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Rule 497(c)
File No. 811-5682
Registration No. 33-25137
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
400 Bellevue Parkway
Wilmington, Delaware 19809
(302) 791-9300
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to The Bradford Funds, Inc. (the "Company"), an
open-end, diversified management investment company currently offering shares
in one investment portfolio, The Bradford Money Fund (the "Money Fund" or
"Fund"). This is not a prospectus and should be read only in conjunction with
the Prospectus of the Fund dated April 30, 1997 (the "Prospectus"). A copy of
the Prospectus may be obtained upon request free of charge from the Fund at the
address and telephone number set forth above. This Statement of Additional
Information is dated April 30, 1997.
CONTENTS
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Page
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GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-8
INVESTMENT ADVISORY, ADMINISTRATION, SERVICING
AND DISTRIBUTION ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-12
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-18
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-18
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-24
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-26
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-27
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
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No person has been authorized to give any information or to make any
representations not contained in the Prospectus or this Statement of Additional
Information in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Fund or its distributor. The Prospectus does not
constitute an offering by the Fund or by the distributor in any jurisdiction in
which such offering may not lawfully be made.
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GENERAL
The Bradford Funds, Inc. (the "Company") is an open-end, diversified
management investment company currently offering shares in one investment
portfolio, The Bradford Money Fund (the "Money Fund" or the "Fund").
Accordingly, the "Company" and the "Money Fund" (or the "Fund") are used
interchangeably in this Statement of Additional Information, unless the context
indicates otherwise. The Board of Directors of the Company may determine to
offer shares of additional portfolios in the future. The shares of the Money
Fund are offered by the Prospectus dated April 30, 1997. The Company commenced
operations on February 8, 1989.
INVESTMENT OBJECTIVE AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objective and policies of the Money Fund. A
description of ratings of short-term commercial paper is set forth in the
Appendix hereto.
Additional Information on Money Fund Investments.
(1) U.S. Government Obligations. Examples of types of U.S.
Government obligations in which the Fund may invest 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, Government National Mortgage
Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Maritime Administration,
International Bank for Reconstruction and Development (the "World Bank"), the
Asian-American Development Bank and the Inter-American Development Bank.
(2) Bank Obligations. Investments in bank obligations may include
obligations of foreign banks, domestic branches of foreign banks and foreign
branches of domestic banks. Such investments may entail risks that are
different from those of investments in U.S. banks and domestic branches
thereof, such as unfavorable political and economic conditions, possible
withholding taxes on interest income, seizure or nationalization of foreign
deposits, currency controls, interest limitations, or other governmental
restrictions which might affect the payment of principal or interest on the
securities held in the Fund. Additionally, these institutions may be subject
to less stringent reserve requirements and different accounting, auditing,
reporting and recordkeeping requirements than those applicable to domestic
branches of U.S. banks. For purposes of the Money Fund's investment policies
with respect to bank obligations, the total assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches.
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(3) Commercial Paper. "Section 4(2) paper," as described in the
Prospectus, 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 (the "1933 Act"). The Fund will not purchase Section
4(2) paper which has not been determined to be liquid in excess of 10% of the
total assets of the Money Fund. The Company's Board of Directors has delegated
to Bradford Capital Management, Ltd., the Fund's investment adviser (the
"Adviser"), the day-to-day authority to determine whether a particular issue of
Section 4(2) paper, including Section 4(2) paper that is eligible for resale
under Rule 144A under the 1933 Act ("144A Paper"), should be treated as liquid.
Rule 144A provides a safe-harbor exemption from the registration requirements
of the 1933 Act for resales to "qualified institutional buyers" as defined in
the Rule. With the exception of registered broker-dealers, a qualified
institutional buyer must generally own and invest on a discretionary basis at
least $100 million in securities.
The Adviser may deem Section 4(2) paper liquid if (i) it believes
that, based on the trading markets for such security, such security can be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the security and (ii) it
is rated by at least two Rating Agencies (as defined in the Prospectus), or by
the only Rating Agency that has rated the paper, in the highest short-term
category, or with respect to 144A paper only, is a comparable unrated security.
In making such determination, the Adviser generally considers any and all
factors that it deems relevant, which may include (i) the credit quality of the
issuer; (ii) the frequency of trades and quotes for the security; (iii) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (iv) dealer undertakings to make a market in the
security; and (v) the nature of the security and the nature of market-place
trades. In addition, with respect to Section 4(2) paper which is not 144A
paper, it must not be traded flat or be in default as to principal or interest.
The Adviser may also consider whether there are any significant
differences between the particular issue of Section 4(2) paper and commercial
paper issued pursuant to the exemption contained in Section 3(a)(3) of the 1933
Act.
Treatment of Section 4(2) paper as liquid could have the effect of
decreasing the level of the Fund's liquidity to the extent that buyers,
including qualified institutional buyers, become, for a time, uninterested in
purchasing these securities.
(4) Variable Rate Notes. The Fund may acquire variable rate
demand notes and variable rate notes (collectively, "variable rate notes"),
subject to the Fund's investment objective, policies and restrictions.
Variable amount master demand notes are unsecured demand notes that permit the
indebtedness thereunder to vary and
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provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. A variable rate
note is one whose terms provide for the adjustment of its interest rate on set
dates and which, upon such adjustment, can reasonably be expected to have a
market value that approximates its par value. Such notes are frequently not
rated by credit rating agencies; however, unrated variable rate notes purchased
by the Fund will be determined by the Adviser to be of comparable quality at
the time of purchase to rated instruments eligible for purchase under the
Fund's investment policies. In making such determinations, the Adviser will
consider the earning power, cash flow and other liquidity ratios of the issuers
of such notes (such issuers include financial, merchandising, bank holding and
other companies) and will continuously monitor their financial condition.
Although there may be no active secondary market with respect to a particular
variable rate note purchased by the Fund, the Fund may resell the note at any
time to a third party. The absence of an active secondary market, however,
could make it difficult for the Fund to dispose of a variable rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, as a result or for other reasons, suffer a loss to the extent of the
default. To the extent that the Fund is not entitled to receive the principal
amount of a note within seven days of demand, such a note will be treated as an
illiquid security for purposes of calculation of the 10% limitation on the
Fund's investment in illiquid securities as set forth in the Fund's investment
restrictions. Variable rate notes may be secured by bank letters of credit.
Variable rate notes invested in by the Fund may have maturities of
more than 397 days, as follows:
1. An instrument that is issued or guaranteed by the United
States Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than every 397 days will be deemed by the Fund to
have a maturity equal to the period remaining until the next readjustment of
the interest rate.
2. A variable rate note that is subject to a demand feature will
be deemed by the Fund to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the note either at any time on
no more than thirty days' notice or at specific intervals not exceeding 397
days and upon no more than 30 days' notice.
(5) Repurchase Agreements. The repurchase price under the
repurchase agreements described in the Prospectus generally equals
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the price paid by the Fund plus an amount representing accrued interest
negotiated on the basis of short-term rates existing at the time of purchase
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be
held by the Fund's custodian in the Federal Reserve/Treasury book-entry system
or by another authorized securities depository.
If the Fund were required to foreclose upon securities underlying a
repurchase agreement with remaining maturities of greater than 397 days, these
instruments would have to be taken into account in calculating the Fund's
dollar-weighted average portfolio maturity. The Fund would have to dispose of
the securities as soon as possible if they were to cause such average maturity
to exceed ninety days or were to exceed thirteen months to maturity.
Unrated Securities.
In those instances in which the Fund purchases securities that are
considered "Unrated Securities" within the meaning of Rule 2a-7, the Board has
delegated to the Adviser, subject to quarterly review by the Board, the
responsibility to determine whether such securities are of comparable quality.
Unrated instruments purchased for the Fund may be considered of
comparable quality when, at the time of purchase (i) the security at the time
of issuance had (A) a maturity of greater than one year but currently has a
remaining maturity of less than thirteen months, and (B) does not have a
long-term rating from any Rating Agency that is not within the two highest
rating categories, (ii) the issuer's obligation to pay the principal of and
interest on the instrument is supported by an irrevocable, unconditional letter
or line of credit, commitment to lend or guarantee which has a term coextensive
with that of the underlying instrument and which is of sufficient quality to
ensure that the instrument is comparable to instruments that are rated within
the allowed rating categories, or (iii) the issuer thereof is believed by the
Adviser to have a financial condition comparable to those issuing rated
securities in which the Fund may invest, and the unrated instrument has
comparable priority and security and other relevant characteristics to such
rated securities, provided that with respect to instruments other than
Government securities (as defined in Section 2(a)(16) of the Investment Company
Act of 1940, as amended (the "1940 Act")) not more than 5% of the Fund's assets
may be invested pursuant to subparagraph (iii), and the Adviser will promptly
(and in no event later than the next meeting) report to the Board any unrated
instruments for the Board to consider approval or ratification of comparability
of quality and credit risk determination.
If an instrument has received a rating but is subject to an
irrevocable, unconditional letter or line of credit, commitment to lend or
guarantee that was not considered or in effect when the instrument (or the
issuer) was given its rating, the Adviser may
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evaluate the instrument as if it were unrated, provided that the letter or line
of credit, commitment or guarantee has a term coextensive with that of the
instrument involved.
When-Issued Securities.
"When-issued" and delayed delivery securities include securities
purchased for delivery beyond the normal settlement date at a stated price and
yield. While the Money Fund holds such securities, the Fund will maintain in a
segregated account cash, U.S. Government securities or other liquid, high grade
debt securities of an amount at least equal to the purchase price of the
securities to be purchased. Normally, the custodian for the Fund will set
aside portfolio securities to satisfy a purchase commitment. Because
securities purchased on a when issued basis may fluctuate in value prior to
delivery based upon changes in the general level of interest rates, the Fund
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 Fund's commitment. Because the Fund's liquidity and ability to manage its
portfolio might be affected when it sets aside cash or portfolio securities to
cover such purchase commitments, the Fund expects that commitments to purchase
"when-issued" securities will not exceed 25% of the value of its total assets
absent unusual market conditions. When the Fund engages in when-issued
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Investment Restrictions.
The Money Fund may not:
(1) issue senior securities (as defined in the 1940 Act) or borrow
money, except from banks for temporary purposes and for reverse repurchase
agreements, and then in an aggregate amount not in excess of 10% of the value
of the Fund's assets; or mortgage, pledge or hypothecate any of its assets
except in connection with such borrowings and in amounts not in excess of 10%
of the value of the Fund's assets; or purchase portfolio securities while
borrowings in excess of 5% of the value of the Fund's assets are outstanding.
(2) purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements relating thereto) if immediately
after such purchase more than 5% of the Fund's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
securities of any class (taking all debt issues of an issuer as a single class)
or more than 10% of the outstanding voting securities of such issuer would be
owned by the
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Fund, except that up to 25% of the value of the Fund's total assets may be
invested without regard to such 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 Fund may
be deemed an underwriter under Federal securities laws;
(5) make short sales of securities or maintain a short position or
write, purchase or sell put or call options or straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that the Fund 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 or
commodity futures contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that the Fund 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;
(11) make investments for the purpose of exercising control or
management;
(12) invest 25% or more of its total assets in the securities of
issuers in any particular industry (other than securities issued or guaranteed
by the U.S. Government or its agencies and instrumentalities, or repurchase
agreements relating thereto, or obligations of domestic branches of U.S. banks
and those U.S. branches of foreign banks that are subject to the same
regulation as U.S. banks); or
(13) invest more than 5% of its total assets in securities of
issuers (including their predecessors) with less than three years of continuous
operations.
If a percentage restriction is satisfied at the time of an investment,
borrowing or other designated action, a later increase
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or decrease in percentage resulting from changes in values or assets will not
constitute a violation of such restriction. However, if due to market
fluctuations or other reasons the assets of the Fund fall below 300% of its
borrowings, the Fund will, in accordance with the 1940 Act, reduce the
borrowings of the Fund so that such borrowings have 300% asset coverage.
The foregoing investment limitations cannot be changed without the
affirmative vote of a majority of the outstanding shares of the Fund, as
defined in "DESCRIPTION OF SHARES."
Notwithstanding investment restriction no. 2 above and for purposes of
maintaining a stable net asset value pursuant to Rule 2a-7 under the 1940 Act
(see "VALUATION OF SHARES" below), the Fund will, with respect to 100% of its
total assets, limit its investments in the securities of any one issuer in the
manner provided by such Rule, which limitations are referred to under
"INVESTMENT OBJECTIVE AND POLICIES -- General" in the Prospectus.
With respect to limitation (12) above concerning industry
concentration, neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for purposes of this
policy. The Fund will consider wholly owned finance subsidiaries to be in the
industries of their parent companies if their activities are primarily related
to financing the activities of such parent companies, and will categorize
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 a majority of the outstanding shares of
the Fund, but any such change may require the approval of the SEC and would be
disclosed in the Prospectus or in the Statement of Additional Information.
In order to permit the sale of its shares in certain states, the Fund
may make commitments more restrictive than the investment limitations described
above. Should the Fund determine that any such commitment is no longer in its
best interest, it will revoke the commitment and terminate sales of its shares
in the state involved.
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, their business
addresses, ages and principal occupations during the past five years are:
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Position(s)
Name, Address Held With Principal Occupation(s)
and Age Company During Past Five Years
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Allan L. Erb* President and Partner in charge of Financial Products
330 Commerce Street Director Department since 1986; General Partner/Voting
Nashville, TN 37201 Member since 1990.**
Age: 50
Douglas C. Altenbern Director Private investor since October 1990 and
1025 Chancery Lane Chairman of Pay Systems of America, Inc.
Nashville, TN 37215 (payroll processing) since June, 1993.
Age: 60
William Carter* Director Limited Partner/Equity Member.**
3605 Glenwood Avenue
Suite 100
Raleigh, NC 27612
Age: 50
Richard W. Hanselman Director Private investor since 1986.
3017 Poston Avenue
Nashville, TN 37203
Age: 69
Edward J. Roach Director Certified Public Accountant and Vice President
Suite 100 and Treasurer of Temporary Investment Fund,
400 Bellevue Parkway Inc., Trust for Federal Securities, Municipal
Wilmington, DE 19809 Fund for Temporary Investment, Independence
Age: 72 Square Income Securities, Inc. and Municipal Fund
for California Investors, Inc.; Treasurer
of Chestnut Street Exchange Fund; and President
and Treasurer of The RBB Fund, Inc. and
Municipal Fund for New York Investors, Inc.
(each a management investment company).
Michael R. Shea* Vice President and Director Director of Taxable Fixed Income Department
330 Commerce Street since 1974; Voting Member/General Partner since
Nashville, TN 37201 1981.**
Age: 54
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William T. Spitz Director Treasurer, Vanderbilt
102 Alumni Hall University, since November 1985.
Vanderbilt
University
Nashville, TN 37240
Age: 46
R. Patrick Shepherd Vice President General Counsel and Director of Legal and
330 Commerce St. Compliance Departments since 1983; Voting
Nashville, TN 37201 Member/General Partner since 1987.**
Age: 41
Judy K. Abroms Vice President Equity Member/Limited Partner since 1994; from
330 Commerce St. 1990 to 1994, Investment Limited Partner.**
Nashville, TN 37201
Age: 53
Randall R. Harness Secretary and Chief Financial Partner
330 Commerce St. Treasurer since 1976; Voting Member/General Partner since
Nashville, TN 37201 1981.**
Age: 54
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* "Interested" director of the Fund as that term is defined in the 1940
Act.
** Positions are with J. C. Bradford & Co. LLC.
Messrs. Erb, Carter, Shea, Harness and Shepherd and Ms. Abroms hold
positions with J. C. Bradford & Co. LLC ("Bradford") as described above and,
except for Mr. Carter, are also officers of the Adviser, serving in comparable
positions to those they hold with the Company. The only other officer of the
Adviser is Robert P. DeBastiani. Mr. DeBastiani has been an Equity
Member/Limited Partner of Bradford since July 1990 and has served as
Institutional Trader for Taxable Fixed Income Securities of Bradford since
April 1987. Prior to that he served as a fixed income trader with First
American National Bank, Nashville, Tennessee (August 1986 to April 1987); First
Eastern Bank, Wilkes-Barre, Pennsylvania (April 1984 to August 1986); and
Lincoln First Bank, Rochester, New York (July 1983 to April 1984).
The Fund pays directors who are not "affiliated persons" of the
Adviser, as that term is defined in the 1940 Act, a fee of $2,000 annually plus
$1,875 per meeting attended. Directors who are not affiliated persons of the
Adviser are also reimbursed for any expenses incurred in attending meetings of
the Board of Directors or any committee thereof.
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The following table sets forth information regarding all compensation
paid by the Fund to its directors, who are not affiliated "persons" of the
Fund, for their services as directors during the fiscal year ended December 31,
1996. The Fund has no pension or retirement plans nor does it pay compensation
to its executive officers.
COMPENSATION TABLE
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Total Compensation
Name and Position Aggregate Compensation From the Fund and
With the Fund From the Fund the Fund Complex*
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Douglas C. Altenbern $9,000 $9,000
Director
Richard W. Hanselman $9,000 $9,000
Director
Edward J. Roach $9,000 $9,000
Director
William T. Spitz $9,000 $9,000
Director
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_______________________
*For purposes of this Table, Fund Complex means one or more mutual
funds, including the Money Fund, which have a common investment adviser or
affiliated investment advisers or which hold themselves out to the public as
being related. The Money Fund is currently the only member of its Fund
Complex.
The Fund currently has no employees, as substantially all of the
services necessary for the operation of the Fund are performed by the Adviser;
PNCBank, N.A. ("PNC"), the Fund's custodian; PFPC, Inc. ("PFPC"), the Fund's
administrator; and Bradford, the Fund's distributor and transfer and dividend
disbursing agent. No officer or employee of the Adviser, PNC, PFPC or Bradford
receives any compensation from the Fund.
Certain of the directors and officers and the organizations with which
they are associated have had in the past, and may in the future have,
transactions with Bradford and its affiliates. The Fund believes that all such
transactions have been and are expected to be in the ordinary course of
business and the terms of such transactions have been and are expected to be
substantially the same as the prevailing terms for comparable transactions of
other customers.
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INVESTMENT ADVISORY, ADMINISTRATION,
SERVICING AND DISTRIBUTION ARRANGEMENTS
General. Bradford Capital Management, Ltd. serves as the investment
adviser for the Fund. The Adviser is a Tennessee limited partnership. J.C.B.
Financial Services, Inc. acts as the general partner to the Adviser (the
"General Partner") and J. C. Bradford & Co. LLC ("Bradford" or the
"Distributor"), the Fund's distributor, is the Adviser's limited partner.
The General Partner is a wholly owned subsidiary of Bradford & Co.,
Incorporated ("Bradford Incorporated"). Bradford Incorporated, through the
General Partner and other subsidiaries, is engaged in various aspects of the
financial services industry. All of the outstanding voting securities of
Bradford Incorporated are owned by various partners of Bradford. Bradford is
an investment firm which conducts a substantial brokerage and investment
banking business and also acts as the distributor of the Fund.
Advisory Agreement. The advisory services provided by the Adviser,
the fees received by it for such services and applicable expense limitations
are described in the Prospectus. The Adviser renders advisory services to the
Fund pursuant to an Investment Advisory Agreement dated January 12, 1989. The
Investment Advisory Agreement is hereinafter referred to as the Advisory
Contract.
As required by various state regulations, the Adviser will reimburse
the Fund if and to the extent that the aggregate operating expenses of the Fund
exceed applicable state limits for the fiscal year, to the extent required by
such state regulations. Currently, the Fund is not subject to any such
limitations.
The Fund bears all of its own expenses not specifically assumed by the
Adviser. These expenses include, but are not limited to, organizational costs,
fees paid to the Adviser and the administrator, fees and expenses of directors
who are not affiliated with the Adviser, taxes, interest, legal fees, custodian
and transfer agency fees, auditing fees, brokerage fees and commissions, fees
and expenses of registering and qualifying the Money Fund and its shares for
distribution under Federal and state securities laws, expenses of preparing,
printing and distributing prospectuses and statements of additional information
annually to existing shareholders, the expense of reports to shareholders,
shareholders' meetings and proxy solicitations, fidelity bond and directors'
and officers' liability insurance premiums, distribution expenses pursuant to
the Rule 12b-1 plan, and other expenses which are not expressly assumed by the
Adviser.
Under the Advisory Contract, the Adviser will not be liable for any
error of judgment, or act or omission, or mistake of law or for any loss
suffered by the Fund in connection with the perfor-
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mance of the Advisory Contract, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
The Adviser has licensed the name "Bradford" to the Fund on a
royalty-free basis and the Adviser has reserved to itself the right to grant
the non-exclusive right to use the name "Bradford" to any other person. At
such time as the Advisory Contract is no longer in effect, the Adviser may
require the Fund to cease using the name "Bradford."
The Advisory Contract provides that the Adviser may render similar
services to others so long as its services under such Contract are not impaired
thereby.
The Advisory Contract was last approved with respect to the Fund on
October 15, 1996, by a vote of the Company's Board of Directors, including a
majority of those directors who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of such parties. The
Advisory Contract was also approved by the Fund's shareholders at their first
meeting held on October 18, 1989. The Advisory Contract will, unless sooner
terminated pursuant to its terms, continue in effect until January 12, 1998,
and thereafter for successive one year periods so long as it is approved
annually (a) by a majority of the directors who are not parties to the Advisory
Contract or "interested persons" of the Company or of the Adviser, as defined
in the 1940 Act, cast in person at a meeting called for the purpose of voting
on such approval, and (b) either by the Board of Directors of the Company or by
a vote of holders of a majority of outstanding shares (as defined in
"DESCRIPTION OF SHARES") of the Fund. The Advisory Contract is terminable by
vote of the Company's Board of Directors or by the holders of a majority of the
outstanding shares of the Fund (as so defined), at any time without penalty, on
60 days' written notice to the Adviser. The Advisory Contract may also be
terminated by the Adviser on 60 days' written notice to the Company. The
Advisory Contract terminates automatically in the event of assignment thereof
as defined in the 1940 Act.
For the fiscal years ended December 31, 1994, 1995 and 1996, the
Adviser's fees under the Advisory Contract were $2,821,994, $3,359,005 and
$4,309,221, respectively. The Adviser may, from time to time, voluntarily
waive all or a portion of its investment advisory fees. For the years ended
December 31, 1995 and 1996, the Adviser waived $2,131 and $79,731,
respectively, which were payable to it under the Advisory Contract. Such fee
waiver causes the yield of the Fund to be higher than it would be in the
absence of such a waiver.
Custodian, Transfer Agency and Administration Agreements. PNC Bank,
N.A. ("PNC"), 17th and Chestnut Streets, Philadelphia,
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<PAGE> 14
Pennsylvania 19103, is custodian of the Fund's assets pursuant to a Custodian
Agreement dated January 13, 1989 (the "Custodian Agreement"). Under the
Custodian Agreement, PNC (a) maintains a separate account or accounts in the
name of the Fund, (b) holds and transfers portfolio securities for the account
of the Fund, (c) makes receipts and disbursements of money on behalf of the
Fund, (d) collects and receives all income and other payments and distributions
on account of the Fund's portfolio securities and (e) makes periodic reports to
the Company's Board of Directors concerning the Fund's operations. PNC is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PNC remains responsible
for the performance of all duties under the Custodian Agreement and holds the
Company harmless from the acts and omissions of any sub-custodian.
Bradford serves as the transfer and dividend disbursing agent for the
Fund's shares pursuant to a Transfer Agency Agreement dated April 26, 1991, as
amended as of February 22, 1993 (the "Transfer Agency Agreement"), under which
Bradford (a) issues and redeems shares of the Fund, (b) pays or arranges for
the payment of dividends and distributions, (c) addresses and mails
communications by the Fund to record owners of shares, including reports to
shareholders and proxy materials for its meetings of shareholders, (d)
maintains shareholder accounts and, if requested, sub-accounts, and (e) makes
periodic reports to the Company's Board of Directors concerning the operations
of the Fund. The Fund pays Bradford a fee at an annual rate of $11.50 for each
active Fund account, in addition to the following fees: check writing fee of
$.25 per check; $7.50 for each stop payment (paid by shareholder); $15.00 per
return of check for nonsufficient funds (paid by shareholder); and $2.00 per
check copy (paid by shareholder). In addition, the Fund reimburses Bradford
for its payment of the following expenses: toll free telephone lines (if
required by the Fund), envelopes, checks, postage, hardware and telephone lines
for remote terminals (if required by the Fund), certificate issuance fees,
microfiche and microfilm, and proxy solicitation expenses (if required by the
Fund).
PFPC, an affiliate of PNC and a wholly owned subsidiary of PNC Bank
Corp., a multi-bank holding company, serves as administrator to the Fund
pursuant to an Administration and Accounting Services Agreement dated January
13, 1989, as amended (the "Administration Agreement"), under which PFPC
provides various administrative and accounting services. These services
include (a) maintenance of the Fund's books and records, (b) preparation of
regulatory filings and shareholder reports, (c) computation of net asset values
and daily dividends, (d) accounting with respect to income and expense items,
cash balances, market value, yield, portfolio turnover and average maturity of
the Fund and its assets, (e) preparation of financial statements and tax
returns, and (f) reconciliation of trades. For its services to the Fund under
the Administration Agreement, PFPC
B-14
<PAGE> 15
receives a fee computed as described in the Prospectus, subject to a minimum
fee of $8,333 per month.
For the fiscal years ended December 31, 1994, 1995 and 1996, the fees
of PFPC as administrator to the Fund were $478,203, $493,829 and $521,057,
respectively.
Distribution Agreement. Pursuant to the terms of the Distribution
Agreement dated January 12, 1989 (the "Distribution Contract"), entered into
between Bradford and the Company on behalf of the Fund, and a Plan of
Distribution (the "Plan"), which was adopted and the continuation of which has
been approved in the manner prescribed by Rule 12b-1 under the 1940 Act,
Bradford uses its best efforts to distribute the shares of the Fund, and
Bradford is reimbursed for certain current distribution expenses as described
in the Prospectus.
The Plan was last approved by the Company's Board of Directors,
including the directors who are not "interested persons" of the Company (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Plan or any agreements relating to the Plan ("Rule
12b-1 directors"), on October 15, 1996. In approving the Plan, the Company's
directors concluded, in the exercise of reasonable business judgment and in
light of their fiduciary duties under state law, and under Sections 36(a) and
(b) of the 1940 Act, that there is a reasonable likelihood that the Plan and
the services provided to the Fund pursuant thereto will benefit the Fund and
its shareholders. The Plan was also approved by the Fund's shareholders on
October 18, 1989.
Among other things, the Plan provides that: (a) Bradford is required
to submit quarterly reports to the directors of the Company (which are reviewed
by the directors) regarding all amounts expended under the Plan and the
purposes for which such expenditures were made; (b) the Plan will continue in
effect only so long as it is approved at least annually by the Company's Board
of Directors, including the Rule 12b-1 directors, and any material amendment
thereto is approved by the Company's Board of Directors, including the Rule
12b-1 directors, acting in person at a meeting called for such purpose; (c) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares under the Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the Fund's outstanding shares (as defined
in "DESCRIPTION OF SHARES") and (d) while the Plan remains in effect, the
selection and nomination of the Company's directors who are not "interested
persons" of the Company (as defined in the 1940 Act) shall be committed to the
discretion of the directors who are not interested persons of the Company.
For the fiscal year ended December 31, 1996, the Fund reimbursed
Bradford for distribution expenses totalling $2,318,922. Bradford's
distribution expenses for the Fund consisted principally
B-15
<PAGE> 16
of the following: allocated expenses of Bradford's money fund operations
department; allocated expenses of Bradford's branch office overhead; allocated
expenses of Bradford's financial services department, including mutual fund
sales; statement processing; allocated expenses of management sales and branch
administration, marketing and training departments; and compensation paid to
account executives. Directors and officers of the Company who are affiliated
with Bradford may have a direct or indirect financial interest in the operation
of the Plan. No director of the Company who is not an "interested person" of
the Company (as defined in the 1940 Act) has any such financial interest.
Bradford may, from time to time, voluntarily waive all or a portion of the fees
payable to it under the Plan. For the year ended December 31, 1996, Bradford
waived $1,373 which were payable to it under the Plan. Such fee waiver will
cause the yield of the Fund to be higher than it would be in the absence of
such a waiver.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers or dealers to effect the transactions
and the negotiation of brokerage commissions, if any. Transactions are
typically effected with dealers acting as principal for their own account. The
Fund did not pay any brokerage commissions during the three most recent fiscal
years.
In determining which brokers to use for the portfolio transactions
effected on an agency basis, the Adviser will attempt to obtain the best net
price and the most favorable execution in light of the overall quality of
brokerage and research services provided. In so selecting brokers, the Adviser
may consider a number of factors, including, but not limited to, the skill of
the firm's securities traders and the firm's financial responsibility and
administrative efficiency.
When consistent with these objectives, brokerage may be placed with
broker-dealers who furnish investment research or services to the Adviser.
Such research or services include advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; and the
availability of securities, or purchasers or sellers of securities; as well as
analyses and reports concerning issues, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. This
allows the Adviser to supplement its own investment research activities and
enables the Adviser to obtain the views and information of individuals and
research staffs of many different securities firms prior to making investment
decisions for the Fund. In the event portfolio transactions are effected with
brokers or dealers who furnish research services to the Adviser, the Adviser
receives a benefit, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Fund from these trans-
B-16
<PAGE> 17
actions. These services may indirectly benefit not just the Fund but also
other accounts which the Adviser may manage.
The Adviser is authorized to cause the Fund to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged if the Adviser
determines that such amount of commission is reasonable in relation to the
overall quality of the brokerage and research services provided by such broker
or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the accounts as to which it
exercises investment discretion. Under the terms of the Advisory Contract, the
Fund may not pay any compensation in the form of brokerage commissions to the
Distributor (1) which would exceed the amount permitted under Section 17(e) of
the 1940 Act and the rules and regulations thereunder or (2) for research
services within the meaning of Section 28(e) of the Securities Exchange Act of
1934. In payment of brokerage commissions to the Distributor acting as agent
in over-the-counter transactions, the Adviser intends to comply with Section
17(e)(2)(C) of the 1940 Act which requires that such commissions not exceed one
percent of the purchase or sale price of the securities involved.
The Fund purchases only securities with remaining maturities of 397
days (13 months) or less and may attempt to maximize yield through portfolio
trading. This may involve selling portfolio instruments and purchasing
different instruments to take advantage of disparities of yield in different
segments of the high-grade money market or among particular instruments within
the same segment of the market. Accordingly, its portfolio turnover rate may
be relatively high. However, because brokerage commissions are not normally
paid with respect to investments made by the Fund, the turnover rate should not
materially adversely affect the Fund's net asset value or net income.
Investment decisions for the Fund and for other investment accounts
that the Adviser may manage in the future, including other portfolios which may
be created by the Company, will be made independently of each other in the
light of differing investment objectives or circumstances. However, the same
investment decision may be made for two or more of such accounts. In such
cases, purchases or sales will be averaged as to price and allocated as to
amount according to a formula deemed equitable to each such account. While in
some cases this practice could have a detrimental effect upon the price or
value of the security as far as the Fund is concerned, in other cases it could
be beneficial to the Fund. The Fund will not purchase securities during the
existence of any underwriting or selling group relating to such security of
which the Adviser or any affiliated person (as defined in the 1940 Act) thereof
is a member except pursuant to procedures adopted by the Company's Board of
Directors pursuant to Rule 10f-3 under the 1940 Act. Among other things, these
procedures, which
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<PAGE> 18
will be reviewed by the Company's directors annually, require that the
commission paid in connection with such a purchase be reasonable and fair, that
the purchase be at not more than the public offering price prior to the end of
the first business day after the date of the public offer, and that the Adviser
not participate in or benefit from the sale to the Fund.
The Fund has from time to time during 1996 held securities of its
regular brokers or dealers, as defined in Rule 10b-1 under the 1940 Act, or
their parent companies, including those of Ford Motor Credit Corp., Goldman
Sachs & Co. and Merrill Lynch & Co., Inc. At December 31, 1996, the Fund held
the following amounts of commercial paper or notes of Ford Motor Credit Corp.,
Goldman Sachs & Co. and Merrill Lynch & Co., Inc.: $53,158,249, $4,941,407 and
$59,103,353, respectively.
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
Fund'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 Fund's net asset value. If payment is made in securities, a
shareholder will incur transaction costs in converting these securities into
cash. The Company has elected, however, to be governed by Rule 18f-1 under the
1940 Act so that the Fund is obligated to redeem its shares solely in cash up
to the lesser of $250,000 or 1% of its net asset value during any 90-day period
for any one shareholder of the Fund.
Under the 1940 Act, the Fund 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 the NYSE is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is
not reasonably practicable, or for such other periods as the SEC may permit.
VALUATION OF SHARES
The method for determining the net asset value per share of the Fund
is summarized in the Prospectus under the heading "DETERMINATION OF NET ASSET
VALUE." The Fund intends to use its best efforts to maintain its net asset
value of $1.00 per share. Net asset value per share, the value of an
individual share in the Fund, is computed by dividing the Fund's net assets by
the number of its outstanding shares. The Fund's "net assets" equal the value
of the Fund's investments and other securities less its liabilities. The
Fund's net asset value per share is computed twice each day, once at 12:00 noon
Eastern time and once as of the close of
B-18
<PAGE> 19
trading (currently 4:00 p.m. Eastern time) on the NYSE on each day, Monday
through Friday, when the NYSE and the Federal Reserve Bank of Philadelphia (the
"FRB") are both open for business.
The Fund calculates the value of its portfolio securities by using the
amortized cost method of valuation in accordance with Rule 2a-7 under the 1940
Act. 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. 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 Fund
would receive if the security were sold prior to maturity. In addition, if a
large number of redemptions take place at a time when interest rates have
increased, the Fund may have to sell portfolio securities prior to maturity and
at a price which might be lower than their value under the amortized cost
method of valuation.
Pursuant to Rule 2a-7, the Board of Directors of the Company has
determined, in good faith, that it is in the best interests of the Fund and its
shareholders to maintain a stable net asset value per share by virtue of the
amortized cost method of valuation. The Fund will continue to use this method
only so long as the Board of Directors believes that it fairly reflects net
asset value per share calculated using market quotations. In accordance with
Rule 2a-7, the Board of Directors of the Company has, as a particular
responsibility within the overall duty of care owed to the Fund's shareholders,
established written procedures reasonably designed, taking into account current
market conditions and the Fund's investment objective, to stabilize the Fund's
net asset value per share at a single value. These procedures include the
periodic determination of any deviation of current net asset value per share,
calculated using available market quotations (or an appropriate substitute
which reflects current market conditions), from the Fund's amortized cost price
per share, the periodic review by the Board of the amount of any such deviation
and the method used to calculate any such deviation, the maintenance of records
of such determinations and the Board's review thereof, the prompt consideration
by the Board if any such deviation exceeds 1/2 of 1%, and the taking of such
remedial action by the Board as it deems appropriate where it believes the
extent of any such deviation may result in material dilution or other unfair
results to investors or existing shareholders. Such remedial action may
include redemptions in kind, selling portfolio instruments prior to realizing
capital gains or losses, shortening the average portfolio maturity,
B-19
<PAGE> 20
withholding dividends or utilizing a net asset value per share as determined by
using available market quotations. The Fund will, in further compliance with
Rule 2a-7, maintain a dollar-weighted average portfolio maturity appropriate
to its objective of maintaining a stable net asset value and not exceeding 90
days; will not purchase any instrument with a remaining maturity of greater
than 397 days (thirteen months); will limit its portfolio investments to those
U.S. dollar-denominated instruments which the Adviser, pursuant to the
procedures established by the Board, determines present minimal credit risks
and which are Eligible Securities (as defined in Rule 2a-7); will generally
limit its investment in the securities of any one issuer to no more than five
percent of the Fund's assets, measured at the time of purchase; will limit its
investment in securities which are Second Tier Securities (as defined in Rule
2a-7) to no more than five percent of the Fund's assets, with investment in the
Second Tier Securities of any one issuer being limited to the greater of one
million dollars or one percent of the Fund's assets; will, in the event that a
portfolio security goes into default or the rating of a portfolio security is
downgraded so that it no longer is an Eligible Security, and in certain other
circumstances, reassess promptly whether the security presents minimal credit
risks, determine whether continuing to hold the security is in the best
interest of the Fund, and record such actions in the Fund's records; will
notify the SEC if it holds defaulted securities which amount to one half of one
percent or more of the Fund's assets; and will record, maintain and preserve a
written copy of the above-described procedures and a written record of the
Board's considerations and actions taken in connection with the discharge of
its above-described responsibilities.
In determining the approximate market value of portfolio investments,
the Fund may use 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 at their face value. Other assets, if any, are valued at fair
value as determined in good faith by the Company's Board of Directors.
PERFORMANCE INFORMATION
The Fund's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for the Fund
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
B-20
<PAGE> 21
change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
The yield for the seven day period ending December 31, 1996, for the
Fund was 4.66%, and the effective yield for the same period was 4.77%.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Fund will fluctuate, they cannot be
compared with yields on savings accounts or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield and
whether there are any special account charges which may reduce the effective
yield.
The yields on certain obligations, including the money market
instruments in which the Fund 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 issued by Moody's
Investors Service and Standard & Poor's Corporation represent their respective
opinions as to the quality of the obligations they undertake to rate. Ratings,
however, are general and are not absolute standards of quality. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices. In addition, subsequent to its purchase by the Fund, an issue
may cease to be rated or may have its rating reduced below the minimum required
for purchase. In such an event, the Adviser will consider whether the Fund
should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders,
the yields of the Fund may be quoted and compared to those of other mutual
funds with similar investment objectives. For example, the yield of the Fund
may be compared to the IBC Financial Data, Inc.'s Money Fund Averages, which
are averages compiled by IBC Financial Data, Inc.'s Money Fund Report of
Holliston, MA 01746, a widely recognized independent publication that monitors
the performance of money market funds, or to the data prepared by
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<PAGE> 22
Lipper Analytical Services, Inc., a widely recognized independent service that
monitors the performance of mutual funds.
TAXES
The Fund has qualified, and intends to remain qualified, as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). As a regulated investment company, the Fund
is generally not subject to U.S. Federal income tax on its income and gains
distributed to shareholders, provided the Fund distributes to its shareholders
at least 90% of its net investment income (i.e., net income exclusive of net
long-term capital gains) each year.
To so qualify, the Fund must, among other things, (i) derive in each
taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock or securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies; (ii) derive less than 30% of its gross income from gains (without,
in most cases, deduction for losses) from the sale or other disposition of
stock, securities, options, futures, forward contracts or foreign currencies
held for less than three months; and (iii) diversify its investments so that,
at the end of each quarter of its taxable year, (a) at least 50% of the value
of its assets is represented by cash, cash items, U.S. Government securities,
and other securities limited, in respect of any one issuer, to a value not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer and (b) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
the U.S. Government). In addition, to utilize the tax provisions specially
applicable to regulated investment companies, the Fund must distribute to its
shareholders at least 90% of its investment company taxable income for the year
and 90% of its interest income which is excludable from income under Section
103(a) of the Code. In general, the Fund's investment company taxable income
will be its taxable income subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year.
As described in the Prospectus under "Taxes," shareholders (other than
tax-exempt shareholders) are subject to federal income tax on distributions of
income and capital gains, regardless of whether they reinvest such
distributions in shares of the Fund. Distributions of net investment income
are taxable to shareholders as ordinary income. The Fund does not intend to
make distributions that will be eligible for the corporate dividends received
deduction. Distributions of net capital gains (the excess of net long-capital
gains over net short-term capital losses) are taxable to shareholders as
long-term capital gains regardless of the length of
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<PAGE> 23
time shares of the Fund have been held. The net capital gains of the Fund are
expected to be minimal. Shareholders will be advised annually as to the
federal tax status, as capital gain or ordinary income, of distributions made
by the Fund during the year.
Any gain or loss realized upon a taxable disposition of Fund shares by
a shareholder who is not a dealer in securities generally will be treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. Any loss realized upon
a taxable disposition of Fund shares may be deferred if other Fund shares are
purchased (under the dividend reinvestment plan or otherwise) within 30 days
before or after the disposition.
The Fund may acquire certain securities at a discount. Current
federal income tax law requires that a holder (such as the Fund) of such a
security include in taxable income a portion of the discount which accrues on
such security during the tax year even if the Fund receives no payment in cash
on the security during the year. As a regulated investment company, the Fund
must pay out 90% of its net investment income each year, will be subject to
corporate-level tax to the extent it does not distribute all its income and
gains, and will be subject to a 4% excise tax if the additional distribution
requirement described below is not met. The foregoing rules would apply with
respect to any accrued discount included in the Fund's income, even though the
Fund may not receive cash corresponding to the accrued discount. Distributions
will be made from the cash assets of the Fund or by liquidating portfolio
securities, if necessary. If a distribution of cash necessitates the
liquidation of portfolio securities, the Adviser will select which securities
to sell. The Fund may realize a gain or loss from such sales, and any gain so
realized would also need to be distributed.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income and gains will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends to
the extent of the Fund's current and accumulated earnings and profits. Such
distributions will be eligible for the dividends received deduction in the case
of corporate shareholders. However, additional federal income taxes may be
imposed on the Fund if it requalifies in a subsequent taxable year as a
regulated investment company.
A non-deductible 4% excise tax will be imposed on the Fund to the
extent the Fund does not distribute during each calendar year (i) 98% of its
ordinary income for such calendar year, (ii) 98% of its capital gain net income
for the one-year period ending October 31 of such calendar year (or the Fund's
actual taxable year ending December 31, if elected) and (iii) certain other
amounts not distributed in previous years. The Fund intends to distribute its
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<PAGE> 24
income and gains in a manner so as to avoid the imposition of such 4% excise
tax.
For purposes of applying the distribution requirements described
above, and for purposes of determining the taxable income of shareholders each
year, dividends declared by the Fund in October, November or December of a
year, payable to shareholders as of a record date in such a month, and paid
during the following January, will be treated for Federal income tax purposes
as paid by the Fund and received by shareholders as of December 31 of the
calendar year declared.
Federal income tax is required to be withheld at the rate of 31% of
all taxable distributions payable to shareholders, including the proceeds of
any redemptions, who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified
in the Code generally are exempt from such backup withholding.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, which are
subject to change by legislative or administrative action. No determination
can be made as to whether future legislation addressing the federal income tax
consequences to the Fund or its shareholders will be enacted.
The tax consequences to a foreign shareholder of an investment in the
Fund may be different from those described herein. Foreign shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
Distributions to shareholders may also be subject to state and local
taxes, depending on each shareholder's particular situation. Investors are
urged to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
DESCRIPTION OF SHARES
The Adviser provided the initial capital for the Fund by purchasing
100,000 shares for $100,000. Such shares were acquired for investment and were
redeemed on February 23, 1994. The organizational expenses of the Fund have
been borne by the Fund and were amortized over a 60-month period and if in the
future additional portfolios are offered by the Company, the organizational
expenses will be allocated among the portfolios in a manner deemed equitable by
the Board of Directors. As of April 17, 1997, to the Fund's knowledge no
person held beneficially 5% or more of the outstanding shares of the Fund, and
the directors and officers of the Company
B-24
<PAGE> 25
as a group owned less than 1% of such outstanding shares. All of the Fund's
outstanding shares were then owned of record by Bradford.
As a general matter, the Fund will not hold annual or other meetings
of shareholders. Under the Company's Articles of Incorporation and By-Laws, an
annual meeting of shareholders is not required to be held in any year in which
the Fund is not required under the 1940 Act to submit for shareholder approval
(i) the election of director(s), (ii) any contract with an investment adviser
or principal underwriter (as such terms are defined in the 1940 Act) or any
renewal or amendment thereof, or (iii) the selection of the Fund's independent
public accountants. Each duly elected director serves until the election and
qualification of his successor, if any, or until such director sooner dies,
resigns, retires or is removed by the shareholders. Under certain
circumstances shareholders have the right to call for a meeting of shareholders
to consider the removal of one or more directors. The Company will assist in
shareholder communication in such matters.
Should the Fund in the future offer shares of one or more other
portfolios, the Articles of Incorporation provide that on any matter submitted
to a vote of the shareholders of the Company, all shares entitled to vote,
irrespective of portfolio, would be voted in the aggregate and not by portfolio
except that (a) as to any matter with respect to which a separate vote of any
portfolio is required by the 1940 Act (such as the Fund's Rule 12b-1 Plan) or
other applicable law, such requirements as to a separate vote by that portfolio
would apply in lieu of the aggregate voting as described above, and (b) as to
any matter which does not affect the interest of all portfolios, only
shareholders of the affected portfolio or portfolios would be entitled to vote
thereon.
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 Company shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares (as
defined below) of each portfolio affected by such 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 such portfolio. However, such
Rule exempts the selection of independent public accountants and the election
of directors from its separate voting requirements.
As used in the Prospectus and in this Statement of Additional
Information, the term "majority of the outstanding shares" of the Company or a
particular portfolio of the Company means the vote of the lesser of (i) 67% or
more of the shares of the Company or such portfolio present at a meeting, if
the holders of more than 50% of
B-25
<PAGE> 26
the outstanding shares of the Company or such portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Company or such portfolio.
For information relating to possible mandatory redemption of shares at
the election of the Fund, see the discussion under "PURCHASE AND REDEMPTION OF
SHARES -- Redemption Procedures" in the Prospectus.
MISCELLANEOUS
Counsel. The law firm of Baker & Hostetler LLP, Washington Square,
Suite 1100, 1050 Connecticut Avenue, N.W., Washington, D.C. 20036-5304, serves
as counsel to the Company and will pass upon the legality of the shares offered
hereby.
Independent Auditors. Deloitte & Touche LLP, Third National Financial
Center, Nashville, Tennessee 37219, serves as the Company's independent
auditors. The financial statements of the Fund appearing in this Statement of
Additional Information have been audited by Deloitte & Touche LLP, as set forth
in their report appearing elsewhere herein, and have been included in reliance
on their report given on their authority as experts in accounting and auditing.
B-26
<PAGE> 27
FINANCIAL STATEMENTS
B-27
<PAGE> 28
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ -------- -------- --------------
<S> <C> <C> <C> <C>
AGENCY OBLIGATIONS............................... 20.3%
Federal Home Loan Bank
5.22% 01/09/97 $ 9,000 $ 8,989,560
5.30% 01/16/97 2,000 1,999,980
6.90% 02/24/97 1,000 1,001,642
5.36% 02/25/97 15,000 14,877,167
5.35% 03/20/97 10,000 9,884,083
Federal Home Loan Mortgage Corporation
7.75% 01/27/97 15,000 15,021,450
5.23% 02/07/97 18,325 18,226,498
5.23% 03/05/97 14,000 13,871,988
5.29% 03/10/97 5,500 5,445,043
5.29% 03/17/97 15,173 15,005,939
5.31% 03/17/97 13,500 13,350,656
5.30% 03/19/97 19,000 18,784,614
5.31% 03/21/97 18,500 18,284,429
5.34% 03/25/97 16,500 16,296,857
Federal National Mortgage Association
7.68% 01/27/97 5,000 5,008,623
5.23% 01/29/97 16,000 15,934,978
5.36% 02/27/97 9,500 9,419,377
5.22% 03/06/97 14,000 13,870,080
5.34% 03/12/97 11,140 11,024,330
5.28% 03/13/97 14,500 14,349,007
5.05% 03/14/97 10,000 9,993,362
--------------
TOTAL AGENCY OBLIGATIONS 250,639,663
--------------
COMMERCIAL PAPER................................. 74.0%
Agriculture...................................... 3.7%
Cargill, Inc. (A-1+, P-1)
5.27% 01/15/97 19,000 18,961,061
5.28% 02/05/97 16,500 16,415,300
5.28% 03/12/97 5,000 4,948,667
Golden Peanuts Co. (A-1+, P-1)
5.31% 01/13/97 5,000 4,991,150
--------------
45,316,178
--------------
Automobiles...................................... 1.4%
Daimler-Benz (A-1, P-1)
5.32% 01/28/97 11,000 10,956,110
5.32% 02/07/97 6,500 6,464,459
--------------
17,420,569
--------------
</TABLE>
See accompanying notes to financial statements.
B-28
<PAGE> 29
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Statement of Net Assets -- (Continued)
December 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ -------- -------- --------------
<S> <C> <C> <C> <C>
Chemicals........................................ 2.8%
Dupont (E.I.) de Nemours & Co. (A-1+, P-1)
5.27% 01/10/97 $ 6,000 $ 5,992,095
5.34% 01/21/97 14,000 13,958,467
5.26% 02/06/97 15,000 14,921,100
--------------
34,871,662
--------------
Communications................................... 2.4%
Knight-Ridder, Inc. (A-1+, P-1)
5.30% 01/07/97 20,000 19,982,333
5.30% 03/20/97 9,800 9,687,463
--------------
29,669,796
--------------
Electronics...................................... 2.6%
Avnet, Inc. (A-1, P-1)
5.33% 01/23/97 10,000 9,967,427
5.42% 02/14/97 10,000 9,933,756
5.48% 02/28/97 7,000 6,938,198
5.34% 03/14/97 5,000 4,946,600
--------------
31,785,981
--------------
Entertainment.................................... 5.1%
Walt Disney Co., Inc. (A-1, P-1)
5.35% 01/22/97 15,000 14,953,187
5.27% 01/30/97 14,000 13,940,566
5.39% 02/04/97 10,000 9,949,094
5.25% 02/28/97 8,259 8,189,143
5.25% 03/27/97 16,000 15,801,667
--------------
62,833,657
--------------
Finance.......................................... 18.9%
Ford Motor Credit Co. (A-1, P-1)
5.31% 01/08/97 16,500 16,482,964
5.31% 01/23/97 11,000 10,964,305
5.31% 02/07/97 5,500 5,469,984
5.29% 02/10/97 8,500 8,450,039
5.27% 04/30/97 12,000 11,790,957
General Electric Capital Corp. (A-1, P-1)
5.39% 01/13/97 11,000 10,980,236
5.30% 01/14/97 10,000 9,980,861
5.32% 01/16/97 6,740 6,725,060
5.30% 01/17/97 10,000 9,976,444
5.32% 01/17/97 4,560 4,549,218
5.30% 01/27/97 2,000 1,992,344
</TABLE>
See accompanying notes to financial statements.
B-29
<PAGE> 30
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Statement of Net Assets -- (Continued)
December 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ -------- -------- --------------
<S> <C> <C> <C> <C>
Finance -- (Continued)
5.31% 02/10/97 $ 6,000 $ 5,964,600
5.30% 02/14/97 1,500 1,490,283
5.31% 03/25/97 11,000 10,865,333
J. C. Penney Funding Corp. (A-1, P-1)
5.31% 01/31/97 14,000 13,938,050
Met Life Funding Corp. (A-1+, P-1)
5.29% 01/09/97 15,000 14,982,366
5.29% 01/24/97 13,000 12,956,064
5.27% 02/10/97 14,000 13,918,022
5.25% 03/14/97 15,000 14,842,500
USAA Capital Corp. (A-1+, P-1)
5.30% 01/02/97 6,000 5,999,117
5.30% 01/29/97 6,000 5,975,267
5.26% 02/24/97 14,000 13,889,330
5.28% 02/26/97 15,000 14,876,800
5.29% 03/31/97 6,500 6,414,993
--------------
233,475,137
--------------
Financial Services............................... 8.3%
Bear Stearns Companies, Inc. (A-1, P-1)
5.30% 02/20/97 14,000 13,896,944
5.30% 03/31/97 3,000 2,960,692
C.S. First Boston, Inc. (A-1, P-1)
5.33% 02/03/97 10,000 9,951,142
Dean Witter, Discover & Co. (A-1, P-1)
5.31% 01/22/97 11,500 11,464,379
Goldman Sachs Group L.P. (A-1+, P-1)
5.34% 03/21/97 5,000 4,941,407
Merrill Lynch & Co., Inc. (A-1+, P-1)
5.34% 01/03/97 9,000 8,997,330
5.33% 01/24/97 1,500 1,494,892
5.34% 02/11/97 12,000 11,927,020
5.45% 02/18/97 11,000 10,920,067
5.32% 03/03/97 24,500 24,279,146
5.33% 03/10/97 1,500 1,484,898
--------------
102,317,917
--------------
</TABLE>
See accompanying notes to financial statements.
B-30
<PAGE> 31
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Statement of Net Assets -- (Continued)
December 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ -------- -------- --------------
<S> <C> <C> <C> <C>
Food............................................. 2.9%
CPC International, Inc. (A-1, P-1)
5.35% 02/19/97 $10,000 $ 9,927,181
5.43% 02/19/97 2,000 1,985,218
5.29% 03/14/97 17,000 16,820,140
5.30% 04/03/97 7,200 7,102,480
--------------
35,835,019
--------------
Household Items.................................. 1.5%
Procter & Gamble Co. (A-1+, P-1)
5.27% 01/10/97 7,000 6,990,777
5.28% 01/23/97 6,000 5,980,640
5.25% 02/03/97 5,550 5,523,291
--------------
18,494,708
--------------
Industrial....................................... 3.9%
RR Donnelley & Sons (A-1, P-1)
5.31% 01/06/97 15,000 14,988,938
5.32% 01/13/97 10,000 9,982,267
5.28% 02/18/97 6,050 6,007,408
Schering-Plough Corp. (A-1+, P-1)
5.25% 03/11/97 4,700 4,652,706
5.27% 03/11/97 3,000 2,969,698
5.25% 06/17/97 10,366 10,113,545
--------------
48,714,562
--------------
Pharmaceutical................................... 2.1%
Eli Lilly & Co. (A-1+, P-1)
5.28% 01/28/97 22,000 21,912,880
Warner Lambert Co. (A-1+, P-1)
5.28% 01/15/97 4,500 4,490,760
--------------
26,403,640
--------------
Publishing....................................... 1.8%
McGraw-Hill, Inc. (A-1, P-1)
5.30% 01/14/97 11,335 11,313,306
5.30% 03/04/97 5,842 5,788,676
5.30% 03/21/97 5,400 5,337,195
--------------
22,439,177
--------------
</TABLE>
See accompanying notes to financial statements.
B-31
<PAGE> 32
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Statement of Net Assets -- (Continued)
December 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ -------- -------- --------------
<S> <C> <C> <C> <C>
Technology....................................... 5.0%
Lucent Technologies (A-1, P-1)
5.26% 02/13/97 $12,000 $ 11,924,607
5.29% 02/21/97 2,000 1,985,012
5.25% 03/11/97 13,500 13,364,156
5.28% 03/26/97 7,000 6,913,760
5.28% 04/25/97 8,000 7,866,240
5.28% 04/28/97 10,000 9,828,400
5.28% 04/29/97 10,000 9,826,933
--------------
61,709,108
--------------
Telecommunications............................... 3.5%
Ameritech Corp. (A-1+, P-1)
5.29% 01/21/97 21,000 20,938,283
5.29% 03/18/97 22,000 21,754,541
--------------
42,692,824
--------------
Utilities-Electric............................... 1.1%
Southern California Edison Co. (A-1, P-1)
5.34% 04/04/97 13,500 13,313,768
--------------
Utilities-Telephone.............................. 7.0%
Bell South Telecommunications (A-1+, P-1)
5.28% 01/22/97 15,000 14,953,800
5.26% 02/12/97 9,000 8,944,770
5.28% 02/12/97 14,500 14,410,680
5.27% 02/27/97 13,000 12,891,526
5.32% 03/13/97 10,000 9,895,078
U.S. West Communications Group (A-1, P-1)
5.30% 01/09/97 10,000 9,988,222
5.30% 01/10/97 14,600 14,580,655
--------------
85,664,731
--------------
TOTAL COMMERCIAL PAPER....... 912,958,434
--------------
U.S. TREASURY OBLIGATIONS........................ 1.4%
U.S. Treasury Notes
6.50% 04/30/97 11,000 11,031,672
6.50% 05/15/97 6,500 6,519,684
--------------
TOTAL U.S. TREASURY OBLIGATIONS 17,551,356
--------------
</TABLE>
See accompanying notes to financial statements.
B-32
<PAGE> 33
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Statement of Net Assets -- (Concluded)
December 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ -------- -------- --------------
<S> <C> <C> <C> <C>
VARIABLE RATE OBLIGATIONS........................ 3.9%
Federal Home Loan Bank Notes
5.78% 01/02/97 $10,000 $ 10,000,000
5.75% 03/31/97 3,500 3,498,436
Federal National Mortgage Association Notes
5.18% 03/14/97 5,000 5,000,000
Student Loan Marketing Association Notes
5.41% 01/07/97 5,000 4,999,124
5.44% 01/07/97 2,225 2,221,183
5.57% 01/07/97 4,000 3,999,007
Bear Stearns (A-1, P-1)
5.66% 01/15/97 10,000 10,000,000
5.72% 01/31/97 8,000 8,000,000
--------------
TOTAL VARIABLE RATE OBLIGATIONS 47,717,750
--------------
TOTAL INVESTMENTS................................ 99.6% 1,228,867,203
(Amortized Cost $1,228,867,203)*
OTHER ASSETS IN EXCESS OF LIABILITIES............ 0.4% 5,454,212
---------- --------------
NET ASSETS....................................... 100.0% $1,234,321,415
========== ==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE
(1,234,321,415 / 1,234,335,754) $1.00
==============
</TABLE>
- ---------------
* Also cost for Federal Income Tax purposes.
See accompanying notes to financial statements.
B-33
<PAGE> 34
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Statement of Operations
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest............................................... $63,355,525
-----------
EXPENSES
Advisory fees.......................................... 4,309,221
Administration fees.................................... 521,057
Distribution fees...................................... 2,318,922
Directors' fees........................................ 56,000
Custodian fees......................................... 134,528
Transfer agent fees.................................... 1,250,560
Legal fees............................................. 40,000
Audit fees............................................. 20,500
SEC registration fees.................................. 59,187
Blue sky registration fees............................. 65,000
Insurance expense...................................... 23,867
Printing and Postage fees.............................. 190,116
Miscellaneous fees..................................... 25,000
-----------
TOTAL EXPENSES.................................... 9,013,958
Waiver of Advisory and Distribution Fees............... (81,104)
-----------
NET EXPENSES...................................... 8,932,854
-----------
NET INVESTMENT INCOME....................................... 54,422,671
NET REALIZED LOSS ON INVESTMENTS............................ (139)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $54,422,532
===========
</TABLE>
See accompanying notes to financial statements.
B-34
<PAGE> 35
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income.................................. $ 54,422,671 $ 45,828,662
Net realized loss on investments....................... (139) (864)
--------------- ---------------
Net increase in net assets resulting from operations... 54,422,532 45,827,798
--------------- ---------------
Dividends to shareholders from:
Net investment income ($.0468 and $.0515 per share,
respectively)........................................ (54,422,671) (45,828,662)
--------------- ---------------
Total dividends to shareholders........................... (54,422,671) (45,828,662)
--------------- ---------------
Capital Stock Transactions:
Proceeds from sale of capital shares................... 5,268,446,578 4,174,590,024
Value of shares issued in reinvestment of dividends.... 51,941,658 43,866,080
Cost of shares repurchased............................. (5,095,436,397) (3,886,262,837)
--------------- ---------------
Increase in net assets derived from capital stock
transactions......................................... 224,951,839 332,193,267
--------------- ---------------
Total increase in assets.................................. 224,951,700 332,192,403
--------------- ---------------
Net Assets:
Beginning of year......................................... 1,009,369,715 677,177,312
--------------- ---------------
End of year............................................... $ 1,234,321,415 $ 1,009,369,715
=============== ===============
</TABLE>
See accompanying notes to financial statements.
B-35
<PAGE> 36
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Financial Highlights
(for a share outstanding through each period)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income........................ .0468 .0515 .0343 .0247 .0308
Net Realized Gain on Investments............. -- -- -- -- .0001
---------- ---------- -------- -------- --------
Total From Investment Operations....... .0468 .0515 .0343 .0247 .0309
---------- ---------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividend to Shareholders from Net Investment
Income..................................... (.0468) (.0515) (.0343) (.0247) (.0308)
Dividend to Shareholders from Net Realized
Gains...................................... -- -- -- -- (.0001)
---------- ---------- -------- -------- --------
Total Distributions.................... (.0468) (.0515) (.0343) (.0247) (.0309)
---------- ---------- -------- -------- --------
Net Asset Value, End of Year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======== ========
TOTAL RETURN................................... 4.78% 5.28% 3.48% 2.50% 3.13%
RATIO/SUPPLEMENT DATA:
Net Assets, End of Year (in thousands)....... $1,234,321 $1,009,370 $677,177 $719,337 $652,622
Ratio of Expenses to Average Daily Net
Assets................................... .77%(a) .80%(a) .80%(a) 81%(a) .85%
Ratio of Net Investment Income to Average
Daily Net Assets......................... 4.68%(a) 5.15%(a) 3.39%(a) 2.47%(a) 3.08%
</TABLE>
- ---------------
(a) During the period a portion of the Advisory and Distribution fees were
voluntarily reduced. If such voluntary fee reductions had not occurred, the
Ratio of Expenses to Average Daily Net Assets would have been .78%, .81%,
.83% and .84%, respectively, and the Ratio of Net Investment Income to
Average Daily Net Assets would have been 4.67%, 5.14%, 3.36% and 2.44%,
respectively.
See accompanying notes to financial statements.
B-36
<PAGE> 37
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Notes to Financial Statements
December 31, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bradford Funds, Inc, (the "Company"), an open-end, diversified
management investment company, was incorporated in Maryland on October 26, 1988.
The Company is authorized to issue 1.5 billion shares of multiple portfolios.
The Company is currently offering shares of one portfolio, The Bradford Money
Fund (the "Fund"). The only transaction occurring in the Fund between the date
of incorporation and the commencement of operations was the sale and issuance of
100,000 shares of capital stock for $100,000 to Bradford Capital Management,
Ltd. ("Bradford Capital Management"), the Fund's investment adviser, on January
10, 1989. The investment objective of the Fund 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 this objective by investing in high
quality, U.S. dollar-denominated instruments, such as short-term U.S. Government
securities, bank certificates of deposit, commercial paper and repurchase
agreements. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic developments in a specific
industry or region.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a constant
proportionate amortization of any discount or premium is recorded until maturity
of the security. The Fund seeks to maintain net asset value per share at $1.00.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on the accrual basis.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income
are declared daily and paid monthly. Net realized capital gains, if any, will be
distributed at least annually.
D) FEDERAL INCOME TAXES -- The Fund intends to qualify for and elect the
tax treatment applicable to regulated investment companies under the Internal
Revenue Code and make the requisite distributions to its shareholders which will
be sufficient to relieve it from Federal income and Federal excise taxes.
Therefore, no provision has been recorded for Federal income or Federal excise
taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be purchased from
financial institutions, such as banks and non-bank dealers, subject to the
seller's agreement to repurchase them at an agreed upon date and price.
Collateral for repurchase agreements may have longer maturities than the maximum
permissible remaining maturity of portfolio investments. The seller will be
required on a daily basis to maintain the value of the securities subject to the
agreement at not less than the repurchase price. If the seller defaults and the
value of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited. The agreements are conditioned upon the collateral
being deposited under the Federal Reserve book-entry system or with the Fund's
custodian or a third party sub-custodian.
B-37
<PAGE> 38
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Notes to Financial Statements -- (Continued)
December 31, 1996
NOTE 2 -- INVESTMENT ADVISORY, ADMINISTRATION, DISTRIBUTION AND TRANSFER AGENCY
AGREEMENTS
The Fund has entered into an investment advisory agreement with Bradford
Capital Management. J.C.B. Financial Services, Inc. acts as the general partner
to the adviser and J.C. Bradford & Co. L.L.C., a Tennessee limited liability
company ("Bradford"), is the adviser's limited partner. The general partner is a
wholly owned subsidiary of Bradford & Co., Incorporated. The Fund has also
entered into an Administration and Accounting Services Agreement with PFPC Inc.
("PFPC"), and distribution and transfer agency agreements with Bradford.
For the advisory services provided and expenses assumed by it, Bradford
Capital Management is entitled to receive from the Fund a fee, computed daily
and payable monthly, at an annual rate of .40% of the first $500 million of the
Fund's daily net assets and .35% of the daily net assets of the Fund in excess
of $500 million. Bradford Capital Management may, in its discretion from time to
time, waive voluntarily all or any portion of its advisory fee or reimburse the
Fund for a portion of the expenses of its operations. Bradford Capital
Management has agreed to waive indefinitely a portion of its advisory fee such
that it is receiving .30% of the Fund's average daily net assets in excess of $1
billion. For the year ended December 31, 1996, such waivers amounted to $79,731.
Advisory fees, before such waiver amounted to $4,309,221 for the year ended
December 31, 1996.
As required by various state regulations, Bradford Capital Management will
reimburse the Fund if and to the extent that the aggregate operating expenses of
the Fund exceed applicable state limits for the first fiscal year. Currently,
the most restrictive of such applicable limits known to the Fund is 2.5% of the
first $30 million of average annual net assets, 2% of the next $70 million of
average annual net assets, and 1.5% of the remaining average annual net assets.
Certain expenses such as brokerage commissions, taxes, interest, and
extraordinary items are excluded from this limitation. No such reimbursements
were required for the year ended December 31, 1996.
For the administration services provided, PFPC is entitled to receive from
the Fund a fee, computed daily and payable monthly, at an annual rate of .10% of
the first $200 million of daily net assets; .075% of the next $200 million of
daily net assets; .05% of the next $200 million of daily net assets; .025% of
the next $100 million of daily net assets; and .01% of the daily net assets in
excess of $700 million. Such fees amounted to $521,057 for the year ended
December 31, 1996.
The Fund has adopted a Plan of Distribution and pursuant thereto has
entered into an agreement under which the distributor, Bradford, is entitled to
receive from the Fund reimbursement of its distribution costs at an annual rate
of up to .20% of daily net assets. Bradford may, in its discretion from time to
time, waive voluntarily all or any portion of its distribution fees. For the
year ended December 31, 1996, Bradford agreed voluntarily to reduce the amount
of its Rule 12b-1 fees to the extent necessary to cause the Fund's total
expenses not to exceed .80% of average net assets. Waivers during the year
amounted to $1,373. Distribution fees, before such waiver amounted to $2,318,922
for the year ended December 31, 1996.
For the transfer agency services provided, Bradford is entitled to receive
a fee, computed and paid monthly, at an annual rate of $11.50 per active
account.
B-38
<PAGE> 39
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
Notes to Financial Statements -- (Concluded)
December 31, 1996
NOTE 3 -- CAPITAL STOCK
Transactions in capital stock of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
Shares sold................................................. 5,268,446,578 4,174,590,024
Shares issued in connection with reinvestment of dividends
from net investment income................................ 51,941,658 43,866,080
Shares redeemed............................................. (5,095,436,397) (3,886,262,837)
--------------- ---------------
Net increase................................................ 224,951,839 332,193,267
=============== ===============
</TABLE>
NOTE 4 -- NET ASSETS
Net assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
Capital stock, at par....................................... $ 1,234,336 $ 1,009,384
Paid-in capital in excess of par............................ 1,233,101,418 1,008,374,531
Net accumulated realized capital loss....................... (14,339) (14,200)
--------------- ---------------
$ 1,234,321,415 $ 1,009,369,715
=============== ===============
</TABLE>
B-39
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
The Bradford Funds, Inc.
The Bradford Money Fund
We have audited the accompanying statement of net assets of The Bradford
Funds, Inc., The Bradford Money Fund as of December 31, 1996 and the related
statements of operations for the year then ended and of changes in net assets
for each of the two years in the period ended and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Bradford Funds,
Inc., The Bradford Money Fund as of December 31, 1996, the results of its
operations, changes in its net assets and the financial highlights for the
respective stated years in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
January 17, 1997
B-40
<PAGE> 41
APPENDIX
COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation. Commercial paper ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues assigned the A rating are regarded
as having the greatest capacity for timely payment. Issues in this category
are further refined with designation 1, 2, and 3 to indicate the relative
degree of safety. The "A-1" designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus sign
designation.
Moody's Investors Service, Inc. Moody's commercial paper
ratings are opinions of the ability of the issuers to repay punctually
promissory obligations not having an original maturity in excess of nine
months. Moody's makes no representation that such obligations are exempt from
registration under the Securities Act of 1933, nor does it represent that any
specific note is a valid obligation of a rated issuer or issued in conformity
with any applicable law. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Prime-1 Superior capacity for repayment of short-term promissory
obligations.
Prime-2 Strong capacity for repayment of short-term promissory
obligations.
Prime-3 Acceptable capacity for repayment of short-term promissory
obligations.
Duff and Phelps, Inc. Duff & Phelps' commercial paper ratings
are consistent with the short-term rating criteria utilized by money market
participants. The ratings apply to obligations with maturities (when issued)
of under one year.
Duff & Phelps refines the traditional "1" category. As a
consequence, Duff & Phelps has incorporated gradations of "1+" (one plus) and
"1-" (one minus), to, respectively, indicate the "highest" certainty of timely
payment or simply "high" certainty of timely payment. The Duff 2 category has
not been similarly refined but could be at some later date.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors
are minor.
A-1
<PAGE> 42
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may
enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors qualify issue as
investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
All Duff & Phelps' short-term ratings (Duff 1, Duff 2 and Duff 3) are
considered investment grade. No ratings are issued for companies whose
commercial paper is not deemed to be of investment grade.
Fitch Investor Service, Inc. Fitch Investor Service, Inc. shortterm ratings,
as described by the company, are:
Fitch-1: (Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
Fitch-2: (Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest
issues.
Fitch-3: (Good Grade) Commercial paper carrying this rating has a satisfactory
degree of assurance for timely payment but the margin of safety is
not as great as the two higher categories.
NOTE: Plus (+). This sign is used after a rating symbol in the first three
rating categories to designate the relative position of an issuer
within the rating category.
IBCA Limited and IBCA, Inc. (with respect to debt issued by banks, bank
holding companies, United Kingdom building societies, broker-dealers and
broker-dealers' parent companies, and banksupported debt). IBCA Short Term
Ratings are as follows:
A1+ Obligations supported by the highest capacity for timely repayment.
A1 Obligations supported by a very strong capacity for timely repayment.
A2 Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
A-2
<PAGE> 43
B1 Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher
categories.
B2 Obligations for which the capacity for timely repayment is susceptible
to adverse changes in business, economic or financial conditions.
C1 Obligations for which there is an adequate capacity to ensure timely
repayment.
D1 Obligations which have a high risk of default or which are currently
in default.
IBCA considers A1+ a gradation of A1.
A-3
