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Rule 497(c)
File No. 33-25137
811-5682
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
600 FIFTH AVENUE
NEW YORK, NEW YORK 10020
(888) 226-5504
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, 1998 (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, 1998.
CONTENTS
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Page
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GENERAL ................................................................ B-2
INVESTMENT OBJECTIVE AND POLICIES ...................................... B-2
DIRECTORS AND OFFICERS ................................................. B-9
INVESTMENT ADVISORY, ADMINISTRATION,
SERVICING AND DISTRIBUTION ARRANGEMENTS ........................... B-12
PORTFOLIO TRANSACTIONS ................................................. B-17
PURCHASE AND REDEMPTION INFORMATION .................................... B-19
VALUATION OF SHARES .................................................... B-19
PERFORMANCE INFORMATION ................................................ B-21
TAXES .................................................................. B-22
DESCRIPTION OF SHARES .................................................. B-25
MISCELLANEOUS .......................................................... B-26
FINANCIAL STATEMENTS ................................................... B-28
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, 1998. 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 and Maritime Administration.
(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 securities 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 762 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 security, the principal amount of which, in accordance
with its terms, must unconditionally be paid in 397 calendar days or less, shall
be deemed to have a maturity equal to the earlier 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.
3. A variable rate security, the principal amount of which is scheduled to
be paid in more than 397 calendar days, 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.
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As used above, a security is "subject to a demand feature" where the Fund
is entitled to receive the approximate amortized cost of the security, plus
accrued interest, either at any time on no more than 30 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 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.
(6) Foreign Investment. Investors should recognize that investing in
foreign securities involves certain special considerations which are not
typically associated with investing in domestic securities. As non-U.S.
companies are not generally subject to uniform accounting, auditing and
financial reporting standards and practices comparable to those applicable to
domestic issuers, there may be less publicly available information about certain
foreign securities than about domestic securities. Securities of some foreign
issuers are generally less liquid and more volatile than securities of
comparable domestic companies. There is generally less government supervision
and regulation of securities markets, brokers and listed issuers than in the
U.S. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect U.S. investments in
those countries.
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
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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 thirteen months but currently has a remaining
maturity of thirteen months or less, and (B) does not have a long-term rating
from any Rating Agency that is not within the three highest rating categories
unless the instrument has received a long-term rating from a Rating Agency in
one of the three highest categories, (ii) the instrument is subject to a
guarantee which (A) has received a rating from a Rating Agency or (B) is issued
by a guarantor that has received a rating with respect to a class of debt
securities that is comparable in priority and security to such guarantee (unless
such guarantee is issued by an affiliate of the issuer of the instrument), (iii)
if the instrument is subject to a demand feature or guarantee, some entity has
undertaken to notify the Fund in the event the demand feature or guarantee is
substituted, and (iv) 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 (iv).
If an instrument has received a rating but is subject to a guarantee that
was not considered or in effect when the instrument (or the issuer) was given
its rating, the Adviser may evaluate the instrument as if it were unrated,
unless the instrument has a rating from a Rating Agency reflecting the existence
of such guarantee.
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
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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 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;
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(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 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
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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.
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
330 Commerce Street Director Products Department since 1986;
Nashville, TN 37201 General Partner/Voting Member
Age: 51 since 1990.**
Douglas C. Altenbern Director Private investor since October
1025 Chancery Lane 1990; Chairman of Pay Systems
Nashville, TN 37215 of America, Inc. (payroll
Age: 61 processing) from 1993 to 1997.
William Carter* Director Limited Partner/Equity Member
3605 Glenwood Avenue and Regional Manager.**
Suite 100
Raleigh, NC 27612
Age: 51
Richard W. Hanselman Director Private investor since 1986.
3017 Poston Avenue
Nashville, TN 37203
Age: 70
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Edward J. Roach Director Certified Public Accountant
400 Bellevue Parkway and Vice President and
Wilmington, DE 19809 Treasurer of Temporary
Age: 73 Investment Fund, Inc., Trust
for Federal Securities,
Municipal Fund for Temporary
Investment (each from 1981
through 1997), Independence
Square Income Securities,
Inc. (since 1981) and
Municipal Fund for California
Investors, Inc. (from 1983
through 1997); Treasurer of
Chestnut Street Ex-change Fund
(since 1981); and President
and Treasurer of The RBB Fund,
Inc. (since 1988) and
Municipal Fund for New York
Investors, Inc. (from 1983
through 1997; be-came
President in 1995) (each a
management investment
company).
Michael R. Shea* Vice President Director of Taxable Fixed
330 Commerce Street and Director Income Department since 1974;
Nashville, TN 37201 Voting Member/General Partner
Age: 55 since 1981.**
William T. Spitz Director Treasurer and Chief Investment
102 Alumni Hall Officer, Vanderbilt
Vanderbilt University University, since November
Nashville, TN 37240 1985.
Age: 47
R. Patrick Shepherd Vice President General Counsel and Director
330 Commerce St. of Legal and Compliance
Nashville, TN 37201 Departments since 1983; Voting
Age: 42 Member/General Partner since
1987.**
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Judy K. Abroms Vice President Equity Member/Limited Partner
330 Commerce St. since 1994; from 1990 to 1994,
Nashville, TN 37201 Investment Limited Partner.**
Age: 54
Randall R. Harness Secretary and Chief Financial Partner since
330 Commerce St. Treasurer 1976; Voting Member/General
Nashville, TN 37201 Partner since 1981.**
Age: 55
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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 $6,000 annually plus $1,000 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.
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, 1997. The
Fund has no pension or retirement plans nor does it pay compensation to its
executive officers.
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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 $9,500 $9,500
Director
Richard W. Hanselman $9,500 $9,500
Director
Edward J. Roach $9,500 $9,500
Director
William T. Spitz $9,500 $9,500
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; Investors
Fiduciary Trust Company ("IFTC"), the Fund's custodian; Reich & Tang Asset
Management L.P. ("R&T"), the Fund's administrator; and Bradford, the Fund's
distributor and transfer and dividend disbursing agent. No officer or employee
of the Adviser, IFTC, R&T 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.
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.
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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.
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 performance 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.
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The Advisory Contract was last approved with respect to the Fund on October
24, 1997, 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, 1999, 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, 1995, 1996 and 1997, the Adviser's
fees under the Advisory Contract were $3,359,005, $4,309,221 and $5,228,609,
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,
1996 and 1997, the Adviser waived $2,131, $79,731 and $211,230 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. Investors
Fiduciary Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri
64105, is custodian of the Fund's assets pursuant to a Custody Agreement dated
August 15, 1997 (the "Custody Agreement"). Under the Custody Agreement, IFTC (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. IFTC is authorized to select one or more banks
or trust companies to serve as sub-custodian on behalf of the Company, provided
that IFTC remains responsible for the performance of all duties under the
Custody Agreement and holds the Company harmless from the acts and omissions of
any sub-custodian.
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<PAGE> 15
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).
R&T, a Delaware limited partnership, serves as administrator to the
Fund pursuant to an Administrative Services Agreement dated August 15, 1997 (the
"Administrative Services Agreement"), under which R&T 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 Administrative
Services Agreement, R&T receives a fee computed as described in the Prospectus.
For the period from August 18, 1997 to December 31, 1997, R&T earned $201,543
for such services.
Prior to August 18, 1997, PFPC, Inc. ("PFPC") served as administrator
and fund accountant for the Fund pursuant to an Administration and Account
Services Agreement dated January 13, 1989, as amended. For the fiscal years
ended December 31, 1995 and 1996, and for the period January 1, 1997 through
August 17, 1997, the fees of PFPC as administrator to the Fund were $493,829,
$521,057 and $338,252, 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
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<PAGE> 16
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 24, 1997. 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, 1997, the Fund reimbursed
Bradford for distribution expenses totalling $2,844,920. Bradford's distribution
expenses for the Fund consisted principally 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
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<PAGE> 17
it under the Plan. Any 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 transactions. 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
B-17
<PAGE> 18
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 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 1997 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., GECC Capital
Markets Group, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., American
Express Credit Corp. and Bear Stearns & Co. At December 31, 1997, the Fund held
the following amounts of commercial paper or notes of Ford Motor Credit
B-18
<PAGE> 19
Co., General Electric Capital Corp., Merrill Lynch & Co., Inc., American Express
Credit Corp. and Bear Stearns Companies, Inc.: $70,003,211, $74,464,952,
$72,796,360, $19,616,125 and $75,389,575, 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 once each day as of the close of trading (currently
4:00 p.m. Eastern time) on the NYSE on each day, Monday through Friday, when the
NYSE and IFTC 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
B-19
<PAGE> 20
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, 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
B-20
<PAGE> 21
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 and the
Adviser's considerations and actions taken in connection with the discharge of
their respective 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 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, 1997, for the
Fund was 4.99%, and the effective yield for the same period was 5.12%.
B-21
<PAGE> 22
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 the Rating
Agencies, such as 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 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.
B-22
<PAGE> 23
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;
and (ii) 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 mid-term or net
long-capital gains over net short-term capital losses) are taxable to
shareholders as mid-term or long-term capital gains, respectively, regardless of
the length of 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
either mid-term or 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. The
holding period for mid-term capital gains is more than one year but not more
than eighteen months; the holding period for long-term capital gains is more
than eighteen months. 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.
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<PAGE> 24
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
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
B-24
<PAGE> 25
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 March 31, 1998, 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 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,
B-25
<PAGE> 26
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 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, Capital Square, Suite
2100, 65 East State Street, Columbus, Ohio 43215, serves as counsel to the
Company and will pass upon the legality of the shares offered hereby.
B-26
<PAGE> 27
Independent Auditors. Deloitte & Touche LLP, SunTrust 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.
Year 2000 Matters. Each of R&T, the Adviser and Bradford have advised
the Fund that it has examined its systems as they relate to the services
provided to and the operation of the Fund and that to the best of its knowledge
it is not aware of any material operational or financial obstacles presented by
the Year 2000 issue. The Year 2000 issue refers to existing computer programs
that use two digits to identify a year in a date field and therefore would read
the year 2000 to be the year 1900. As a result, such computer applications
could fail or create erroneous results by or at the year 2000. There can be no
assurance, however, that the Fund or its service providers will not experience
problems or difficulties as a result of the Year 2000 issue.
B-27
<PAGE> 28
FINANCIAL STATEMENTS
B-28
<PAGE> 29
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ ----------- --------- ------------
<S> <C> <C> <C> <C>
AGENCY OBLIGATIONS..................................... 28.56%
Federal Farm Credit Bank
6.21% 04/21/98 $ 1,000 $ 1,001,499
5.48% 05/01/98 12,000 11,989,527
Federal Home Loan Bank
5.58% 03/04/98 15,000 14,855,721
Federal Home Loan Mortgage Corporation
5.60% 03/06/98 18,000 17,820,800
5.63% 03/10/98 10,000 9,893,656
5.60% 03/13/98 15,000 14,834,333
Federal National Mortgage Association
5.50% 01/05/98 12,000 11,992,667
5.48% 02/05/98 15,000 14,920,083
5.47% 02/06/98 6,000 5,967,180
5.45% 02/09/98 18,500 18,390,773
5.47% 02/09/98 10,000 9,940,742
5.55% 03/02/98 10,000 9,907,500
5.57% 03/03/98 15,000 14,858,429
5.58% 03/05/98 17,500 17,329,113
5.61% 03/06/98 10,000 9,900,178
5.61% 03/09/98 19,500 19,296,404
5.59% 03/10/98 10,500 10,389,132
5.63% 03/10/98 16,500 16,324,654
5.40% 03/12/98 12,500 12,368,750
5.59% 03/12/98 10,000 9,891,305
5.62% 03/13/98 15,000 14,833,742
5.59% 03/26/98 41,000 40,465,223
5.58% 03/30/98 10,500 10,356,780
5.59% 04/13/98 24,000 23,619,880
5.59% 04/22/98 39,000 38,327,802
5.55% 04/24/98 22,000 21,617,118
5.53% 06/04/98 10,000 9,763,439
5.52% 06/08/98 10,000 9,757,733
5.54% 06/09/98 19,000 18,535,102
5.51% 06/19/98 7,500 7,306,002
------------
TOTAL AGENCY OBLIGATIONS 446,455,267
------------
</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, 1997
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ ---------- -------- ------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER....................................... 70.50%
Agriculture............................................ 9.66%
Archer Daniels Midland (A-1+,P-1)
5.55% 01/12/98 $22,000 $ 21,962,692
5.55% 01/29/98 13,000 12,943,883
5.58% 02/12/98 11,000 10,928,390
5.68% 02/25/98 12,938 12,825,727
5.70% 03/06/98 10,000 9,898,667
Cargill, Inc. (A-1+, P-1)
5.51% 03/12/98 14,000 13,850,006
5.57% 03/17/98 14,500 14,331,740
5.61% 03/20/98 15,000 14,817,675
5.61% 03/23/98 5,000 4,936,887
5.65% 04/02/98 20,000 19,714,361
5.54% 04/17/98 7,000 6,885,814
Golden Peanuts Co. (A-1+,P-1)
5.63% 03/19/98 8,000 7,903,664
------------
150,999,506
------------
Automobiles............................................ 4.82%
Daimler-Benz North America (A-1, P-1)
5.55% 01/13/98 12,000 11,977,800
5.70% 01/20/98 9,500 9,471,421
5.53% 02/02/98 10,000 9,950,844
5.53% 02/20/98 8,000 7,938,556
5.76% 02/20/98 5,866 5,819,072
5.55% 02/23/98 15,000 14,877,437
5.64% 02/26/98 5,500 5,451,747
5.53% 02/27/98 10,000 9,912,442
------------
75,399,319
------------
Banks-Multi-National................................... 1.40%
J.P. Morgan & Co., Inc. (A-1+, P-1)
5.57% 01/30/98 22,000 21,901,287
------------
Beverages.............................................. 1.46%
Coca-Cola Co. (A-1+, P-1)
5.57% 02/17/98 10,000 9,927,281
5.57% 02/18/98 13,000 12,903,453
------------
22,830,734
------------
</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, 1997
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Chemicals.............................................. 6.05%
Dupont (E.I.) de Nemours & Co. (A-1+, P-1)
5.68% 03/05/98 $11,729 $11,612,414
5.49% 03/18/98 17,000 16,802,970
5.53% 03/25/98 6,500 6,417,127
5.59% 05/14/98 10,000 9,793,480
5.59% 05/28/98 10,000 9,771,742
5.46% 06/02/98 10,000 9,769,467
Monsanto Co. (A-1, P-1)
5.53% 01/07/98 10,000 9,990,783
5.68% 01/26/98 10,000 9,960,556
5.50% 02/04/98 10,500 10,445,458
-----------
94,563,997
-----------
Computer Software...................................... 1.75%
IBM Credit Corp. (A-1, P-1)
5.54% 01/20/98 5,500 5,483,919
5.53% 02/10/98 5,500 5,466,205
5.55% 02/24/98 6,500 6,445,887
5.51% 03/09/98 10,000 9,897,453
-----------
27,293,464
-----------
Consumer Products...................................... 1.85%
Proctor & Gamble Co. (A-1+, P-1)
5.50% 01/23/98 6,600 6,577,817
5.55% 02/25/98 11,500 11,402,490
5.72% 03/10/98 5,600 5,539,495
5.58% 03/31/98 5,500 5,424,127
-----------
28,943,929
-----------
Entertainment.......................................... 1.83%
Walt Disney Company Inc. (A-1, P-1)
5.50% 03/02/98 10,000 9,908,333
5.61% 03/16/98 10,500 10,378,918
5.55% 03/23/98 8,500 8,393,856
-----------
28,681,107
-----------
</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, 1997
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ --------- ------------ ---------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Finance................................................ 19.25%
American Express Credit Corp. (A-1, P-1)
5.55% 04/30/98 $ 14,500 $ 14,233,985
5.55% 05/20/98 5,500 5,382,140
Ford Motor Credit Co. (A-1, P-1)
6.05% 01/02/98 10,000 9,998,319
5.57% 02/05/98 14,000 13,924,186
5.50% 02/17/98 9,000 8,935,375
5.48% 02/24/98 12,000 11,901,360
5.55% 02/24/98 4,000 3,966,700
5.49% 02/25/98 10,000 9,916,125
5.51% 03/17/98 10,000 9,885,208
5.50% 04/16/98 1,500 1,475,938
General Electric Capital Corp. (A-1+, P-1)
6.08% 01/09/98 19,000 18,974,329
5.54% 01/15/98 1,000 997,846
5.57% 02/06/98 15,000 14,916,450
5.55% 02/12/98 10,500 10,432,013
5.55% 03/11/98 10,000 9,893,625
5.53% 03/16/98 9,500 9,392,011
5.53% 04/03/98 10,000 9,858,678
J.C. Penney Funding Corp. (A-1, P-1)
5.59% 01/05/98 14,500 14,490,994
5.59% 01/27/98 30,000 29,878,883
5.58% 02/18/98 10,000 9,925,600
Met Life Funding Corp. (A-1+, P-1)
5.59% 01/08/98 12,252 12,238,683
5.71% 03/24/98 16,237 16,025,820
Pitney Bowes Credit Corp. (A-1+, P-1)
5.50% 01/06/98 10,000 9,992,361
USAA Capital Corp. (A-1+, P-1)
5.68% 01/22/98 6,500 6,478,463
5.55% 02/03/98 3,000 2,984,737
5.67% 02/04/98 10,000 9,946,450
5.63% 02/13/98 25,000 24,831,882
--------------
300,878,161
--------------
</TABLE>
See accompanying notes to financial statements.
B-32
<PAGE> 33
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ ----------- -------- ------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Financial Services..................................... 9.48%
Bear Stearns Companies, Inc. (A-1, P-1)
5.58% 01/14/98 $10,000 $ 9,979,850
5.62% 02/06/98 14,000 13,921,320
5.55% 02/11/98 13,000 12,917,829
5.69% 03/03/98 14,000 13,865,021
5.56% 03/04/98 5,000 4,952,122
5.69% 03/20/98 20,000 19,753,433
Merrill Lynch & Co., Inc. (A-1+, P-1)
5.62% 01/08/98 10,000 9,989,072
5.57% 01/28/98 3,500 3,485,379
5.54% 02/19/98 16,000 15,879,351
5.53% 02/27/98 8,500 8,425,575
5.62% 02/27/98 10,000 9,911,017
5.75% 03/13/98 10,500 10,380,927
5.51% 03/26/98 5,000 4,935,717
5.66% 05/15/98 10,000 9,789,322
------------
148,185,935
------------
Food................................................... 3.18%
Campbell Soup Co. (A-1+, P-1)
5.46% 02/26/98 25,000 24,787,667
5.50% 03/04/98 4,600 4,556,428
5.62% 04/09/98 10,500 10,339,361
McCormick and Co., Inc. (A-1, P-1)
5.53% 01/12/98 10,000 9,983,103
------------
49,666,559
------------
Food/Retail............................................ 4.78%
Winn Dixie Stores, Inc. (A-1, P-1)
5.58% 01/13/98 15,000 14,972,100
5.58% 01/27/98 10,000 9,959,700
5.68% 02/03/98 30,000 29,843,800
5.67% 02/10/98 8,000 7,949,600
5.70% 02/10/98 12,000 11,924,000
------------
74,649,200
------------
</TABLE>
See accompanying notes to financial statements.
B-33
<PAGE> 34
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
STATEMENT OF NET ASSETS (CONCLUDED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE PAR
OF PORTFOLIO MATURITY (000) VALUE
------------ ----------- -------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Pharmaceutical......................................... 2.28%
Schering-Plough Corporation (A-1+, P-1)
5.65% 02/24/98 $10,000 $ 9,915,250
5.72% 03/19/98 6,000 5,926,593
Warner-Lambert Company (A-1+, P-1)
5.50% 02/23/98 20,000 19,838,056
--------------
35,679,899
--------------
Publishing............................................. 2.71%
McGraw-Hill, Inc. (A-1, P-1)
5.57% 01/30/98 10,830 10,781,406
5.67% 03/18/98 12,000 11,856,360
5.67% 03/19/98 20,000 19,757,450
--------------
42,395,216
--------------
TOTAL COMMERCIAL PAPER 1,102,068,313
--------------
VARIABLE RATE OBLIGATIONS.............................. 1.00%
Federal Home Loan Bank
6.00% 03/29/98 3,500 3,499,485
Federal National Mortgage Association
5.51% 03/14/98 5,000 5,000,000
Student Loan Marketing Association
5.61% 01/06/98 5,000 4,999,596
5.64% 01/06/98 2,225 2,222,661
--------------
TOTAL VARIABLE RATE OBLIGATIONS 15,721,742
--------------
TOTAL INVESTMENTS...................................... 100.06% 1,564,245,322
(Amortized Cost $1,564,245,322)*
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS......... (-0.06%) (957,174)
----- --------------
NET ASSETS............................................. 100.00% $1,563,288,148
====== ==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE
(1,563,288,148 / 1,563,302,506) $ 1.00
==============
</TABLE>
- ---------------------
* Also cost for Federal Income Tax purposes.
See accompanying notes to financial statements.
B-34
<PAGE> 35
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest...................................................................... $ 79,769,295
--------------
EXPENSES
Advisory fees................................................................. 5,228,609
Administration fees........................................................... 539,795
Distribution fees............................................................. 2,844,920
Directors' fees............................................................... 43,601
Custodian fees................................................................ 156,688
Transfer agent fees........................................................... 1,397,967
Legal fees.................................................................... 65,584
Audit fees.................................................................... 19,328
SEC registration fees......................................................... 96,971
Blue sky registration fees.................................................... 66,410
Insurance expense............................................................. 16,992
Printing and postage fees..................................................... 204,747
Miscellaneous fees............................................................ $ 10,238
--------------
TOTAL EXPENSES............................................................ 10,691,850
Waiver of advisory fees....................................................... $ (211,230)
--------------
NET EXPENSES.............................................................. 10,480,620
--------------
NET INVESTMENT INCOME......................................................... 69,288,675
NET REALIZED LOSS ON INVESTMENTS.............................................. (18)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................... $ 69,288,657
==============
</TABLE>
See accompanying notes to financial statements.
B-35
<PAGE> 36
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, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income...................................... $ 69,288,675 54,422,671
Net realized loss on investments........................... (18) $ (139)
----------------- ---------------
Net increase in net assets resulting from operations....... 69,288,657 54,422,532
----------------- ---------------
Dividends to shareholders from:
Net investment income ($.0485 and $.0468 per share,
respectively)........................................ (69,288,675) (54,422,671)
----------------- ---------------
Total dividends to shareholders.............................. (69,288,675) (54,422,671)
----------------- ---------------
Capital stock transactions:
Proceeds from sale of capital shares....................... 6,757,471,254 5,268,446,578
Value of shares issued in reinvestment of dividends........ 68,375,264 51,941,658
Cost of shares repurchased................................. (6,496,879,767) (5,095,436,397)
----------------- ---------------
Increase in net assets derived from capital stock
transactions......................................... 328,966,751 224,951,839
----------------- ---------------
Total increase in assets..................................... 328,966,733 224,951,700
----------------- ---------------
Net Assets:
Beginning of year.......................................... 1,234,321,415 1,009,369,715
----------------- ---------------
End of year................................................ $ 1,563,288,148 $ 1,234,321,415
================= ===============
</TABLE>
See accompanying notes to financial statements.
B-36
<PAGE> 37
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
FINANCIAL HIGHLIGHTS
(for a share outstanding through each year)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<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 ...................... .0485 .0468 .0515 .0343 .0247
Net Realized Gain on Investments ........... -- -- -- -- --
----------- ----------- ---------- --------- ---------
Total From Investment Operations ....... .0485 .0468 .0515 .0343 .0247
----------- ----------- ---------- --------- ---------
LESS DISTRIBUTIONS:
Dividend to Shareholders from Net Investment
Income ................................. (.0485) (.0468) (.0515) (.0343) (.0247)
Dividend to Shareholders from Net Realized
Gains .................................. -- -- -- -- --
----------- ----------- ---------- --------- ---------
Total Distributions .................... (.0485) (.0468) (.0515) (.0343) (.0247)
----------- ----------- ---------- --------- ---------
Net Asset Value, End of Year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== ========== ========= =========
TOTAL RETURN .................................. 4.96% 4.78% 5.28% 3.48% 2.50%
RATIO / SUPPLEMENT DATA:
Net Assets, End of Year (in thousands) ..... $ 1,563,288 $ 1,234,321 $1,009,370 $ 677,177 $719,337
Ratio of Expenses to Average Daily Net
Assets ........................... .74%(a) .77%(a) .80%(a) .80%(a) .81%(a)
Ratio of Net Investment Income to Average
Daily Net Assets ................. 4.87%(a) 4.68%(a) 5.15%(a) 3.39%(a) 2.47%(a)
</TABLE>
(a) During the year a portion of the Advisory and/or 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 .75%, .78%,
.81%, .83%, and .84% respectively, and the Ratio of Net Investment Income to
Average Daily Net Assets would have been 4.85%, 4.67%, 5.14%, 3.36%, and
2.44% respectively.
See accompanying notes to financial statements.
B-37
<PAGE> 38
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 5.0 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-dominated 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.
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
Reich & Tang Asset Management, L.P. and distribution and transfer agency
agreements with Bradford.
B-38
<PAGE> 39
THE BRADFORED FUNDS, INC.
THE BRADFORD MONEY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2--INVESTMENT ADVISORY, ADMINISTRATION, DISTRIBUTION AND TRANSFER AGENCY
AGREEMENTS (CONTINUED)
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, 1997, such waiver amounted to $211,230.
Advisory fees, before such waiver amounted to $5,228,609 for the year ended
December 31, 1997.
For the administration services provided, Reich & Tang Asset
Management, L.P. 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; .07% of the next $200 million of daily net assets; .045% 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 $700 million. Such fees
amounted to $201,543 for the period from August 18, 1997 to December 31, 1997.
For the period January 1, 1997 through August 17, 1997, PFPC Inc. provided
administration services to the Fund and for such services received fees in the
amount of $338,252.
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. Such fees
amounted to $2,844,920 for the year ended December 31, 1997.
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. Such fees amounted to $1,397,967 for the year ended December 31, 1997.
B-39
<PAGE> 40
THE BRADFORD FUNDS, INC.
THE BRADFORD MONEY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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, 1997 DECEMBER 31, 1996
------------------ ------------------
<S> <C> <C>
Shares sold..................................................... 6,757,471,254 5,268,446,578
Shares issued in connection with reinvestment of dividends
from net investment income................................... 68,375,264 51,941,658
Shares redeemed................................................. (6,496,879,767) (5,095,436,397)
------------------ ------------------
Net increase.................................................... 328,966,751 224,951,839
================== ==================
</TABLE>
NOTE 4--NET ASSETS
Net assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Capital stock, at par........................................... $ 1,563,302 $ 1,234,336
Paid-in capital in excess of par................................ 1,561,739,204 1,233,101,418
Net accumulated realized capital loss........................... (14,358) (14,339)
----------------- ----------------
$ 1,563,288,148 $ 1,234,321,415
================= ================
</TABLE>
B-40
<PAGE> 41
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, 1997 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 then 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 securities owned as of
December 31, 1997 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, 1997, 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 16, 1998
B-41
<PAGE> 42
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> 43
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 IBCA Information Services, Inc. Fitch IBCA Information Services, Inc.
short term ratings, as described by the company, are:
F1+: Commercial paper assigned this rating is regarded as having
the strongest capacity for timely payment of financial
commitments; an added "+" denotes any exceptionally strong
credit feature.
F1: Commercial paper assigned this rating is regarded as having a
capacity for timely payment only slightly less than the
highest rating, i.e., F1+.
F2: Commercial paper assigned this rating is regarded as having a
satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as the
two higher ratings.
A-2
