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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
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CONTENTS
Page
INTRODUCTION ....................................................... 3
INVESTMENT OBJECTIVES AND POLICIES ................................. 5
INVESTMENT LIMITATIONS ............................................. 10
PURCHASE AND REDEMPTION OF SHARES .................................. 13
NET ASSET VALUE .................................................... 16
MANAGEMENT ......................................................... 16
DIVIDENDS AND DISTRIBUTIONS ........................................ 19
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
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RBB
Select Money Market Portfolio
Prospectus and Summary
Description for the Select Shares
of the Money Market Portfolio
December 1, 1997
(as revised September 1, 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 ("PNC Bank'), National Association serves
as custodian for the Fund, and PFPC Inc. serves as 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 1, 1997 (as revised
September 1, 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).
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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 ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROSPECTUS December 1, 1997
(as revised September 1, 1998)
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<PAGE>
INTRODUCTION
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The RBB Fund, Inc. is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988. The
Fund is currently operating or proposing to operate twenty-seven 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 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 Objectives and Policies." The Portfolio, to
the extent set forth under "Investment Objectives and Policies," may engage in
the following investment practices: the use of repurchase agreements and reverse
repurchase agreements; the purchase of asset-backed securities; the purchase of
securities on a "when-issued" or "forward commitment" basis; the purchase of
stand-by commitments; and the lending of securities. All of these transactions
involve certain special risks, as set forth under "Investment Objectives and
Policies."
For detailed information of how to purchase or redeem Select Shares,
please refer to the section of this Prospectus entitled "Purchase and Redemption
of Shares."
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<PAGE>
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.
ANNUAL FUND OPERATING EXPENSES (SELECT SHARES)
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
MONEY MARKET
PORTFOLIO
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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"
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<PAGE>
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 "yield" and
"effective yield" of its Select Shares. BOTH 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 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 yield of any investment is generally a function of portfolio quality
and maturity, type of investment, operating expenses and market conditions. The
yield on Shares will fluctuate and is not necessarily representative of future
results. Any fees charged by PNC Bank directly to their customers in connection
with their investment accounts will not be reflected in the yields on the
Portfolio's Shares, and such fees, if charged, will reduce the actual return
received by customers on their investments. The yield on Shares of the Select
Class may differ from yields on shares of other classes of the Portfolio
depending on the allocation of expenses to each of the classes of the Portfolio.
INVESTMENT OBJECTIVES AND POLICIES
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The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining liquidity
and stability of principal. Portfolio obligations held by the Money Market
Portfolio have maturities of 397 days or less (exclusive of securities subject
to repurchase agreements). In pursuing its investment objective, the Money
Market Portfolio invests in a diversified portfolio of U.S. dollar-denominated
instruments, such as government, bank and
-5-
<PAGE>
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
(or, in certain cases, whose guarantor is rated) at the time of purchase in the
two highest rating categories of a nationally recognized statistical rating
organization ("Rating Organization") or by the only Rating Organization which
has assigned a 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 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
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<PAGE>
periodic adjustment in the interest rate. Although the notes are not normally
traded and there may be no active secondary market in the notes, the Portfolio
will be able (at any time or during specified periods not exceeding 13 months,
depending upon the note involved) to demand payment of the principal of a note.
The notes are not typically rated by credit rating agencies, but issuers of
variable rate demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable rate demand note
defaulted on its payment obligation, the Portfolio might be unable to dispose of
the note because of the absence of an active secondary market. For this or other
reasons, the Portfolio might suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
Default by or bankruptcy of the seller would, however, expose the Portfolio to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation.
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued and guaranteed by U.S. Government Agencies and instrumentalities
or 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
-7-
<PAGE>
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 13 months or less. Asset-backed
securities are considered an industry for industry concentration purposes. See
"Investment Limitations." In periods of falling interest rates, the rate of
mortgage prepayments tends to increase. During these periods, the reinvestment
of proceeds by a portfolio will generally be at lower rates than the rates on
the prepaid obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by a portfolio of securities that it holds currently
with an agreement by the portfolio to repurchase them at an agreed upon time and
price. Reverse repurchase agreements are considered to be borrowings by the
Portfolio under the Investment Company Act of 1940 (the "1940 Act").
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, 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.
-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 (or whose issuer or, in certain cases, guarantor, is
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 (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, and (4) 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
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<PAGE>
maturity equal to the notice period. Securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. The Portfolio's investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors. See "Investment Objectives and Policies --Illiquid
Securities" in the Statement of Additional Information.
YEAR 2000. The services provided to the Fund by the Adviser and others
depend in large part upon the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
or calculated. The capability of these systems to recognize the year 2000 could
have a negative impact on the Adviser's provision of investment advisory
services, including the handling of securities trades pricing. Both the Adviser
and PFPC have advised the Fund that they have been reviewing all of their
computer systems, are actively working on necessary changes to those systems to
prepare for the year 2000 and expect that given the extensive testing which they
are undertaking, their systems will be year 2000 compliant before such date.
There can, however, be no assurance that the Adviser or any other service
provider will be successful in achieving year 2000 compliance, or that
interaction with other non-complying computer systems will not impair services
to the fund at that time.
INVESTMENT LIMITATIONS
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The Portfolio's investment objective and policies described above may
be changed by the Fund's Board of Directors without shareholder approval. The
Portfolio may not, however, change the investment limitations summarized below
without such a vote of shareholders. (A more detailed description of the
following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and Policies.")
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments,
some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in
excess of 5% of the value of the Portfolio's assets and may make time
deposits.
2. Borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements and then in amounts not in
excess of 10% of the value of the Portfolio's assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowing and in amounts not in excess of 10% of the
value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings are in excess of 5% of
the Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.)
3. Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the banking
industry, or in obligations, such as
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<PAGE>
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.
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<PAGE>
2. The Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier
Securities, to 5% of its total assets.
3. The Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
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<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.
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<PAGE>
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
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
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<PAGE>
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 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.
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<PAGE>
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.
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 twenty-seven separate investment
portfolios. The Select Class represents interests in the Money Market Portfolio.
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<PAGE>
INVESTMENT ADVISER
BIMC, a 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 or its affiliates and
its predecessors have been in the business of managing the investments of
fiduciary and other accounts in the Philadelphia area since 1847. PNC Bank and
its subsidiaries currently manage over $235.0 billion of assets, of which
approximately $57.5 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. BIMC also
assists generally in supervising the operations of the Portfolio, and maintains
the Portfolio's financial accounts and records. 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.
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. 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 period ended July 31, 1998, the Fund paid investment
advisory fees aggregating .36% of the average net assets of the Portfolio. For
the same period, BIMC waived fees of approximately .12% 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.")
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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, acts as distributor for the
Fund pursuant to a 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 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.
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<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 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 materials 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.
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.
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<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 Subtitle A, Chapter 1, of the Internal Revenue Code of
1986, as amended (the "Code"). So long as the Portfolio qualifies for this tax
treatment, it will be relieved of federal income tax on amounts distributed to
shareholders, but shareholders, unless otherwise exempt, will pay income or
capital gains taxes on amounts so distributed (except distributions that are
treated as a return of capital) regardless of whether such distributions are
paid in cash or reinvested in additional shares. The Portfolio does not intend
to make distributions that will be eligible for the corporate dividends received
deduction.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the
Portfolio, and out of the portion of such net capital gain that constitutes
mid-term capital gain, will be taxed to shareholders as long-term capital gain
or mid-term capital gain, as the case may be, regardless of the length of time a
shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to securities bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income. The current nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is
generally 39.6%, while the maximum rate imposed on mid-term and other long-term
capital gain of such taxpayers is 28% and 20%, respectively. Corporate taxpayers
are taxed at the same rates on both ordinary income and capital gains.
The Fund will send written notices to shareholders annually regarding
the tax status of distributions made by the Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided such dividends are paid during January of
the following year. The Portfolio intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
federal excise tax.
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<PAGE>
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the federal income tax consequences described above.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 14.93 billion shares are currently
classified into 92 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
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
meeting of shareholders
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<PAGE>
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 June __, 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.
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<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 1, 1997 as
revised September 1, 1998 (the "Prospectus"). A copy of the Prospectus may be
obtained through the Fund's distributor by calling toll-free (800) 888-9723.
This Statement of Additional Information is dated December 1, 1997 as revised
September 1, 1998.
CONTENTS
Prospectus
Page Page
---- ----------
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 ...................... 19
Valuation of Shares ...................................... 20
Performance of Information ............................... 21
Taxes .................................................... 22
Additional Information Concerning Fund Shares ............ 25
Miscellaneous ............................................ 28
Financial Statements ..................................... 40
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 twenty-seven 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 1, 1997 as
revised September 1, 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, for securities other than asset-backed securities, may
not exceed 30 days), and (ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to 13 months. In determining
the average weighted maturity of the Money Market Portfolio and whether a
variable rate demand instrument has a remaining maturity of 13 months or less,
each instrument will be deemed by the Portfolio to have a maturity equal to the
longer of the period remaining until its next interest rate adjustment or the
period remaining until the principal amount can be recovered through demand. In
determining whether an unrated variable rate demand instrument is an eligible
security, the Portfolio's investment adviser will follow guidelines adopted by
the Fund's Board of Directors. The absence of an active secondary market with
respect to particular variable and floating rate instruments could make it
difficult for a Portfolio to dispose of variable or floating rate notes if the
issuer
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<PAGE>
defaulted on its payment obligations or during periods that the Portfolio is not
entitled to exercise its demand right and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio has such commitments outstanding, it will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the Portfolio will set aside
portfolio securities to satisfy a purchase commitment and, in such a case, the
Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it 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-
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<PAGE>
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 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, 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
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<PAGE>
normally is resold to other institutional investors through or with the
assistance of investment dealers who make a market in the Section 4(2) paper,
thereby providing liquidity. See "Illiquid Securities" below.
REPURCHASE AGREEMENTS. The repurchase price under the repurchase
agreements described in the Prospectus generally equals the price paid by the
Portfolio plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). The financial institutions with which the Portfolio may
enter into repurchase agreements will be banks and non-bank dealers of U.S.
Government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the Portfolio's adviser or sub-adviser. A Portfolio's adviser or
sub-adviser will continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to maintain during the term of
the agreement the value of the securities subject to the agreement to equal at
least the repurchase price (including accrued interest). In addition, the
Portfolio's adviser or sub-adviser will require that the value of this
collateral, after transaction costs (including loss of interest) reasonably
expected to be incurred on a default, be equal to or greater than the repurchase
price (including accrued premium) provided in the repurchase agreement or the
daily amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The Portfolio's adviser
or sub-adviser will mark-to-market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Fund's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by the Portfolio
under the 1940 Act.
MUNICIPAL OBLIGATIONS. Municipal Obligations may include variable rate
demand notes. Such notes are frequently not rated by credit rating agencies, but
unrated notes purchased by the Portfolio will have been determined by the
Portfolio's investment adviser to be of comparable quality at the time of the
purchase to rated instruments purchasable by the Portfolio. Where necessary to
ensure that a note is of eligible quality, the Portfolio will require that the
issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by 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
-5-
<PAGE>
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.
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
-6-
<PAGE>
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.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines
-7-
<PAGE>
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)
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
-8-
<PAGE>
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 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
-9-
<PAGE>
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(5) make short sales of securities or maintain a short position
or write or sell puts, calls, straddles, spreads or combinations
thereof;
(6) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Money Market Portfolio may not:
(a) Purchase any securities other than Money Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(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.
-10-
<PAGE>
The foregoing investment limitations cannot be changed without
shareholder approval.
With respect to limitation (b) above concerning industry concentration,
the Portfolio will consider wholly-owned finance companies to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry. The
policy and practices stated in this paragraph may be changed without the
affirmative vote of the holders of a majority of the Money Market Portfolio's
outstanding shares, but any such change may require the approval of the
Securities and Exchange Commission (the "SEC") and would be 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:
Position Principal Occupation
Name and Address and Age with Fund During Past Five Years
- ------------------------ --------- ----------------------
*Arnold M. Reichman - 49 Director Senior Managing Director, Chief
466 Lexington Avenue Operating Officer and Assistant
New York, NY 10017 Secretary, Warburg Pincus Asset
Management, Inc.; Director and
Executive Officer of Counsellors
Securities Inc.; Director/Trustee
of various investment companies
advised by Warburg Pincus Asset
Management, Inc.
**Robert Sablowsky - 59 Director Senior Vice President,
110 Wall Street Fahnestock Co., Inc. (a registered
New York, NY 10005 broker-dealer); Prior to October
1996, Executive Vice President of
Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 62 Director Since 1963, Executive Vice
7701 Burholme Avenue President, Fox Chase Cancer
Philadelphia, PA 19111 Center (biomedical research and
medical care).
Marvin E. Sternberg - 63 Director Since 1974, Chairman, Director
937 Mt. Pleasant Road and President, Moyco Industries,
Bryn Mawr, PA 19010 Inc. (manufacturer of dental
supplies and precision coated
abrasives); since 1968, Director
and President, Mart MMM, Inc.
(formerly Montgomeryville
Merchandise Mart Inc.) and Mart
PMM, Inc. (formerly Pennsauken
Merchandise Mart, Inc.) (shopping
centers); and since 1975, Director
and Executive Vice President,
Cellucap Mfg. Co., Inc.
(manufacturer of disposable
headwear).
-12-
<PAGE>
Position Principal Occupation
Name and Address and Age with Fund During Past Five Years
- ------------------------ --------- ----------------------
Julian A. Brodsky - 64 Director Director and Vice Chairman since
1234 Market Street 1969, Comcast Corporation
16th Floor (cable television and
Philadelphia, PA 19107-3723 communications); Director,
Comcast Cablevision of
Philadelphia (cable television and
communications) and Nextel
(wireless communications).
Donald van Roden - 73 Director Self-employed businessman.
1200 Old Mill Lane and Chairman From February 1980 to March
Wyomissing, PA 19610 of the Board 1987, Vice Chairman, SmithKline
Beecham Corporation
(pharmaceuticals); Director, AAA
Mid-Atlantic (auto service);
Director, Keystone Insurance Co.
Edward J. Roach - 73 President Certified Public Accountant; Vice
Suite 100 and Chairman of the Board, Fox
Bellevue Park Treasurer Chase Cancer Center; Trustee
Corporate Center Emeritus, Pennsylvania School
400 Bellevue Parkway for the Deaf; Trustee Emeritus,
Wilmington, DE 19809 Immaculata College; President or
Vice President and Treasurer of
various investment companies
advised by BlackRock Institutional
Management Corporation; Director,
The Bradford Funds, Inc.
Morgan R. Jones - 58 Secretary Chairman of the law firm of
Drinker Biddle & Reath LLP Drinker Biddle & Reath LLP;
1345 Chestnut Street Director, Nobel Education
Philadelphia, PA 19107-3496 Dynamics, Inc.
- -----------------
* Mr. Reichman is an "interested person" of the Fund, as that term is defined
in the 1940 Act, by virtue of his positions with Counsellors Securities
Inc., a registered broker-dealer.
** Mr. Sablowsky is an "interested person" of the Fund, as that term is
defined in the 1940 Act, by virtue of his position with Fahnestock Co.,
Inc., a registered broker-dealer.
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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 or sub-adviser of the Fund
or the Distributor, and Mr. Sablowsky, who is considered to be an affiliated
person, $12,000 annually and $1,000 per meeting of the Board or any committee
thereof that is not held in conjunction with a Board meeting. In addition, the
Chairman of the Board receives an additional fee of $5,000 per year for his
services in this capacity. Directors who are not affiliated persons of the Fund
and Mr. Sablowsky are reimbursed for any expenses incurred in attending meetings
of the Board of Directors or any committee thereof. For the year ended August
31, 1997, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total Compensation
Aggregate Benefits Accrued Annual from Registrant and
Name of Person/ Compensation as Part of Fund Benefits Upon Fund Complex 1 Paid to
Position from Registrant Expenses Retirement Directors
- -------------- --------------- ---------------- ------------- ----------------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $16,000 N/A N/A $16,000
Director
Francis J. McKay, $19,000 N/A N/A $19,000
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $ 8,000 N/A N/A $ 8,000
Director
Marvin E. Sternberg, $19,000 N/A N/A $19,000
Director
Donald van Roden,
Director and Chairman $24,000 N/A N/A $24,000
</TABLE>
- ---------------
1 A Fund Complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment
-14-
<PAGE>
adviser or have an investment adviser that is an affiliated person of the
investment adviser of any other investment companies.
On October 24, 1990 the Fund adopted, as a participating employer, the
Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach is the Fund's sole employee),
pursuant to which the Fund will contribute on a quarterly basis amounts equal to
10% of the quarterly compensation of each eligible employee. By virtue of the
services performed by Blackrock Institutional Management Corporation ("BIMC"),
the 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"), 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. The advisory services provided by BIMC and the fees
received by BIMC for such services are described in the Prospectus. BIMC renders
advisory services to the Portfolio and also renders administrative services to
the Money Market Portfolio pursuant to an investment advisory agreement. The
advisory agreement relating to the Money Market Portfolio is dated August 16,
1988. The advisory agreement is hereinafter referred to as the "Advisory
Agreement."
For the period ended February 28, 1998, the Fund paid BIMC advisory
fees (unaudited) as follows:
FEES PAID
(AFTER
WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- -------------- ------- --------------
Money Market Portfolio $3,148,587 $1,867,833 $273,084
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
- --------- -------------- ------- --------------
Money Market Portfolio $5,366,431 $3,603,130 $469,986
-15-
<PAGE>
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
- --------- -------------- ------- --------------
Money Market Portfolio $4,174,375 $3,527,715 $342,158
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 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 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 will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund or the
Portfolio in connection with the performance of the Advisory Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of BIMC in the
-16-
<PAGE>
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, 1997 by a
vote of the Fund's Board of Directors, including a majority of those directors
who are not parties to the Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of such parties. The Advisory Agreement was approved by
the shareholders of the Money Market Portfolio at a special meeting held
December 22, 1989, as adjourned. The Advisory Agreement is terminable by vote of
the Fund's Board of Directors or by the holders of a majority of the outstanding
voting securities of the Portfolio, at any time without penalty, on 60 days'
written notice to BIMC. The Advisory Agreement may also be terminated by BIMC on
60 days' written notice to the Fund. The Advisory Agreement terminates
automatically in the event of assignment thereof.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a distribution
agreement, dated as of May 29, 1998, 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.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Portfolio, (b) holds
and transfers portfolio securities on account of the Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of the Portfolio, (d)
collects and receives all income and other payments and distributions on account
of the Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning the Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Select Shares pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC (a) issues
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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, BIMC or PNC Bank or any affiliated person of the
foregoing entities except to the extent permitted by SEC exemptive order or by
applicable law.
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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.
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 Portfolio Bear Stearns Companies, $40,000,000
Inc. Commercial Paper
Money Market Portfolio Bear Stearns Companies, $25,000,808
Inc. Commercial Paper
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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.
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VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset
value of each class of the Portfolio at $1.00 per share. Net asset value per
share, the value of an individual share in the Portfolio, is computed by adding
the value of the proportionate interest of the class in a Portfolio's cash,
securities, and other assets, subtracting the actual and accrued liabilities of
the class and dividing the result by the number of outstanding shares of the
class. The net asset value of each class of the Fund is determined independently
of each other class. The Portfolio's "net assets" equal the value of the
Portfolio's investments and other securities less its liabilities. The
Portfolio's net asset value per share is computed twice each day, as of 12:00
noon (Eastern Time) and as of the close of the NYSE (generally 4:00 p.m. Eastern
Time), on each Business Day. "Business Day" means each weekday when both the
NYSE and the Federal Reserve Bank of Philadelphia (the "FRB") are open.
Currently, the NYSE is closed weekends and on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, 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.
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The Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity 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
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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
Donoghue's Money Fund Average, which is an average compiled by IBC MONEY FUND
REPORT(R), a widely recognized independent publication that monitors the
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or their shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
The Portfolio has elected to be taxed as a regulated investment company
under Part I of Subchapter M of Subtitle A, Chapter 1, of the Internal Revenue
Code of 1986, as amended (the "Code"). As a regulated investment company, the
Portfolio is exempt from federal income tax on its net investment income and
realized capital gains which it distributes to shareholders, provided that it
distributes an amount equal to the sum of (a) at least 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gain over net long-term capital loss), if any, for the year and (b) at
least 90% of its net tax-exempt interest income, if any, for the year (the
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income and
net
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tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement, the
Portfolio must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies, or from other
income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement").
Income derived by a regulated investment company from a partnership or
trust will satisfy the Income Requirement only to the extent such income is
attributable to items of income of the partnership or trust that would satisfy
the Income Requirement if they were realized by a regulated investment company
in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of each quarter
of its taxable year, at least 50% of the value of the Portfolio's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Portfolio has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which the Portfolio does not hold more than
10% of the outstanding voting securities of such issuer), and no more than 25%
of the value of the Portfolio's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Portfolio
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in informal
rulings issued to other taxpayers, that the issuer of a repurchase agreement is
the bank or dealer from which securities are purchased. The Money Market
Portfolio will not enter into repurchase agreements with any one bank or dealer
if entering into such agreements would, under the informal position expressed by
the Internal Revenue Service, cause it to fail to satisfy the Asset
Diversification Requirement.
Distributions of net investment income received by the Portfolio from
investments in debt securities (including interest on tax-exempt Municipal
Obligations) and any net realized short-term capital gains distributed by the
Portfolio will be taxable to shareholders as ordinary income and will not be
eligible for the dividends received deduction for corporations.
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While the Portfolio does not expect to realize long-term capital gains,
any net realized long-term capital gains, such as gains from the sale of debt
securities and realized market discount on tax-exempt Municipal Obligations will
be distributed annually. The Portfolio will not have tax liability with respect
to such gains and the distributions will be taxable to Portfolio shareholders as
mid-term or other long-term capital gain, regardless of how long a shareholder
has held Portfolio shares. The aggregate amount of distributions designated by
the Portfolio as capital gain dividends may not exceed the net capital gain of
the Portfolio for any taxable year, determined by excluding any net capital loss
or net long-term loss attributable to transactions occurring after October 31 of
such year and by treating any such loss as if it arose on the first day of the
following taxable year. Such distributions will be designated as a capital gains
dividend in a written notice mailed by the Fund to shareholders not later than
60 days after the close of the Portfolio's respective taxable year.
If for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends (including amounts derived
from interest on Municipal Obligations) to the extent of the Portfolio's current
and accumulated earnings and profits. Such distributions will be eligible for
the dividends received deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that do not distribute with respect to each calendar year an amount
equal to 98 percent of their ordinary income for the calendar year plus 98
percent of their capital gain net income for the one-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because the Portfolio intends to
distribute all of its taxable income currently, it does not anticipate incurring
any liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends (other than exempt interest dividends)
paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such
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changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Although the Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the
Portfolio may be subject to the tax laws of such states or localities.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 14.93 billion shares are currently
classified as follows: 100 million shares are classified as Class A Common
Stock, 100 million shares are classified as Class B Common Stock, 100 million
shares are classified as Class C Common Stock, 100 million shares are classified
as Class D Common Stock, 500 million shares are classified as Class E Common
Stock (Money), 500 million shares are classified as Class F Common Stock
(Municipal Money), 500 million shares are classified as Class G Common Stock
(Money), 500 million shares are classified as Class H Common Stock (Municipal
Money), 1 billion shares are classified as Class I Common Stock (Money), 500
million shares are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (U.S. Government Money),
1,500 million shares are classified as Class L Common Stock (Money), 500 million
shares are classified as Class M Common Stock (Municipal Money), 500 million
shares are classified as Class N Common Stock (U.S. Government Money), 500
million shares are classified as Class O Common Stock (N.Y. Money), 100 million
shares are classified as Class P Common Stock (Government), 100 million shares
are classified as Class Q Common Stock, 500 million shares are classified as
Class R Common Stock (Municipal Money), 500 million shares are classified as
Class S Common Stock (U.S. Government Money), 500 million shares are classified
as Class T Common Stock (International), 500 million shares are classified as
Class U Common Stock (Strategic), 500 million shares are classified as Class V
Common Stock (Emerging), 100 million shares are classified as Class W Common
Stock, 50 million shares are classified as Class X Common Stock (U.S. Core
Equity), 50 million shares are classified as Class Y Common Stock (U.S. Core
Fixed Income), 50 million shares are classified as Class Z Common Stock (Global
Fixed Income), 50 million shares are classified as Class AA Common Stock
(Municipal Bond), 50 million shares are classified as Class BB Common Stock (BEA
Balanced), 50 million shares are classified as Class CC Common Stock (Short
Duration), 100 million shares are classified as Class DD Common Stock, 100
million shares are classified as Class EE Common Stock, 50 million shares are
classified as Class FF Common Stock (n/i Numeric Investors Micro Cap), 50
million shares are classified as Class GG Common Stock (n/i Numeric Investors
Growth), 50 million shares are classified as Class HH Common Stock (n/i Numeric
Investors Growth & Value), 100 million shares are classified as Class II
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Common Stock (BEA Investor International), 100 million shares are classified as
Class JJ Common Stock (BEA Investor Emerging), 100 million shares are classified
as Class KK Common Stock (BEA Investor High Yield), 100 million shares are
classified as Class LL Common Stock (BEA Investor Global Telecom), 100 million
shares are classified as Class MM Common Stock (BEA Advisor International), 100
million shares are classified as Class NN Common Stock (BEA Advisor Emerging),
100 million shares are classified as Class OO Common Stock (BEA Advisor High
Yield), 100 million shares are classified as Class PP Common Stock (BEA Advisor
Global Telecom), 100 million shares are classified as Class QQ Common Stock
(Boston Partners Institutional Large Cap), 100 million shares are classified as
Class RR Common Stock (Boston Partners Investor Large Cap), 100 million shares
are classified as Class SS Common Stock (Boston Partners Advisors Large Cap),
100 million shares are classified as Class TT Common Stock (Boston Partners
Investor Mid Cap), 100 million shares are classified as Class UU Common Stock
(Boston Partners Institutional Mid Cap), 100 million shares are classified as
Class VV Common Stock (Boston Partners Institutional Bond), 100 million shares
are classified as Class WW Common Stock (Boston Partners Investor Bond), 50
million shares are classified as Class XX Common Stock (n/i Numeric Investors
Larger Cap Value), 100 million shares are classified as Class YY Common Stock
(Schneider Capital Management Value), 100 million shares are classified as Class
ZZ Common Stock (BEA Class Long-Short Market Neutral), 100 million shares are
classified as Class AAA Common Stock (BEA Advisor Long-Short Market Neutral),
100 million shares are classified as Class BBB Common Stock (BEA Class
Long-Short Equity), 100 million shares are classified as Class CCC Common Stock
(BEA Advisor Long-Short Equity), 100 million shares are classified as Class DDD
Common Stock (Boston Partners Micro Cap Value), 100 million shares are
classified as Class EEE Common Stock (Boston Partners Investor Micro Cap Value),
100 million shares are classified as Class FFF Common Stock (BEA Class Select
Economic Value Equity), 100 million shares are classsified as Class GGG Common
Stock (BEA Advisor Select Economic Value Equity), 100 million shares are
classified as Class HHH Common Stock (BEA Advisor U.S. Core Equity) ,700 million
shares are classified as Class Janney Money Market Common Stock (Money), 200
million shares are classified as Class Janney Municipal Money Market Common
Stock (Municipal Money), 500 million shares are classified as Class Janney
Government Obligations Money Market Common Stock (U.S. Government Money), 100
million shares are classified as Class Janney New York Municipal Money Market
Common Stock (N.Y. Money), 1 million shares are classified as Select Class
Common Stock (Money), 1 million shares are classified as Class Beta 2 Common
Stock (Municipal Money), 1 million shares are classified as Class Beta 3 Common
Stock (U.S. Government Money), 1 million shares are classified as Class Beta 4
Common Stock (N.Y. Money), 1 million shares are classified as Gamma 1 Common
Stock (Money), 1 million shares are classified as Gamma 2 Common Stock
(Municipal Money), 1 million shares are classified as Gamma 3 Common Stock (U.S.
Government Money), 1 million shares are classified as Gamma 4 Common Stock (N.Y.
Money), 1 million shares are classified as Delta 1 Common Stock (Money), 1
million shares are classified as Delta 2 Common Stock (Municipal Money), 1
million shares are classified as Delta 3 Common Stock (U.S. Government Money), 1
million shares are classified as Delta 4 Common Stock (N.Y.
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Money), 1 million shares are classified as Epsilon 1 Common Stock (Money), 1
million shares are classified as Epsilon 2 Common Stock (Municipal Money), 1
million shares are classified as Epsilon 3 Common Stock (U.S. Government Money),
1 million shares are classified as Epsilon 4 Common Stock (N.Y. Money), 1
million shares are classified as Zeta 1 Common Stock (Money), 1 million shares
are classified as Zeta 2 Common Stock (Municipal Money), 1 million shares are
classified as Zeta 3 Common Stock (U.S. Government Money), 1 million shares are
classified as Zeta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Eta 1 Common Stock (Money), 1 million shares are classified as Eta 2 Common
Stock (Municipal Money), 1 million shares are classified as Eta 3 Common Stock
(U.S. Government Money), 1 million shares are classified as Eta 4 Common Stock
(N.Y. Money), 1 million shares are classified as Theta 1 Common Stock (Money), 1
million shares are classified as Theta 2 Common Stock (Municipal Money), 1
million shares are classified as Theta 3 Common Stock (U.S. Government Money),
and 1 million shares are classified as Theta 4 Common Stock (N.Y. Money). Shares
of Select Class Stock constitute the Select Class. Under the Fund's charter, the
Board of Directors has the power to classify or reclassify any unissued shares
of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen separate
"families", or classes: the Cash Preservation Family, the Sansom Street Family,
the Select Class, the Bedford Family, the BEA Family, n/i Numeric Investors
Family, Boston Partners Family, the Janney Montgomery Scott Money Funds Family,
the Beta Family, the Gamma Family, the Delta Family, the Epsilon Family, the
Zeta Family, the Eta Family and the Theta Family. The Cash Preservation Family
represents interests in the Money Market and Municipal Money Market Portfolios;
the Sansom Street Family represents interests in the Money Market Portfolio; the
Bedford Family represents interests in the Money Market, Municipal Money Market,
and Government Obligations Money Market; the BEA Family represents interests in
ten non-money market portfolios; the n/i Numeric Investors Family represents
interests in four non-money market portfolios; the Boston Partners Family
represents interests in three non-money market portfolios; the Janney Montgomery
Scott Money Funds Family and Beta, Gamma, Delta, Epsilon, Zeta, Eta and Theta
Families represents interests in the Money Market, Municipal Money Market,
Government Obligations Money Market and New York Municipal Money Market
Portfolios.
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in shareholder
communication in such matters.
As stated in the Prospectus, holders of shares of each class of the
Fund will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund will vote in the
aggregate and not by portfolio
-28-
<PAGE>
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 August 28, 1998, to the Company'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
Company indicated below. See "Additional Information Concerning the Company
Shares" above. The Company does not know whether such persons also beneficially
own such shares.
-29-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
BEA INT'L EQUITY - Employees Ret Plan Marshfield Clini 7.23%
INSTITUTIONAL 1000 N. Oak Avenue
Marshfield, WI 54449-5772
- --------------------------------------------------------------------------------
Indiana University Foundation 5.05%
Attn: Walter L. Koon, Jr.
P.O. Box 500
Bloomington, IN 47402-0500
- --------------------------------------------------------------------------------
BEA EMERGING Wachovia Bank North Carolina 47.78%
MARKETS EQUITY - Trust Carolina Power & Light Co.
INSTITUTIONAL Supplemental Retirement Trust
P.O. Box 3073
301 N. Main Street, MC NC 31057
Winston-Salem, NC 27101-3819
- --------------------------------------------------------------------------------
Clariden Bank 6.93%
Clariden Str. 26
CH-8002 Zurich
Switzerland
- --------------------------------------------------------------------------------
National Academy of Sciences 5.36%
2101 Constitution Ave. NW
Washington, DC 20418-0006
- --------------------------------------------------------------------------------
Arkansas Public Emp. Retirement Syst. 32.00%
124 W. Capitol Ave.
Little Rock, AR 72201-3704
- --------------------------------------------------------------------------------
BEA LONG-SHORT Michael A. Wall TTEE 95.80%
MARKET NEUTRAL- Michael A. Wall Trust
INSTITUTIONAL U/A DTD 12/29/1997
P.O. Box 4579
Jackson, WY 83001-4579
- --------------------------------------------------------------------------------
BEA SELECT Patterson & Co. 91.54%
ECONOMIC VALUE P.O. Box 7829
EQUITY-INSTITUTIONAL Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
BEA Associates 5.56%
FAO Pension Trust
153 E. 53rd St.
New York, NY 10022-4611
- --------------------------------------------------------------------------------
BEA U.S. CORE EQUITY - Werner & Pfleiderer Pension Plan 8.91%
INSTITUTIONAL Employees
663 E. Crescent Ave.
Ramsey, NJ 07446-1287
- --------------------------------------------------------------------------------
Credit Suisse Private Banking 8.98%
Dividend Reinvest Plan
C/o Credit Suisse Pvt Bkg
12 E. 49th St., 40th Floor
New York, NY 10017-1028
- --------------------------------------------------------------------------------
Washington Hebrew Congregation 16.18%
3935 Macomb St., NW
Washington, DC 20016-3799
- --------------------------------------------------------------------------------
Fleet National Bank Trst. 8.02%
Hospital St. Raphael Malpractice
Attn: 1958875010
P.O. Box 92800
Rochester, NY 14692-8900
- --------------------------------------------------------------------------------
-30-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Patterson & Co. 32.75%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
FTC & Co. 6.14%
Attn. Datalynx # House Acct.
P.O. Box 173736
Denver, CO 80217-3736
- --------------------------------------------------------------------------------
Sema & Co. 5.14%
12 E. 49th St. - Fl. 41
New York, NY 10017-1028
- --------------------------------------------------------------------------------
BEA U.S. CORE FIXED The Northern Trust Company TTEE 12.80%
INCOME - Uniroyal Holdings Bond Fund
INSTITUTIONAL c/o Uniroyal Holding Inc.
70 Great Hill Road
Naugatuck, CT 06770-2224
- --------------------------------------------------------------------------------
Winifred Masterson Burke Foundation 6.17%
785 Mamaroneck Ave.
White Plains, NY 10605-2593
- --------------------------------------------------------------------------------
New England UFCW & Employers' 11.86%
Pension Fund Board of Trustees
161 Forbes Rd, Ste. 201
Braintree, MA 02184-2606
- --------------------------------------------------------------------------------
BEA STRATEGIC Sunkist Master Trust 52.73%
GLOBAL FIXED 14130 Riverside Dr.
INCOME FUND Sherman Oaks, CA 91423-2392
- --------------------------------------------------------------------------------
Patterson & Co. 37.70%
P.O. Box 7829
Philadelphia, PA 19101-7829
- --------------------------------------------------------------------------------
State St. Bank & Trust TTEE 5.48%
Fenway Holdings LLC Master Trust
P.O. Box 470
Boston, MA 02102-0470
- --------------------------------------------------------------------------------
BEA HIGH YIELD- Carl F Besenbach 18.35%
INSTITUTIONAL Trst Michelin North America Inc.
Master Trust
P.O. Box 19001
Greenville, SC 29602-9001
- --------------------------------------------------------------------------------
Southdown Inc. Pension Pl 9.61%
Mac & Co. A/C SDIF8575302
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------
-31-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Edward J. Demske TTEE 5.54%
Miami University Foundation
202 Roudebush Hall
Oxford, OH 45056
- --------------------------------------------------------------------------------
Fidelity Investments Institutional 16.89%
Operations Co. Inc. as Agent for
Certain Employee Benefits Plan
100 Magellan Way #KWIC
Covington, KY 41015-1987
- --------------------------------------------------------------------------------
MAC & CO A/C CSBF8605082 5.18%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------
BEA MUNI BOND Arnold Leon 12.59%
INSTITUTIONAL c/o Fiduciary Trust Company
P.O. Box 3199 Church Street Station
New York, NY 10008-3199
- --------------------------------------------------------------------------------
William A. Marquard 36.03%
2199 Maysville Rd.
Carlisle, KY 40311-9716
- --------------------------------------------------------------------------------
Leo Bogart 5.21%
135 Central Park West 9N
New York, NY 10023-2465
- --------------------------------------------------------------------------------
Howard Isermann 8.86%
9 Tulane Dr.
Livingston, NJ 07039-6212
- --------------------------------------------------------------------------------
BEA INT'L EQUITY TRANSCORP 9.45%
ADVISOR FBO William E Burns
P.O. Box 6535
Englewood, CO 80155-6535
- --------------------------------------------------------------------------------
Charles Schwab & Co. 8.53%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
Bob & Co. 76.46%
P.O. Box 1809
Boston, MA 02105-1809
- --------------------------------------------------------------------------------
-32-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
BEA EMERGING SEMA & Co. 97.75%
MARKETS EQUITY- 12E 49th St. Fl. 41
ADVISOR New York, NY 10017-1028
- --------------------------------------------------------------------------------
BEA GLOBAL TELE- E. M. Warburg Pincus & Co. Inc. 18.48%
COMMUNICATIONS- Attn: Sandra Correale
ADVISOR 466 Lexington Ave.
New York, NY 10017-3140
- --------------------------------------------------------------------------------
Charles Schwab & Co. 14.52%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
William W. Priest 5.03%
2 E. 70th St. #5
New York, NY 10021-4913
- --------------------------------------------------------------------------------
FTC & Co. 25.50%
Attn: DATALYNX #148
P.O. Box 173736
Denver, CO 80217-3736
- --------------------------------------------------------------------------------
BEA HIGH YIELD- Charles Schwab & Co. 83.14%
ADVISOR Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
Richard A. Wilson TTEE 14.19%
E. Francis Wilson TTEE
The Wilson Family Trust
U/A 11/1/95
7612 March Ave.
West Hills, CA 91304-5232
- --------------------------------------------------------------------------------
CASH PRESERVATION Jewish Family and Children's Agency 47.10%
MONEY MARKET of Phil Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
Marian E. Kunz 12.60%
52 Weiss Ave.
Flourtown, PA 19031
- --------------------------------------------------------------------------------
-33-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
SANSOM STREET Saxon and Co. 78.00%
MONEY MARKET FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- --------------------------------------------------------------------------------
Wasner & Co. for Account of 21.20%
Paine Webber and Managed Assets
Sundry Holdings
Attn: Joe Domizio
76 A 260 ABC 200 Stevens Drive
Lester, PA 19113
- --------------------------------------------------------------------------------
CASH PRESERVATION Gary L. Lange 36.70%
MUNICIPAL MONEY and Susan D. Lange
MARKET JT TEN
1354 Shady Knoll Ct.
Longwood, FL 32750
- --------------------------------------------------------------------------------
Andrew Diederich 6.70%
Doris Diederich
JT TEN
1003 Lindeman
Des Peres, MO 63131
- --------------------------------------------------------------------------------
Kenneth Farwell 12.10%
and Valerie Farwell
3854 Sullivan
St. Louis, MO 63107
- --------------------------------------------------------------------------------
Gwendolyn Haynes 5.40%
2757 Geyer
St. Louis, MO 63104
- --------------------------------------------------------------------------------
Emil R. Hunter and 7.60%
Mary J. Hunter JT TEN
428 W. Jefferson
Kirkwood, MO 63122
- --------------------------------------------------------------------------------
N/I MICRO CAP FUND Charles Schwab & Co. Inc. 14.00%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
-34-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Janis Claflin, Bruce Fetzer and 5.20%
Winston Franklin, Robert Lehman Trst
the John E. Fetzer Institute, Inc.
U/A DTD 06-1992
Attn: Christian Adams
9292 West KL Ave.
Kalamzoo, MI 49009
- --------------------------------------------------------------------------------
Public Inst. For Social Security 7.30%
1001 19th St., N. 16th Flr.
Arlington, VA 22209
- --------------------------------------------------------------------------------
Portland General Holdings Inc. 16.60%
DTD 01/29/90
Attn: William J. Valach
121 S.W. Salmon St.
Portland, OR 97202
- --------------------------------------------------------------------------------
State Street Bank and Trust Company 8.50%
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
- --------------------------------------------------------------------------------
N/I GROWTH FUND Charles Schwab & Co. Inc 18.60%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Citibank North America Inc. 20.60%
Trst Sargent & Lundy Retirement Trust
DTDX 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 6.20%
1001 N. US Hwy One Suite 800
Jupiter, FL 33477
- --------------------------------------------------------------------------------
-35-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Union Bank of California 5.20%
Trst Sunkist Growers-Match-Svgspln
Trst No. 610001154-03
Mutual Funds Dept. P.O. Box 109
San Diego, CA 92112
- --------------------------------------------------------------------------------
N/I GROWTH AND Charles Schwab & Co. Inc. 21.80%
VALUE FUND Special Custody Accuont for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
The John E. Fetzer Institute Inc. 7.80%
Attn: Christina Adams
9292 W. KL Ave.
Kalamzaoo, MI 49009
- --------------------------------------------------------------------------------
Bankers Trust Cust Pge-Enron 5.40%
Foundation
Attn: Procy Fernandez
300 S. Grand Ave. 40th Floor
Los Angeles, CA 90071
- --------------------------------------------------------------------------------
N/I LARGER CAP Charles Schwab & Co. Inc. 18.60%
VALUE FUND Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Bank of America NT & SA 17.90%
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. 47.40%
Attn: Christina Adams
9292 W. KL Ave.
Kalamazoo, MI 49009
- --------------------------------------------------------------------------------
BOSTON PARTNERS Dr. Janice B. Yost 16.90%
LARGE CAP FUND INST Trst Mary Black Foundation
SHARES Bell Hill - 945 E. Main St.
Spartanburg, SC 29302
- --------------------------------------------------------------------------------
-36-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Saxon And Co. 6.20%
FBO UJF Equity Funds
AC 10-01-001-0578481
P.O. Box 7780-1888
Philadelphia, PA 19182
- --------------------------------------------------------------------------------
Irving Fireman's Relief & Ret Fund 7.60%
Attn: Edith Auston
825 W. Irving Blvd.
Irvin, TX 75060
- --------------------------------------------------------------------------------
Wells Fargo Bank 6.80%
Trst Stoel Rives
Tr 008125
P.O. Box 9800
Calabasas, CA 91308
- --------------------------------------------------------------------------------
James B. Beam 6.40%
Trst World Publishing Co. Pft Shr Trust
P.O. Box 1511
Wenatchee, WA 98807
- --------------------------------------------------------------------------------
Swanee Hunt and Charles Ansbacher 8.20%
Trst The Swanee Hunt Family Fund
C/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- --------------------------------------------------------------------------------
Swanee Hunt and Charles Ansbacher 6.30%
Trst The Hunt Alternatives FUnd
C/o Elizabeth Alberti
168 Brattle St.
Cambridge, MA 02138
- --------------------------------------------------------------------------------
Samuel Gary and Ronald Williams 7.20%
And David Younggren
Trst Gary Tax Advantaged PRO+ PSP
370 17th St. Suite 5300
Denver, CO 80202
- --------------------------------------------------------------------------------
BOSTON PARTNERS National Financial Services Corp. 17.60%
LARGE CAP FUND For the Exclusive Bene of Our
INVESTOR SHARES Customers
Attn: Mutual Funds 5th Floor
200 Liberty St I World Financial
Center
New York, NY 10281
- --------------------------------------------------------------------------------
-37-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 74.50%
Special Custody Account for the
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
BOSTON PARTNERS Donaldson Lufkin & Jenrette 11.50%
MID CAP VALUE FUND Securities Corporation
INST. SHARES Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------
North American Trst. Co. 5.80%
FBO Cooley Godward
P.O. Box 84419
San Diego, CA 92138
- --------------------------------------------------------------------------------
John Carroll University 6.70%
20700 N. Park Blvd.
University Heights, OH 44118
- --------------------------------------------------------------------------------
MAC & CO. 9.50%
A/C BPHF 3006002
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
- --------------------------------------------------------------------------------
ISTCO 6.80%
P.O. Box 523
Belleville, IL 62222-0523
- --------------------------------------------------------------------------------
Coastal Insurance Enterprises Inc. 8.70%
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- --------------------------------------------------------------------------------
Healthcare Workers Compensation 6.00%
Fund
Attn: Chris Baldwin
P.O. Box 240429
Montgomery, AL 36124
- --------------------------------------------------------------------------------
BOSTON PARTNERS National Financial Svcs Corp. for 12.50%
MID CAP VALUE FUND Exclusive Bene of Our Customers Sal
INV SHARES Vella
200 Liberty St.
New York, NY 10281
- --------------------------------------------------------------------------------
-38-
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER NAME PERCENTAGE OF
FUND NAME AND ADDRESS FUND HELD
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 46.00%
Special Custody Account for Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
George B. Smithy, Jr. 5.20%
38 Greenwood Rd.
Wellesley, MA 02181
- --------------------------------------------------------------------------------
Jupiter & Co. 6.00%
c/o Investors Bank
P.O. Box 9130 FPG 90
Boston, MA 02010
- --------------------------------------------------------------------------------
BOSTON PARTNERS Boston Partners Asset Mgmt LP 35.10%
BOND FUND One Financial Center 43rd Fl.
INSTITUTIONAL SHARES Boston, MA 02111
- --------------------------------------------------------------------------------
Chiles Foundation 16.70%
111 S.W. Fifth Ave.
4010 US Bancorp Tower
Portland, OR 97204
- --------------------------------------------------------------------------------
The Roman Catholic Diocese of 39.10%
Raleigh, NC
General Endowment
715 Nazareth St.
Raleigh, NC 27606
- --------------------------------------------------------------------------------
The Roman Catholic Diocese of 9.00%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- --------------------------------------------------------------------------------
BOSTON PARTNERS Charles Schwab & Co. Inc. 77.00%
BOND FUND INVESTOR Special Custody Account for Benefit of
SHARES Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette 5.10%
Securities Corporation
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
- --------------------------------------------------------------------------------
Stephen W. Hamilton 15.30%
17 Lakeside Ln
N. Barrington, IL 60010
- --------------------------------------------------------------------------------
BOSTON PARTNERS Desmond J. Heathwood 6.80%
MICRO CAP VALUE 41 Chestnut St.
FUND-INSTITUTIONAL Boston, MA 02108
SHARES
- --------------------------------------------------------------------------------
Boston Partners Asset Management LP 67.70%
One Financial Center
43rd Floor
Boston, MA 02111
- --------------------------------------------------------------------------------
Wayne Archambo 6.80%
42 DeLopa Circle
Westwood, MA 02090
- --------------------------------------------------------------------------------
David M. Dabora 6.80%
11 White Plains Ct.
San Anselmo, CA 94960
- --------------------------------------------------------------------------------
BOSTON PARTNERS National Financial Services Corp. 34.90%
MICRO CAP VALUE For the Exclusive Bene of our
FUND-INVESTOR Customers
SHARES Attn. Mutual Funds 5th Floor
200 Liberty St.
1 World Financial Center
New York, NY 10281
- --------------------------------------------------------------------------------
Scott J. Harrington 62.10%
54 Torino Ct.
Danville, CA 94526
- --------------------------------------------------------------------------------
As of the above date, directors and officers as a group owned less than
one percent of the shares of the Company.
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
-39-
<PAGE>
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 Portfolio for the fiscal year ended August 31,
1997 (the "1997 Annual Report") are incorporated by reference into this
Statement of Additional Information. No other parts of the 1997 Annual Report
are incorporated by reference herein. The financial statements included in the
1997 Annual Report have been audited by the Fund's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. Such financial statements have been
incorporated herein in reliance upon such reports given upon their authority as
experts in accounting and auditing. Copies of the 1997 Annual Report may be
obtained at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
-40-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment 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
rated "A-1". 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 on favorable business, financial, and economic conditions for the
obligor to meet its financial 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 such payments will
be made during such grace period. The "D" rating will also 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:
A-1
<PAGE>
"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.
"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 investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
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"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 securities rated
"F1".
"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.
"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 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."
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"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.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having significant
speculative characteristics. "BB" indicates the least degree of speculation and
"C" the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
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<PAGE>
"B" - Debt is more vulnerable to non-payment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is dependent
upon favorable business, financial and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This rating is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower
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<PAGE>
than the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
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<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch 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 investment risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is very 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 investment 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 investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than bonds with 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
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse circumstances and in economic conditions are more likely
to impair this category.
"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.
A-7
<PAGE>
"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. Capacity for meeting
financial commitments is 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 on these securities, 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.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
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<PAGE>
"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, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
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"MIG-4"/"VMIG-4" - This designation denotes adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack of margins
of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
