance Quotations for the n/i 24
Portfolios (Growth, Growth & Value and Micro Cap).
(c) Schedule for Computation of Performance Quotations for the n/i Larger 31
Cap Value Fund.
(d) Schedule for Computation of Performance Quotations for the Boston 31
Partners Micro Cap Fund.
(e) Schedule for Computation of Performance Quotations for the Boston 31
Partners Bond Fund.
(17) Not applicable.
(18) Amended 18f-3 Plan. 29
(27) Financial Data Schedules 32
</TABLE>
NOTE #
1 Incorporated herein by reference to Registrant's Registration Statement
(No. 33-20827) filed on March 24, 1988, and refiled electronically with
Post-Effective Amendment No. 61 to Registrant's Registration Statement
filed on October 30, 1998.
2 Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement (No. 33-20827) filed on July 12,
1988, and refiled electronically with Post-Effective Amendment No. 61
to Registrant's Registration Statement filed on October 30, 1998.
3 Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement (No. 33-20827) filed on March 23,
1989, and refiled electronically with Post-Effective Amendment No. 61
to Registrant's Registration Statement filed on October 30, 1998.
-8-
<PAGE>
4 Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement (No. 33-20827) filed on October 25,
1989.
5 Incorporated herein by reference to Post-Effective Amendment No. 3 to
the Registrant's Registration Statement (No. 33-20827) filed on April
27, 1990, and refiled electronically with Post-Effective Amendment No.
61 to Registrant's Registration Statement filed on October 30, 1998.
6 Incorporated herein by reference to Post-Effective Amendment No. 4 to
the Registrant's Registration Statement (No. 33-20827) filed on May 1,
1990, and refiled electronically with Post-Effective Amendment No. 61
to Registrant's Registration Statement filed on October 30, 1998.
7 Incorporated herein by reference to Post-Effective Amendment No. 5 to
the Registrant's Registration Statement (No. 33-20827) filed on
December 14, 1990.
8 Incorporated herein by reference to Post-Effective Amendment No. 6 to
the Registrant's Registration Statement (No. 33-20827) filed on October
24, 1991, and refiled electronically with Post-Effective Amendment No.
61 to Registrant's Registration Statement filed on October 30, 1998.
9 Incorporated herein by reference to Post-Effective Amendment No. 7 to
the Registrant's Registration Statement (No. 33-20827) filed on July
15, 1992, and refiled electronically with Post-Effective Amendment No.
61 to Registrant's Registration Statement filed on October 30, 1998.
10 Incorporated herein by reference to Post-Effective Amendment No. 8 to
the Registrant's Registration Statement (No. 33-20827) filed on October
22, 1992, and refiled electronically with Post-Effective Amendment No.
61 to Registrant's Registration Statement filed on October 30, 1998.
11 Incorporated herein by reference to Post-Effective Amendment No. 13 to
the Registrant's Registration Statement (No. 33-20827) filed on October
29, 1993, and refiled electronically with Post-Effective Amendment No.
61 to Registrant's Registration Statement filed on October 30, 1998.
12 Incorporated herein by reference to Post-Effective Amendment No. 21 to
the Registrant's Registration Statement (No. 33-20827) filed on October
28, 1994, and refiled electronically with Post-Effective Amendment No.
61 to Registrant's Registration Statement filed on October 30, 1998.
13 Incorporated herein by reference to Post-Effective Amendment No. 22 to
the Registrant's Registration Statement (No. 33-20827) filed on
December 19, 1994, and refiled electronically with Post-Effective
Amendment No. 61 to Registrant's Registration Statement filed on
October 30, 1998.
14 Incorporated herein by reference to Post-Effective Amendment No. 27 to
the Registrant's Registration Statement (No. 33-20827) filed on March
31, 1995.
15 Incorporated herein by reference to Post-Effective Amendment No. 28 to
the Registrant's Registration Statement (No. 33-20827) filed on October
6, 1995.
16 Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registrant's Registration Statement (No. 33-20827) filed on October
25, 1995.
17 Incorporated herein by reference to Post-Effective Amendment No. 34 to
the Registrant's Registration Statement (No. 33-20827) filed on May 16,
1996.
18 Incorporated herein by reference to Post-Effective Amendment No. 37 to
the Registrant's Registration Statement (No. 33-20827) filed on July
30, 1996.
-9-
<PAGE>
19 Incorporated herein by reference to Post-Effective Amendment No. 39 to
the Registrant's Registration Statement (No. 33-20827) filed on October
11, 1996.
20 Incorporated herein by reference to Post-Effective Amendment No. 41 to
the Registrant's Registration Statement (No. 33-20827) filed on
November 27, 1996.
21 Incorporated herein by reference to Post-Effective Amendment No. 45 to
the Registrant's Registration Statement (No. 33-20827) filed on May 9,
1997.
22 Incorporated herein by reference to Post-Effective Amendment No. 46 to
the Registrant's Registration Statement (33-20827) filed on September
25, 1997.
23 Incorporated herein by reference to Post-Effective Amendment No. 49 to
the Registrant's Registration Statement (33-20827) filed on December 1,
1997.
24 Incorporated herein by reference to Post-Effective Amendment No. 51 to
the Registrant's Registration Statement (33-20827) filed on December 8,
1997.
25 Incorporated herein by reference to Post-Effective Amendment No. 53 to
the Registrant's Registration Statement (33-20827) filed on April 10,
1998.
26 Incorporated herein by reference to Post-Effective Amendment No. 56 to
the Registrant's Registration Statement (33-20827) filed on June 25,
1998.
27 Incorporated herein by reference to Post-Effective Amendment No. 58 to
the Registrant's Registration Statement (33-20827) filed on August 25,
1998.
28 Incorporated herein by reference to Post-Effective Amendment No. 59 to
the Registrant's Registration Statement (33-20827) filed on September
15, 1998.
29 Incorporated herein by reference to Post-Effective Amendment No. 60 to
the Registrant's Registration Statement (33-20827) filed on October 29,
1998.
30 Incorporated herein by reference to Post-Effective Amendment No. 62 to
the Registrant's Registration Statement (33-20827) filed on November
12, 1998.
31 Incorporated herein by reference to Post-Effective Amendment No. 63 to
the Registrant's Registration Statement (33-20827) filed on December
14, 1998.
32 A copy of such exhibit is filed electronically herewith.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of November 16, 1998.
<TABLE>
<CAPTION>
TITLE OF CLASS OF COMMON STOCK NUMBER OF RECORD HOLDERS
- ------------------------------ ------------------------
<S> <C> <C>
a) Cash Preservation Money Market 39
b) Cash Preservation Municipal Money Market 51
c) Sansom Street Money Market 3
d) Sansom Street Municipal Money Market 0
e) Sansom Street Government Obligations Money Market 0
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
TITLE OF CLASS OF COMMON STOCK NUMBER OF RECORD HOLDERS
- ------------------------------ ------------------------
<S> <C> <C>
f) Bedford Money Market 85231
g) RBB Government Securities 463
h) Bedford Municipal Money Market 5306
i) Bedford Government Obligations Money Market 8012
j) Janney Montgomery Scott
Money Market 115714
k) Janney Montgomery Scott
Municipal Money Market 4297
l) Janney Montgomery Scott
Government Obligations Money Market 33665
m) Janney Montgomery Scott
New York Municipal Money Market 1396
n) ni Micro Cap 3269
o) ni Growth 2973
p) ni Growth & Value 6226
q) ni Larger Cap Value 655
r) Boston Partners Large Cap Value Fund - Institutional
Class 46
s) Boston Partners Large Cap Value Fund - Investor Class 40
t) Boston Partners Large Cap Value Fund - Advisor Class 0
u) Boston Partners Mid Cap Value Fund - Investor Class 55
v) Boston Partners Mid Cap Value Fund - Institutional Class 77
w) Boston Partners Premium Bond - Institutional Class 7
x) Boston Partners Premium Bond - Investor Class 5
y) Boston Partners Micro Cap Value - Institutional Class 19
z) Boston Partners Micro Cap Value - Investor Class 8
aa) Boston Partners Market Neutral Fund - Institutional Class 1
bb) Boston Partners Market Neutral Fund - Investor Class 1
cc) Schneider Small Cap Value Fund 14
dd) RBB Select Money Market 0
</TABLE>
Item 27. INDEMNIFICATION
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, as amended, incorporated herein by reference as Exhibits 1(a) and
1(c), provide as follows:
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the Maryland
General Corporation Law, no director or officer of the Corporation
shall have any liability to the Corporation or its shareholders for
damages. This limitation on liability applies to events occurring at
the time a person serves as a director or officer of the Corporation
whether or not such person is a director or officer at the time of any
proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the
Maryland General Corporation Law. The Corporation shall indemnify and
advance expenses to its officers to the same extent as its directors
and to such further extent as is consistent with law. The Board of
Directors may by law, resolution or agreement make further provision
for indemnification of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General Corporation law.
Section 3. No provision of this Article shall be effective to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
-11-
<PAGE>
Section 4. References to the Maryland General Corporation Law
in this Article are to the law as from time to time amended. No further
amendment to the Articles of Incorporation of the Corporation shall
decrease, but may expand, any right of any person under this Article
based on any event, omission or proceeding prior to such amendment.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information as to any other business, profession, vocation or
employment of substantial nature in which any directors and officers of BIMC,
Numeric, Boston Partners and Schneider Capital Management Company are, or at any
time during the past two (2) years have been, engaged for their own accounts or
in the capacity of director, officer, employee, partner or trustee is
incorporated herein by reference to Schedules A and D of BIMC's FORM ADV (File
No. 801-13304) filed on February 23, 1998, Schedules B and D of Numeric's FORM
ADV (File No. 801-35649) filed on March 26, 1998, Schedules B and D of Boston
Partners' FORM ADV (File No. 801-49059) filed on March 31, 1998, and Schedules B
and D of Schneider Capital Management Company's FORM ADV (File No. 801-55439)
filed on April 25, 1998, respectively.
There is set forth below information as to any other business,
profession, vocation or employment of a substantial nature in which each
director or officer of PNC Bank, National Association (successor by merger to
Provident National Bank) ("PNC Bank"), is, or at any time during the past two
years has been, engaged for his own account or in the capacity of director,
officer, employee, partner or trustee.
-12-
<PAGE>
PNC Bank, National Association
Directors
<TABLE>
<CAPTION>
POSITION WITH PNC NAME OTHER BUSINESS CONNECTIONS TYPE OF BUSINESS
PNC BANK ---- -------------------------- ----------------
- -----------------
<S> <C> <C> <C>
Director Paul W. Chellgren Chairman and Chief Executive Officer Energy Company
Ashland Inc.
P.O. 391
Ashland, KY 41114
Director Robert N. Clay President and Chief Executive Officer Investments
Clay Holding Company
Three Chimneys Farm
Versailles. KY 40383
Director George A. Davidson, Jr. Chairman and Chief Executive Officer Public Utility Holding Company
Consolidated Natural Gas Company
CNG Tower, 625 Liberty Avenue
Pittsburgh, PA 15222-3199
Director David F. Girard-diCarlo Managing Partner Law Firm
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
Director Walter Emmor Gregg, Jr. One PNC Plaza, P1-POPP-30-1 Diversified Financial Services
249 Fifth Street
Pittsburgh, PA 15222-2707
Director William R. Johnson President and Chief Executive Officer Food Products Company
H.J. Heinz Company
600 Grant Street
Pittsburgh, PA 15219-2857
Director Bruce C. Lindsey Chairman and Managing Director Advisory Company
Brind-Lindsey & Co.
1520 Locust Street, Suite 1100
Philadelphia, PA 19102
Director W. Craig McClelland Chairman and Chief Executive Officer Paper Manufacturing and Land
Union Camp Corporation Resources
1600 Valley Road
Wayne, NJ 07470
Director Thomas Henry O'Brien Chairman and Chief Executive Officer Diversified Financial Services
PNC Bank Corp.
One PNC Plaza, 249 Fifth Avenue
Pittsburgh, PA 15222-2707
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PNC NAME OTHER BUSINESS CONNECTIONS TYPE OF BUSINESS
PNC BANK ---- -------------------------- ----------------
- -----------------
<S> <C> <C> <C>
Director Jane G. Pepper President Nonprofit Horticultural
Pennsylvania Horticultural Society Membership Organization
100 N. 20th Street -5th Floor
Philadelphia, PA 19103-1495
Director Jackson H. Randolph Chairman Public Utility Holding Company
Cinergy Corp.
221 East Fourth Street, Suite 3004
Cincinnati, OH 45202
Director James Edward Rohr President & Chief Operating Officer Diversified Financial Services
PNC Bank N.A.
One PNC Plaza- 30th Floor
Pittsburgh PA 15265
Director Roderic H. Ross Chairman and Chief Executive Officer Insurance Company
Keystone State Life Insurance Co.
Suite 325
501 Office Center Drive
Fort Washington, PA 19034-3299
Director Richard P. Simmons Chairman, President & CEO Specialty Metals and
Allegheny Teledyne Incorporated Diversified Business
1000 Six PPG Place
Pittsburgh, PA 15222-5479
Director Thomas J. Usher Chairman and Chief Executive Officer Energy, Steel and Diversified
USX Corporation Business
61st Floor
600 Grant Street
Pittsburgh, PA 15219-4776
Director Milton A. Washington President and Chief Executive Officer Housing Rehabilitation and
AHRCO Construction
5604 Baum Boulevard
Pittsburgh, PA 15206
Advisory Helge H. Wehmeier President and Chief Executive Officer
Director Bayer Corporation
100 Bayer Road, Building 4
Pittsburgh, PA 15205-9741
</TABLE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
David A. Aloise Senior Vice President
James C. Altman Senior Vice President
Edward V. Arbaugh, III Senior Vice President
</TABLE>
-14-
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
Douglas R. Arnold Senior Vice President, Regional Consumer Bank
Robert Jones Arnold Senior Vice President
James N. Atteberry Senior Vice President
Lila M. Bachelier Senior Vice President
James C. Baker Senior Vice President
Robert C. Barry, Jr. Senior Vice President, Regional Consumer Bank,
Chief Financial Officer, Consumer Bank
James R. Bartholomew Senior Vice President
Peter R. Begg Senior Vice President, Corporate Human Resources Operations Center
Constance A. Bentzen Senior Vice President
Donald G. Berdine Senior Vice President
Ben Berzin, Jr. Senior Vice President
James H. Best Senior Vice President
Paul A. Best Senior Vice President
Michael J. Beyer Senior Vice President
R. Bruce Bickel Senior Vice President
Ronald R. Blankenbuehler Senior Vice President
Ronald L. Bovill Senior Vice President
George Brikis Executive Vice President
Dennis P. Brenckle President, Central PA Market
Larry R. Brown Senior Vice President, Credit Policy
Michael Brundage Senior Vice President
Donna L. Burge Senior Vice President
Brian R. Burns Senior Vice President, Securities Processing
Douglas H. Burr Senior Vice President
David D. Burrow Senior Vice President
James P. Burzotta Senior Vice President
Anthony J. Cacciatore Senior Vice President, I M & T Institutional Services
</TABLE>
-15-
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
William J. Calpin Senior Vice President
Craig T. Campbell Senior Vice President
William L. Campbell Senior Vice President
J. Richard Carnall Executive Vice President
Donald R. Carroll Senior Vice President
Edward V. Caruso Executive Vice President
Kevin J. Cecil Senior Vice President
Nickolas P. Certo Senior Vice President, Regional Consumer Bank
Rhonda S. Chatzkel Senior Vice President
Sandra Chickeletti Assistant Secretary
Thomas P. Ciak Assistant Secretary
Joseph A. Clark Senior Vice President
Peter K. Classen President, Northeast PA Market
Andra D. Cochran Senior Vice President
Sharon G. Coghlan Coordinating Market Chief Counsel- Philadelphia
William Harvey Coggin Senior Vice President
John F. Colligan Senior Vice President
James P. Conley Senior Vice President
C. David Cook Senior Vice President
T. Sean Costello Senior Vice President, Secured Lending
Keith P. Crytzer Senior Vice President
Terry D'Amore Senior Vice President
John J. Daggett Senior Vice President
Peter J. Danchak Senior Vice President
Douglas D. Danforth, Jr. Executive Vice President, PNC Real Estate
Helen A. DePrisco Executive Vice President
A.J. Desposito Senior Vice President, Business Banking
</TABLE>
-16-
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
Richard Devore Senior Vice President
James N. Devries Senior Vice President
Anuj Dhanda Senior Vice President
Victor M. DiBattista Chief Regional Counsel
Frank H. Dilenschneider Senior Vice President
Thomas C. Dilworth Senior Vice President
Alfred J. DiMatties Senior Vice President
Kenneth A. Dorsett Senior Vice President, Private Bank
Henry Doss Senior Vice President, Regional Consumer Bank
Roger C. DuBois Senior Vice President, National Financial Services Center
Daniel P. Dunn Senior Vice President
Robert D. Edwards Senior Vice President, National Consumer Bank
Tawana L. Edwards Senior Vice President
David J. Egan Senior Vice President
Richard M. Ellis Senior Vice President
Orlando C. Esposito Senior Vice President
Lynn Fox Evans Senior Vice President & Controller
William E. Fallon Senior Vice President
James M. Ferguson, III Senior Vice President
Charles J. Ferrero Executive Vice President
John Fox Executive Vice President
Frederick C. Frank, III Executive Vice President
William J. Friel Executive Vice President
John F. Fulgoncy Secretary
Brian K. Garlock Senior Vice President, Private Bank
Leigh Gerstenberger Senior Vice President
Donald W. Giffen, Jr. Senior Vice President
</TABLE>
-17-
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
James G. Graham Executive Vice President, Regional Consumer Bank
Gail Carroll Graham Senior Vice President, Private Bank
Craig Davidson Grant Senior Vice President
Gary R. Gray Senior Vice President, Regional Consumer Bank
Frederick J. Gronbacher Executive Vice President, National Consumer Bank
Thomas M. Groneman Senior Vice President
Thomas Grundman Senior Vice President
Joan L. Gulley Executive Vice President, Deputy Manager, Regional Consumer Bank
Joseph C. Guyaux Executive Vice President, Regional Community Bank
Neil F. Hall Executive Vice President, Deputy Manager Distribution Regional
John C. Haller President, Ohio Market
Michael J. Hannon Executive Vice President, Commercial Real Estate
Michael N. Harreld President, Kentucky Market
Catherine E. Haffner Senior Vice President, Regional Consumer Bank
Michael J. Harrington Senior Vice President
Maurice H. Hartigan, II Executive Vice President
G. Thomas Hewes Senior Vice President
Susan G. Holt Senior Vice President, Regional Consumer Bank
Sylvan M. Holzer President, Pittsburgh Market
Wayne P. Hunley Senior Vice President
John M. Infield Senior Vice President
Patricia J. Jablonski Senior Vice President, Corporate Banking
Philip C. Jackson Senior Vice President
Robert Greg Jenkins Senior Vice President
William J. Johns Senior Vice President, Corporate Banking
William Johnson Audit Director
</TABLE>
-18-
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
Robert D. Kane, Jr. Senior Vice President
John J. Kelly Executive Vice President
Michael D. Kelsey Chief Compliance Counsel
Michael P. Kennedy Senior Vice President, Private Bank/Finance
Geoffrey R. Kimmel Senior Vice President
Randall C. King Senior Vice President
James M. Kinsman, Jr. Senior Vice President
Christopher M. Knoll Senior Vice President
William Kosis Executive Vice President
Richard C. Krauss Senior Vice President
Frank R. Krepp Senior Vice President & Chief Credit
Policy Officer
Thomas F. Lamb Senior Vice President
Richard S. Larimer Senior Vice President
William G. Lashbrook Senior Vice President, PNC Real Estate
Martin S. Lazor Senior Vice President, Consumer Bank
Kenneth P. Leckey Cashier, Senior Vice President, Regional Consumer Bank
Marilyn R. Levins Senior Vice President
Carl J. Lisman Executive Vice President
Richard J. Lovett Senior Vice President
Stephen F. Lugarich Senior Vice President
Brian S. MacConnell Senior Vice President
Linda R. Manfredonia Senior Vice President
Nicholas M. Marsini, Jr. Senior Vice President
John A. Martin Senior Vice President
David O. Matthews Senior Vice President
Dennis McChesney Executive Vice President
Walter B. McClellan Senior Vice President
</TABLE>
-19-
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
Patricia McCrossan Senior Vice President
James F. McGowan Senior Vice President
Timothy McInerney Senior Vice President
Charlotte B. McLaughlin Senior Vice President
Kim D. McNeil Senior Vice President
Charles R. McNutt Senior Vice President
James W. Meighen Executive Vice President
James C. Mendelson Senior Vice President
David W. Mengel Senior Vice President, Corporate Bank
Darryl Metzger Senior Vice President
Scott C. Meves Senior Vice President
Ralph S. Michael, III Executive Vice President, Corporate Banking
James P. Mikula Senior Vice President
Robert J. Miller, Jr. Senior Vice President
Robert G. Mills Assistant Secretary
J. William Mills, III Senior Vice President
Francine Miltenberger Senior Vice President
Chester A. Misbach Senior Vice President
Barbara A. Misner Senior Vice President
D. Bryant Mitchell, II Executive Vice President
Michael D. Moll Senior Vice President
Thomas R. Moore Vice President and Assistant Secretary
Christopher N. Moravec Senior Vice President
Marlene D. Mosco President, Northwest PA Market
Peter F. Moylan Senior Vice President
Ronald J. Murphy Executive Vice President
Louis J. Myers Senior Vice President, Regional Consumer Bank
</TABLE>
-20
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
Saiyid T. Naqvi Executive Vice President
Michael B. Nelson Executive Vice President
Jill V. Niedweske Senior Vice President
Thomas J. Nist Senior Vice President
John L. Noelcke Senior Vice President
Thomas H. O'Brien Chairman and CEO
Thomas E. Paisley, III Senior Vice President, Corporate Credit Policy
Samuel R. Patterson Senior Vice President and Controller
Daniel J. Pavlick Senior Vice President
David M. Payne Senior Vice President
W. David Pendl Senior Vice President
Stephen D. Penn Senior Vice President
John J. Peters Senior Vice President
David A. Pioch Senior Vice President
Donald Poppleton Senior Vice President, National Consumer Bank
Helen P. Pudlin Senior Vice President and General Counsel
Wayne Pulliam Senior Vice President
Arthur F. Radman, III Senior Vice President
Edward E. Randall Senior Vice President
Gerard A. Recktenwald Chief Financial Officer, Secured Lending
Robert Q. Reilly Senior Vice President
Jesse S. Reinhardt Senior Vice President
Ronald J. Retzler Senior Vice President
Richard C. Rhoades Senior Vice President
Charles M. Rhodes, Jr. Senior Vice President
C. Joseph Richardson Senior Vice President
Rodger L. Rickenbrode Senior Vice President
</TABLE>
-21-
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
Bryan W. Ridley Senior Vice President
Victor M. Rivera Senior Vice President
Bruce E. Robbins Executive Vice President, Secured Lending
James E. Rohr President and Chief Operating Officer
Peter M. Ross Senior Vice President
Suzanne C. Ross Senior Vice President
Gerhard Royer Senior Vice President
Robert T. Saltarelli Senior Vice President
Stephen C. Schatterman Senior Vice President
Jeffrey W. Schmidt Senior Vice President
Peter H. Schryver Senior Vice President
Richard A. Seymour Senior Vice President
Timothy G. Shack Executive Vice President, Chief Information Officer
Douglas E. Shaffer Senior Vice President
Donald Shauger Senior Vice President
Bruce Shipley Senior Vice President
Alfred A. Silva Executive Vice President
George R. Simon Senior Vice President
Richard L. Smoot President and CEO of PNC Bank, Philadelphia/S. Jersey Region
Timothy N. Smyth Senior Vice President, Trust Division
Richard R. Soeder Senior Vice President
Darcel H. Steber Senior Vice President
Melvin A. Steele Senior Vice President
Richard Stegemeier Senior Vice President
James S. Stone Senior Vice President, Treasury Management Operations
William F. Strome Senior Vice President, Corporate Bank
Connie Bond Stuart Senior Vice President
</TABLE>
-22-
<PAGE>
PNC Bank, National Association
Officers
<TABLE>
<CAPTION>
<S> <C>
Lon E. Susak Senior Vice President
Stephen L. Swanson Executive Vice President
Frank A. Taucher Senior Vice President
Peter W. Thompson Senior Vice President
Alex T. Topping Senior Vice President
Alan B. Trivilino Senior Vice President, Regional Consumer Bank
Kevin M. Tucker Senior Vice President
William H. Turner President, Northern New Jersey Market
William Thomps Tyrrell Senior Vice President
Alan P. Vail Senior Vice President
Michael B. Vairin Senior Vice President
Ellen G. Van der Horst Executive Vice President
Ronald H. Vicari Senior Vice President
James M. Voytko Senior Vice President, Investment Strategy and Research Group
Bruce E. Walton Executive Vice President
Annette M. Ward-Kredel Senior Vice President
Robert S. Warth Senior Vice President
Leonard A. Watkins Senior Vice President
Frances A. Wilkinson Assistant Secretary
Thomas K. Whitford Executive Vice President, Private Bank
George Whitmer Senior Vice President
Nancy B. Wolcott Executive Vice President, Segment Management
Arlene M. Yocum Senior Vice President
Carole Yon Senior Vice President
George L. Ziminski, Jr. Senior Vice President
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(1) PNC Bank, National Association, 120 S. 17th Street, Philadelphia, PA 19103
1600 Market Street, Philadelphia, PA 19103
17th and Chestnut Streets, Philadelphia, PA 19103
(2) PNC National Bank, 103 Bellevue Parkway, Wilmington, DE 19809.
(3) PFPC Inc., 103 Bellevue Parkway, Wilmington, DE 19809.
(4) PNC Service Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(5) Provident Capital Management, Inc., 30 S. 17th Street, Suite 1500, Philadelphia, PA 19103.
(6) PNC Investment Corp., Broad and Chestnut Street, Philadelphia, PA 19101.
(7) Provident Realty Management, Inc., Broad and Chestnut Streets, Philadelphia, PA 19101.
(8) Provident Realty, Inc., Broad and Chestnut Streets, Philadelphia, PA 19101.
(9) PNC Bancorp, Inc., 222 Delaware Avenue, Wilmington, DE 19810
(10) PNC New Jersey Credit Corp, 1415 Route 70 East, Suite 604, Cherry Hill, NJ 08034.
(11) PNC Trust Company of New York, 40 Broad Street, New York, NY 10084.
(12) Provcor Properties, Inc., Broad and Chestnut Streets, Philadelphia, PA 19101.
(13) PNC Credit Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(14) PNC Bank Corp., 5th Avenue and Wood Streets, Pittsburgh, PA 15265.
(15) PNC Bank, New Jersey, National Association, Woodland Falls Corporate Park, 210 Lake Drive East, Cherry Hill, NJ 08002.
(16) PNC Capital Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(17) PNC Holding Corp, 222 Delaware Avenue, P.O. Box 791, Wilmington, DE 19899.
(18) PNC Venture Corp, 5th Avenue and Woods Streets, Pittsburgh, PA 15265.
(19) PNC Bank, Delaware, 300 Delaware Avenue, Wilmington, DE 19801.
(20) Bank of Delaware Corp., 300 Delaware Avenue, Wilmington, DE 19801.
(21) Del-Vest, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
(22) Marand Corp., 222 Delaware Avenue, Wilmington, DE 19801.
(23) Millsboro Insurance Agency, 300 Delaware Avenue, Wilmington, DE 19801.
(24) Roney-Richards, Inc., 300 Delaware Avenue, Wilmington, DE 19801.
</TABLE>
<PAGE>
Item 29. PRINCIPAL UNDERWRITER
(a) Provident Distributors, Inc. (the "Distributor") acts as
principal underwriter for the following investment companies:
-24-
<PAGE>
Pacific Horizon Funds, Inc.
Time Horizon Funds
World Horizon Funds, Inc.
Pacific Innovations Trust
International Dollar Reserve Fund I, Ltd.
Municipal Fund for Temporary Investment
Municipal Fund for New York Investors, Inc.
Municipal Fund for California Investors, Inc.
Temporary Investment Fund, Inc.
Trust for Federal Securities
Columbia Common Stock Fund, Inc.
Columbia Growth Fund, Inc.
Columbia International Stock Fund, Inc.
Columbia Special Fund, Inc.
Columbia Small Cap Fund, Inc.
Columbia Real Estate Equity Fund, Inc.
Columbia Balanced Fund, Inc.
Columbia Daily Income Company
Columbia U.S. Government Securities Fund, Inc.
Columbia Fixed Income Securities Fund, Inc.
Columbia Municipal Bond Fund, Inc.
Columbia High Yield Fund, Inc.
The BlackRock Funds, Inc. (Distributed by BlackRock Distributors , Inc.
a wholly owned subsidiary of Provident Distributors, Inc.)
The OffitBank Investment Fund, Inc.
The OffitBank Variable Insurance Fund, Inc.
CVO Greater China Fund, Inc. (Distributed by Offit Funds Distributors,
Inc. a wholly owned subsidiary of Provident Distributors, Inc.
Kiewit Mutual Fund
Kalmar Pooled Investment Trust
(b) The information required by this item 29(b) is incorporated by
reference to Form BD (SEC File No. 8-46564) filed by the Distributor with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
(1) PNC Bank, National Association (successor by merger to
Provident National Bank), 1600 Market Street, Philadelphia, PA
19103 (records relating to its functions as sub-adviser and
custodian).
(2) Provident Distributors, Inc., Four Falls Corporate Center,
6th Floor, West Conshohocken, PA 19428 (records relating to
its functions as distributor).
(3) BlackRock Institutional Management Corporation, Bellevue
Corporate Center, 103 Bellevue Parkway, Wilmington, Delaware
19809 (records relating to its functions as investment
adviser, sub-adviser and administrator).
-25-
<PAGE>
(4) PFPC Inc., Bellevue Corporate Center, 400 Bellevue
Parkway, Wilmington, Delaware 19809 (records relating to its
functions as transfer agent and dividend disbursing agent).
(5) Drinker Biddle & Reath LLP, Philadelphia National Bank
Building, 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496 (Registrant's Articles of Incorporation, By-Laws
and Minute Books).
(6) Numeric Investors, L.P., 1 Memorial Drive, Cambridge,
Massachusetts 02142 (records relating to its function as
investment adviser).
(7) Boston Partners Asset Management, L.P., One Financial
Center, 43rd Floor, Boston, Massachusetts 02111 (records
relating to its function as investment adviser).
(8) Schneider Capital Management Co., 460 East Swedesford
Road, Suite 1080, Wayne, Pennsylvania 19087 (records relating
to its function as investment adviser).
(9) Custodial Trust Company, 101 Carnegie Center, Princeton,
New Jersey 08540 (records relating to its functions as
custodian).
Item 31. MANAGEMENT SERVICES
None.
Item 32. UNDERTAKINGS
(a) Registrant hereby undertakes to hold a meeting of
shareholders for the purpose of considering the removal of
directors in the event the requisite number of shareholders so
request.
(b) Registrant hereby undertakes to furnish each
person to whom a prospectus is delivered a copy of
Registrant's latest annual report to shareholders upon request
and without charge.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 64 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wilmington, and State of Delaware, on the 16th day
of December, 1998.
THE RBB FUND, INC.
By: /S/ EDWARD J. ROACH
Edward J. Roach
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registrant's Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ EDWARD J. ROACH President (Principal Executive December 16, 1998
Edward J. Roach Officer) and Treasurer (Principal
Financial and Accounting Officer)
*/S/DONALD VAN RODEN Director December 16, 1998
- ------------------------
Donald van Roden
*/S/FRANCIS J. MCKAY Director December 16, 1998
- -------------------------
Francis J. McKay
*/S/MARVIN E. STERNBERG Director December 16, 1998
- -------------------------
Marvin E. Sternberg
*/S/JULIAN A. BRODSKY Director December 16, 1998
- -------------------------
Julian A. Brodsky
*/S/ARNOLD M. REICHMAN Director December 16, 1998
- -------------------------
Arnold M. Reichman
*/S/ROBERT SABLOWSKY Director December 16, 1998
- -------------------------
Robert Sablowsky
*By: /S/ EDWARD J. ROACH December 16, 1998
-------------------
Edward J. Roach
Attorney-in-Fact
</TABLE>
-27-
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Donald
van Roden, hereby constitutes and appoints Edward J. Roach and Michael P.
Malloy, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Director or officer, or both, of the Company, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as
fully and to all intents and purposes as he might or could do in person, said
acts of said attorneys being hereby ratified and approved.
DATED: April 23, 1997
/s/ DONALD VAN RODEN
--------------------
Donald van Roden
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Marvin E.
Sternberg, hereby constitutes and appoints Edward J. Roach and Michael P.
Malloy, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Director or officer, or both, of the Company, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as
fully and to all intents and purposes as he might or could do in person, said
acts of said attorneys being hereby ratified and approved.
DATED: April 23, 1997
/S/ MARVIN S. STERNBERG
-------------------
Marvin E. Sternberg
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Arnold
Reichman, hereby constitutes and appoints Edward J. Roach and Michael P.
Malloy, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Director or officer, or both, of the Company, the
Registration Statement and any amendments thereto and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission; and said attorneys shall have full power
and authority to do and perform in his name and on his behalf, in any and all
capacities, every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as he might or could do in
person, said acts of said attorneys being hereby ratified and approved.
DATED: April 23, 1997
/S/ ARNOLD REICHMAN
-------------------
Arnold Reichman
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Francis
J. McKay, hereby constitutes and appoints Edward J. Roach and Michael P.
Malloy, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Director or officer, or both, of the Company, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as
fully and to all intents and purposes as he might or could do in person, said
acts of said attorneys being hereby ratified and approved.
DATED: April 23, 1997
/s/FRANCIS J. MCKAY
-------------------
Francis J. McKay
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Julian
Brodsky, hereby constitutes and appoints Edward J. Roach and Michael P. Malloy,
his true and lawful attorneys, to execute in his name, place, and stead, in his
capacity as Director or officer, or both, of the Company, the Registration
Statement and any amendments there to and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as
fully and to all intents and purposes as he might or could do in person, said
acts of said attorneys being hereby ratified and approved.
DATED: April 23, 1997
/S/ JULIAN BRODSKY
------------------
Julian Brodsky
<PAGE>
THE RBB FUND, INC.
(the "Company")
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert
Sablowsky, hereby constitutes and appoints Edward J. Roach and Michael P.
Malloy, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Director or officer, or both, of the Company, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission; and said attorneys shall have full power
and authority to do and perform in his name and on his behalf, in any and all
capacities, every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as he might or could do in
person, said acts of said attorneys being hereby ratified and approved.
DATED: April 23, 1997
/S/ ROBERT SABLOWSKY
--------------------
Robert Sablowsky
<PAGE>
THE RBB FUND, INC.
EXHIBIT INDEX
EXHIBITS
(10) Opinion of Counsel concerning validity of shares issued.
(11) (a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of PricewaterhouseCoopers LLP
(27) Financial Data Schedules
Exhibit 10
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
December 9, 1998
The RBB Fund, Inc.
Bellevue Park Corporate Center
400 Bellevue Parkway, Suite 100
Wilmington, Delaware 19809
RE: SHARES REGISTERED BY POST-EFFECTIVE AMENDMENT NO. 64 TO
REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-20827)
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to The RBB Fund, Inc. (the "Company")
in connection with the preparation and filing with the Securities and Exchange
Commission of Post-Effective Amendment No. 64 (the "Amendment") to the Company's
Registration Statement on Form N-1A under the Securities Act of 1933, as amended
(the "1933 Act"). The Board of Directors of the Company has authorized the
issuance and sale by the Company of the following classes and numbers of shares
of common stock, $.001 par value per share (collectively, the "Shares"), with
respect to the Company's Money Market, Municipal Money Market, Government
Obligations Money Market, New York Municipal Money Market, Government
Securities, Boston Partners Large Cap Value, Boston Partners Mid Cap Value,
Boston Partners Bond and Boston Partners Micro Cap Value Portfolios:
PORTFOLIO CLASS AUTHORIZED SHARES
--------- ----- -----------------
Money Market Class L 1.5 billion
Class G 500 million
Class Janney Money 3 billion
Class Select 700 million
Class I 1.5 billion
Class Principal Money 700 million
Class Delta 1 1 million
Class Epsilon 1 1 million
Class Zeta 1 1 million
Class Eta 1 1 million
Class Theta 1 1 million
<PAGE>
PORTFOLIO CLASS AUTHORIZED SHARES
--------- ----- -----------------
Municipal Money Market Class M 500 million
Class H 500 million
Class Janney Muni 200 million
Class J 500 million
Class Beta 2 1 million
Class Gamma 2 1 million
Class Delta 2 1 million
Class Epsilon 2 1 million
Class Zeta 2 1 million
Class Eta 2 1 million
Class Theta 2 1 million
Gov't Obligations Money Class N 500 million
Class Janney Government 700 million
Class K 500 million
Class Beta 3 1 million
Class Gamma3 1 million
Class Delta 3 1 million
Class Epsilon 3 1 million
Class Zeta 3 1 million
Class Eta 3 1 million
Class Theta 3 1 million
New York Municipal Money Class O 500 million
Class Janney N.Y. 100 million
Class Beta 4 1 million
Class Gamma 4 1 million
Class Delta 4 1 million
Class Epsilon 4 1 million
Class Zeta 4 1 million
Class Eta 4 1 million
Class Theta 4 1 million
Government Securities Class P 100 million
Boston Partners Large Cap Class QQ 100 million
Class RR 100 million
Boston Partners Mid Cap Class UU 100 million
Class TT 100 million
<PAGE>
PORTFOLIO CLASS AUTHORIZED SHARES
--------- ----- -----------------
Boston Partners Bond Class VV 100 million
Class WW 100 million
Boston Partners Micro Cap Class DDD 100 million
Class EEE 100 million
The Amendment seeks to register an indefinite number of the Shares.
We have reviewed the Company's Certificate of Incorporation,
ByLaws, resolutions of its Board of Directors, and such other legal and factual
matters as we have deemed appropriate. This opinion is based exclusively on the
Maryland General Corporation Law and the federal law of the United States of
America.
We assume that, prior to the effectiveness of the Amendment
under the 1933 Act, the Company will have filed with the Maryland Department of
Assessments and Taxation all necessary documents (the "Documents") to authorize,
classify and establish the Shares.
Based upon and subject to the foregoing, it is our opinion
that the Shares, when issued for payment as described in the Company's
Prospectuses offering the Shares and in accordance with the Company's Articles
of Incorporation and the Documents for not less than $.001 per share, will be
legally issued, fully paid and non-assessable by the Company.
We hereby consent to the filing of this opinion as an exhibit
to Post-Effective Amendment No. 64 to the Company's Registration Statement.
Very truly yours,
/S/ DRINKER BIDDLE & REATH LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Exhibit 11(a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the
reference to our Firm under the caption "Counsel" in the Statement of Additional
Information that is included in Post-Effective Amendment No. 64 to the
Registration Statement (No. 33-20827; 811-5518) on Form N-1A of The RBB Fund,
Inc., under the Securities Act of 1933 and the Investment Company Act of 1940,
respectively. This consent does not constitute a consent under section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under said section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/S/DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
December 16, 1998
Exhibit 11 (b)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of the RBB Fund, Inc:
We consent to the incorporation by reference in Post-Effective Amendment No. 64
to the Registration Statement of the RBB Fund, Inc. on Form N-1A under the
Securities Act of 1933 on Form N-1A (File No. 33-20827) of our reports dated
October 2, 1998 on our audits of the financial statements and financial
highlights of the Government Securities, Money Market, Municipal Money Market,
Government Obligations MOney Market, and New York Municipal Money Market
Portfolios, and the Boston Partners Large Cap Value Fund, the Boston Partners
Mid Cap Value Fund, the Boston Micro Cap Value Fund and the Boston Partners
Bond Fund of The RBB Fund, Inc., which reports are included in the Annual
Reports to Shareholders for the year (or period) ended August 31, 1998 which
are incorporated by reference in the Post-Effective Amendment to the
Registration Statement in the Statements of Additional Information.
We also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectuses and under the headings "Miscellaneous-
Independent Accountants" and "Financial Statements" in the Statements of
Additional Information.
/S/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 11, 1998
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<TABLE> <S> <C>
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<PERIOD-END> AUG-31-1998
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<INVESTMENTS-AT-VALUE> 244218187
<RECEIVABLES> 974504
<ASSETS-OTHER> 168651
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